AAA Economics of the Single Market
Professor Eline Poelmans
First lecture “0” - 16th February – On Campus
Introduction:
Aims:
Explanation fo what you should be able to do after this course:
Course content:
Course Material:
Explanation of teaching methods:
• Blended learning: In class – Flipped Classroom – Traditional lecture = Combination of
live lectures and online education
CLOSED EXAM.
Table of Contents
First lecture “0” - 16th February – On Campus ................................................................... 1
Chapter 1: 75 years of European Integration: The Main Events and Lessons .................... 13
Period 1945-2008 (= an ever wider and deeper Europe) (optimism) ......................................... 13
Period 2008-2023 (= but is integration good?) (scepticism) ...................................................... 14
What will we discuss in the course ‘Economics of the Single Market’? ..................................... 14
The early post-war period: From friends to enemies (axis powers versus the allies) ................. 17
The Axis Powers .......................................................................................................................................... 17
Who were The Allies? ................................................................................................................................. 18
“Changing of camps” ................................................................................................................................... 18
A Climate for radical change ....................................................................................................................... 19
1.
Blame the Loser = Blame Germany (The Morgenthau plan = no army anymore, no weapon
production, destroy key industries for military strength) ........................................................................... 23
2.
Blame Capitalism (adopt communism) ............................................................................................. 24
3.
Blame Nationalism (Pursue European Integration) ........................................................................... 24
2.
The Emergence of a divided Europe: The Beginning of the Cold War ................................ 25
2.2.
A clear cut between Western and Eastern Europe through the establishment of several
institutions (7 things!) ............................................................................................................ 33
2.2.1. NATO (1949) ................................................................................................................................. 33
BRD (1949): Bundesrepublik Deutschland) = A country in Western Germany = CAPITALISM ................... 35
DDR (1949: Deutsche Demokratische Republic) = COMMUNISM .............................................................. 36
The Iron Curtain (1949) ............................................................................................................................... 36
The Warsaw Pact (1955) (Russian’s version of NATO) ............................................................................... 37
The Berlin Wall (1961 – Built YEARS after the war) .................................................................................... 38
The Brezhnev Doctrine (1968) .................................................................................................................... 40
3 Western Europe (1950 – 1990) ............................................................................................. 43
3.1 The Marshall Plan .................................................................................................................................. 43
3.2 Two Views on European Integration ................................................................................. 44
3.2.1 Federalism .......................................................................................................................................... 44
3.2.2 Intergovernmentalism........................................................................................................................ 45
3.3 From two non-overlapping circles in the 1960s to two concentric circles in the 1970s ........ 47
3.3.1 Two non-overlapping circles in the 1960s ......................................................................................... 47
Two concentric circles in the 1970s ............................................................................................................ 48
3.4 Euro-Pessimism, 1973-1986 .............................................................................................. 49
3.4.1 Political Shocks ................................................................................................................................... 49
3.4.2 Economic Shocks (The Bretton Woods failed) ................................................................................... 50
3.4.3 Some bright spots in this period ........................................................................................................ 51
3.5 The Single Market Program and new member states ......................................................... 52
3.5.1 The Single Market Program (This is WHAT we will discuss!!! = 4 freedoms) .................................... 52
3.5.2 How ‘Joining’ this union as an outsider? How to join the EEC ........................................................... 53
4 Eastern Europe (1950-1990) ??? does not follow same order? .............................................. 54
7 Communism’s failure, the Velvet Revolutions, and USSR’s spectacular collapse .................... 54
7.1 Building an island on it’s own: Using 4 things: ...................................................................................... 54
7.2 Life in the SU (+-1950-1985) .............................................................................................. 58
7.2.1 Stalinism (start from WW2) (until 1953) ............................................................................................ 58
7.2.2 Destalinization under Chroesjtsjov (1953 – 1964) ............................................................................. 59
7.2.3 The ‘Old guys’: Brezjnev, Andropov, and Tsjernenko (1964 – 1985) ................................................. 60
7.3 Perestroika and Glasnost .................................................................................................. 62
7.3.1 A crippled Sovjet Union by the 1980s ................................................................................................ 62
7.3.2. Communism with a human face (Gorbachev) ................................................................................... 63
7.4 The Velvet Revolutions and USSR’s collapse ...................................................................... 67
7.4.1 Moscow became more lenient .......................................................................................................... 67
7.4.2 The Eastern Bloc collapsed like a house of cards ............................................................................... 69
7.4.3 What happened with what was left of the USSR? ............................................................................. 69
8 Case Study: The fall of the Berlin Wall .................................................................................. 71
