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The creation of the European Union in 1993 was emblematic of regionalism. As a result of the Maastricht Treaty, the EU adopted three separate pillars. These pillars consisted of the European Communities, the Common Foreign and Security Policy (CFSP) and cooperation in the field of Justice and Home Affairs. This was later abandoned when the Treaty of Lisbon came into force in 2009, and the EU obtained a legal personality. By contrast, NATO is an organisation based entirely upon security concerns. The principal justification for NATO is contained within Article Five of the North Atlantic Treaty, in which an attack on one is interpreted as an attack upon all, ensuring collective security. The European Union has also sought to develop its security dimension via a joint foreign and security policy. The emphasis is upon soft power, such as developmental cooperation, humanitarian aid and the EU’s diplomatic presence.

Allied to the three-dimensional character of regionalism is the distinction between old regionalism and new regionalism. Old regionalism is rooted in the experience of interwar nationalism, and as such held a tendency towards protectionism in the economic realm. However, new regionalism entails a more spontaneous process that emerges from within the region itself. In doing so, the process of regionalism adopts towards the dynamics of the region in question. Inevitably, some regions are more conducive towards regional integration than others. New regionalism is a more complex process that may take place simultaneously at a variety of levels.

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The EU formally began life in 1957 as the European Economic Community (EEC) often called the Common Market. The EU is a product of 15 years of political and economic activity aimed at creating a prosperous and cooperative environment for Europe. It is, on the other hand, arguably the weakest of political alliances imaginable, ever on the verge of collapse.

The economics and politics of regionalism

Regionalism in IPE refers to the process by which the groups of nation-states, usually in the same geographic region, agree to cooperate and share responsibility to achieve common goals.

Economic Integration

Economic integration is the process by which a group of nation-states agrees to ignore their national boundaries for at least some economic purposes, creating a larger and more tightly connected system of markets. Nations can commit to several different degrees of economic integration. A free-trade area (FTA) involves a relatively small degree of integration. Nations in the FTA agree to eliminate tariff barriers to trade for goods and services they produce themselves. The North American Free Trade Agreement (NAFTA) is an example of a FTA.

The next level of economic integration is called customs union (customs is another word for tariffs). In a custom union, a group of nations agree both to tariff free trade within their collective boarders and to a common set of external trade barriers.

An economic union is the final stage of economic and political integration. In an economic union, non tariff barriers are eliminated along with tariff barriers, creating an even more fully integrated market. Member nations in an economic union agree to " four freedoms " of movement: of goods, services, people, and capital. These four freedoms represent significant limitations on national sovereignty, but they can also have significant effects on economic activity. The EU, when its current plans are fully implemented, will become an economic union.

Effects of Economic Integration

Economic Integration is appealing because it is a way for nations to achieve greater efficiency in their use of scarce resources and higher rates of economic growth. In the lingo of economics, integration produces static efficiency gains and dynamic efficiency.

Economic Integration promotes greater static efficiency for two main reasons: First, with complete free trade within the area, each member is able to specialize in producing the goods and services in which it is more efficient. Second, the creating of a larger, integrated market promotes efficiency in certain industries in which large scale production or long production runs are possible. These gains from economies of scale make products cheaper and more competitive.

Dynamic efficiency promotes economic growth. The logic is that a larger and more competitive market is likely to be more innovative.

The trade Diversion effect

Regional trade blocks become important but also controversial because of the diversion effect of a free trade area, customs union, or economic union. By dropping internal trade barriers, members create more trade between and among member nations. However, some of the trade which now is created among member nations is in fact diverted from other nations outside the member nations. For example, when Mexico joined NAFTA, its exports to the US increased (trade creation), but exports from some other developing countries to the US fell (trade diversion). Trade diversion is a 2 fold problem. 1. Trade blocks can be economically beneficial for the nations that form them, but they create inefficiencies and economic loss for other countries that suffer the trade diversion loss. 2. And because the losers are by definition nonmembers of the trade block, they lack any way to seek compensation for their losses.

Political Regionalism

The fundamental political problem posed by regionalism is the loss of sovereignty that occurs when nations form regional blocks. One aspect of this problem is the so-called democracy deficit of political regionalism. Regionalism weakens the link between voters and political decisions. Regional blocks, such as the EU and NAFTA, have the potential to provide a foundation of political governance to match expanding market forces. Regional groups have a limited number of members, so it is sometimes easier for them to reach agreement than it is much larger global organizations such as the WTO. Regionalism is appealing because it represents a way of controlling domestic special-interest groups. Regionalism can actually be sovereignty-enhancing and that some individual nations may gain political power, especially in relations with other nations, by being members of a powerful alliance.