9 Reuniting Eastern and Western Europe or not? .................................................................... 75
9.1 The Maastricht Treaty (‘Treaty on European Union’ (TEU)) ................................................................. 75
9.2 The Copenhagen Criteria (1993) ........................................................................................ 76
9.3 Preparing for Eastern enlargement: A string of new treaties .............................................. 77
9.4 The enlargement of the European Union since 2004 .......................................................... 78
9.4.1 Central and Eastern Europe ............................................................................................................... 78
9.4.2 Turkey? ............................................................................................................................................... 79
10 The Global and Eurozone Crises and the Institutional Responses ........................................ 80
10.1 The Global Crisis started in 2008 ......................................................................................................... 80
10.2 The Eurozone Crisis started in 2009 ................................................................................. 82
11 The Rise of Euroscepticism (=free movement of people?) ................................................... 83
11.1 The appearance of Euroscepticism ..................................................................................................... 83
11.2 The causes of Euroscepticism ............................................................................................................. 84
12 The Re-emergence of Populism (= free movement of people?) ........................................... 87
12.1 What? .................................................................................................................................................. 87
12.2 Why? ................................................................................................................................................... 87
13 In 2020, the world was confronted with COVID-19 ............................................................. 88
13.1 Direct consequences ....................................................................................................... 88
13.1.1 I.e., in the case of Belgium ............................................................................................................... 88
Chapter 2: Economic integration, Facts, and Budget........................................................ 89
1 Economic Integration in the EU ............................................................................................ 89
1.1
The Treaty of Rome (1958) ........................................................................................................... 89
1.2
The Main elements of the Treaty of Rome ................................................................................... 91
1.3 The omitted elements of the Treaty of Rome (NOT included in the Treaty of Rome) ...................... 101
2
Some important facts ................................................................................................... 103
2.1
2.2
Population and per capita income .............................................................................................. 103
Size of the EU Economies (no need to study numbers, just know it was UNEVEN) ................... 104
3 The Budget........................................................................................................................ 104
3.1 Expenditures ....................................................................................................................................... 104
3.2 Revenue (EU members pay around 1% of its GDP to EU!) .................................................................. 106
The Four Main Own Resources (Of EU Budget) ........................................................................................ 106
Summary ............................................................................................................................. 107
Chapter 3: Market Size and Scale Effects ....................................................................... 108
3.1. Introduction .................................................................................................................. 108
Conclusion: MARKET SIZE DOES MATTER! ............................................................................................... 108
3.2. What happens when countries integrate? ...................................................................... 109
3.3. How can we measure the impact of integration on competition?.................................... 110
3.4. The BE-COMP diagram in a closed economy (to show process of integrating two countries)
............................................................................................................................................ 111
3.5. The BE-COMP diagram in an open economy (= impact of European liberalization)........... 115
3.5.1. How does liberalization change the outcome? ............................................................................... 115
3.5.2. What are the welfare effects on the long term? ............................................................................ 117
3.6. Summary ...................................................................................................................... 120
Chapter 4: 25 Years of the EU Single Market: Impact on Member States ........................ 121
4.1. Introduction .................................................................................................................. 121
4.2. Current state of Single Market integration ..................................................................... 123
4.2.1. The implementation of the four freedoms over time ..................................................................... 124
4.2.2. The performance of member states in implementing EU Single Market legislation ...................... 130
4.2.3. Homogeneity (convergence) of economic performance and policies across member states ........ 132
4.3. Summary indicator of Single Market integration ............................................................ 134
............................................................................................................................................ 134
4.4. Stories of Single Market Integration ............................................................................... 136
4.5. Covid-19 and the EU Single Market?............................................................................... 136
4.6. Summary ...................................................................................................................... 136
Chapter 5: Trade in Goods and Services......................................................................... 137
5.1. Introduction .................................................................................................................. 137
5.2. Patterns of trade ................................................................................................................................ 138
5.2.1 Trade in Goods ................................................................................................................................. 138
.................................................................................................................................................................. 143
5.2.2. Trade in Services ............................................................................................................................. 144
5.2.3. Patterns of trade overall (goods and services)................................................................................ 148
5.3. EU institutions for trade policy....................................................................................... 149
5.3.1. The EU competences on trade ........................................................................................................ 149
5.3.2. The Allocation of responsibilities (= who is responsible for what?)................................................ 152
5.3.3. Anti-Dumping measures ................................................................................................................. 153
5.4. The EU Trade policy ....................................................................................................... 154
5.4.1. Broad goals and means (Renewed Lisbon Strategy: Economic and Social Europe) ...................... 154
5.4.2. The existing arrangements (= content of the EU’s external trade policy) ...................................... 157
5.5. How do tariff and an export subsidy work? .................................................................... 158
5.5.1. Types of trade restrictions .............................................................................................................. 158
5.5.3. Cost-Benefit analysis of an export subsidy...................................................................................... 159
5.6. Why do nations protect their industries through tariffs and other trade measures? ........ 159
5.6.1. Revenue .......................................................................................................................................... 160
5.6.2. The Labour Argument ..................................................................................................................... 160
5.6.3. The Infant Industry argument ......................................................................................................... 160
5.6.4. The National Security Argument ..................................................................................................... 160
5.6.5. The Cultural Protection Argument .................................................................................................. 160
5.6.6. The Retaliation Argument ............................................................................................................... 160
5.7. Regional (preferential) trade agreements)...................................................................... 160
5.7.1. Different types of Regional Trade Agreements ............................................................................... 160
5.7.2. For and Against RTAs? Are RTAs good for the national welfare? (Trade diversion and trade
creation).................................................................................................................................................... 161
5.8. Summary ...................................................................................................................... 166
Chapter 6: The Eurozone in Crisis (= free movement of capital) ...................................... 167
6.1. Introduction .................................................................................................................. 167
6.2. The Global Financial Crisis (2008) ................................................................................... 168
6.2.1. Financial deregulation ..................................................................................................................... 168
6.2.2. The roots of the financial crisis ....................................................................................................... 170
6.2.3. Banks: Meltdown and rescues ........................................................................................................ 176
6.2.4. Avoid a new Great Depression ........................................................................................................ 177
6.3. The Eurozone Crisis – The ‘public debt’ Crisis (2009) ....................................................... 178
6.3.1. The legacy of the financial crisis: A paradox ................................................................................... 178
6.3.2. Greece: Crisis and bailout ............................................................................................................... 178
6.3.3. Contagion inside the Eurozone: Why? ............................................................................................ 179
6.3.4. Not all crisis countries are alike ...................................................................................................... 185
6.3.5. Four policy responses ...................................................................................................................... 186
Quick summary of what happened to the Public Debt Crisis: ................................................................ 193
6.4.1. The doom loop ................................................................................................................................ 197
6.4.2. Stress tests I and II (to check the health of a bank) ....................................................................... 199
6.5. What did Europe learn from both crises? ....................................................................... 200
6.5.1. The need for fiscal discipline ........................................................................................................... 200
6.5.2. The need to deal with the increased public debt ............................................................................ 201
6.5.3. The need to deal with the bank fragility ......................................................................................... 203
6.5.4. The need for a real European system of governance (we still don’t really have this in EU 2023) .. 204
6.5.5. The Euro architecture needs to be improved ................................................................................. 205
6.6. Summary ...................................................................................................................... 206
Chapter 7: Economic integration, Labour markets and Migration .................................. 208
7.1. Introduction: Free movement of ‘workers’ or free movement of ‘people’?...................... 208
7.2. European labour markets and unemployment................................................................ 210
7.2.1. The average employment rate (national level…) ............................................................................ 211
7.2.2. the long-term unemployment levels .............................................................................................. 211
7.2.3. The idea of ‘social dumping’ ........................................................................................................... 212