Europe and the mirror of Regionalism

Marshall Plan provided European nations with nearly USD 12 billion in aid for the reconstruction of infrastructure and industries on the condition that these nations cooperate in their use, The Motivation for the Marshall Plan was both humanitarian and strategic: Suffering masses in Europe needed to be helped both for their own sake and to prevent the spread of procommunist sentiment!

The interaction of European states until WW2 can be summarized in the three phases, each characterized by a specific model of state interaction.

Regionalism is the fourth model, the answer to the political challenge caused by WW2. The main motive of regionalism was political: the promotion of security, peace, and political freedom- in opposition to the totalitarian security structure established by the Soviet Union in Eastern Europe.

Treaty of Rome- The document that established the EEC in 1958. The EEC brought together the markets of Italy, France, Belgium, Luxembourg, Netherlands, and West Germany.

Britain, not to be isolated, organized a weaker alliance of trading nations called the European Free Trade Area (EFTA). The EFTA brought together Denmark, Sweden, Norway, Austria, Switzerland, Portugal, and UK.

The Common Agricultural Policy (CAP) provided a complex pattern of payments to farmers in all EEC countries, although not equally to each. Each state enacted its own plan to stimulate production and to support farm incomes. They agreed on a system of price supports, which guaranteed farmers high prices, and protective barriers against foreign agricultural procedure. A combination of high prices plus trade barriers guaranteed farmers high incomes.

The Bicycle Theory

The bicycle theory of European Regionalism :A bicycle so long as it keeps moving is OK, but once it stops, its stability disappears and it tends to fall over. One way to think of the bicycle theory of European regionalism is that European nations are best able to set aside their differences if they must work together to overcome some common challenge or achieve some goal.

Single European Act (SEA): went beyond improvement of economic freedom in the European Commission. It also strengthened the political integration and prepared in many respects the big step forward that was made in the Treaty of Maastricht.

Treaty of Maastricht decided to establish a monetary union: the euro. Two decisions were made in Maastricht to strengthen the new currency. First, the European Central Bank was to be independent in its monetary policies from other European institutions and from national governments, and it was committed only to the objective of price stability. Second, only those countries were meant to join the "Euro-zone" that were fulfilling the so-called convergence criteria: a low inflation rate, low interest rate, and low state debt. A third decision to strengthen the Euro was taken by the European Council in 1997 by agreeing on the "Stability and Growth Pact" which forces the members of the euro-zone, after joining the Euro, to respect a certain discipline in government spending. Denmark, Great Britain and Sweden elected to remain outside the Euro-zone.

The Tree Pillars of the European Union

Further information.

Development of political institutions

The European Council is the meeting of the heads of state and government of all member states.

The Council of the EU (or the Council of Ministers) is subdivided into nine "formations" of different specialization, in which the respective ministers of national governments gather.

The European Commission acts as the EU's executive cabinet. The membership of the Commission (called the College of Commissioners) includes twenty seven commissioners (one for every member state) and the president of the European Commission.

The European Parliament (EP) has taken over the years many functions of traditional parliaments. It has 732 deputies and it is organized along political party lines and not according to national citizenship.

The European Court of Justice (ECJ) and the Court of First Instance (CFI) are made up of one judge from each member state of the EU and the number of advocates general.

The European Central Bank (ECB) is responsible for monetary policy and price stability in the Euro-zone.

Three challenges for the European Union

The most obvious problem is the expansion of the group from 15 to 27 members.

1. The Political Challenge of the Euro: The euro is economic "superglue"; it binds together the nations of the Euro-zone and gives them good reason to try to work out differences in national interest and opinion as EU expands.

2. The Constitutional Challenge: the problem of drafting a European Constitution ( only the draft is currently 263 pages)

3. Pinocchio's Dilemma: It is not enough to centralize economic and political power. Europe must decide what this power will mean, what values it will champion, and how it will be used both domestically and in global affairs. This is exactly Pinocchio's dilemma (after becoming a real boy from a wooden puppet, he had to decide what he would do!!!), although on a much bigger scale.

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Chapter 11: The EU and the IPE of the Regionalism - auknotes

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The EU formally began life in 1957 as the European Economic Community (EEC) often called the Common Market. The EU is a product of 15 years of political and economic activity aimed at creating a prosperous and cooperative environment for Europe.