7.3. Migration ...................................................................................................................... 213
7.3.1. What is a migrant? .......................................................................................................................... 213
7.3.2. Some facts ....................................................................................................................................... 214
Which were the main destination countries? ........................................................................................... 216
Did citizens from some Eastern and Central nations went to specific Western EU countries? ............... 216
7.3.3. The economics of labour market integration .................................................................................. 219
7.3.4. Barriers to mobility (About Europeans?) (Do not learn this by heart! Just read them) .................. 221
7.4. The refugee crisis .......................................................................................................... 221
7.4.1. Definitions ....................................................................................................................................... 221
7.4.2. The size of migration worldwide ..................................................................................................... 221
7.4.3. The refugee crisis in Europe ............................................................................................................ 222
7.5. The situation today ....................................................................................................... 233
7.5.1. An update on the EU-Turkey deal ................................................................................................... 234
7.5.2. Covid-19 slowed down the influx of refugees ............................................................................... 235
7.5.3. Putin’s Special Military Operation led to a wave of Ukrainian refugees ......................................... 235
7.5.4. A new peak in arrivals of refugees since end of 2022 / Beginning of 2023 .................................... 236
7.6. The Public debate on migration ..................................................................................... 239
7.7. Summary ...................................................................................................................... 241
Chapter 8: Brexit .......................................................................................................... 243
8.1. Brexit (‘British Exit’): What and why? ............................................................................. 243
8.1.1. What? .............................................................................................................................................. 243
8.1.2. Why a referendum? ........................................................................................................................ 244
8.1.3. Why did so many British citizens wanted to leave? (THEY HAD THEIR OWN COMMON WEALTH and
they were angry) → PLUS 7 Reasons! ...................................................................................................... 245
8.1.4. The direct consequences of the referendum .................................................................................. 251
8.1.5. The choice between a hard Brexit (no-deal Brexit) or a soft Brexit (With Deal Brexit) .................. 252
8.2. The Brexit negotiations and outcome? (only most important things) .............................. 252
8.2.1. The UK Government announced its intention to withdraw on 29 th March 2017 ........................... 252
8.2.2. And then more than two years of bickering started… (non stop discussions for a deal) ................ 252
8.2.3. The final outcome? ......................................................................................................................... 254
8.2.4. Is the EU more important for the UK or vice versa? ....................................................................... 256
8.3. Do residents of other members also want to leave? ....................................................... 257
8.3.1. Was/Is there a demand for a “Belxit” in Belgium? → Answer: NO ................................................ 257
8.3.2. And in the other EU Member States? (Czech Republic, Italy, France are maybe more favouring EU
exit) ........................................................................................................................................................... 257
8.4. Summary ...................................................................................................................... 258
Chapter 9 – Part 1 (01:16:57) : Changing world order (Putin’s War) ............................... 259
9.1. A bipolar world (1945 – 1991) ........................................................................................ 259
9.1.1. During the Cold War (1945 – 1991) ................................................................................................ 259
9.1.2. The end of the Cold War ................................................................................................................. 259
9.2. A unipolar world (1991 – 2008/2009) (US became leader of the world) ........................... 260
9.2.1. The economic model of the US – Capitalism – seemed to work................................................... 260
9.2.2. The US took the lead in the war on terror after 9/11 ................................................................... 261
9.3. A multipolar world with increasing rivalry (2008/9 – 2020) (more than one or two Powers)
............................................................................................................................................ 262
9.3.1. 2008-2011: a number of important events ..................................................................................... 262
9.3.2. Which “Great Powers” have (or have not) played a role since 2008/2009? .................................. 267
9.4. The World Order today: A shifting world? An A polar world? A new Cold War? ............... 278
9.4.1. Two recent events will have an influence on the future world order. (COVID and Putin) ............ 278
9.4.2. How do the different world players look at the world today? ........................................................ 279
9.5. CASE STUDY: Putin’s “Special Military Operation” .......................................................... 284
9.5.1. Why did Putin invade Ukraine? By invading he wanted: ................................................................ 284
5.1.3. That Ukraine would recognise Crimea as part of Russia and that it would ‘liberate the Donbas’ .. 285
9.5.2. Wat are the reasons for these demands? ....................................................................................... 286
9.5.3. Could (should?) we have seen it coming? ....................................................................................... 298
9.5.4. The reaction of the rest of the world? ............................................................................................ 303
9.5.5. How are Ukraine’s “allies” helping Ukraine? 5.6. How did Putin’s strategy already change? ........ 307
9.5.7. A few of the possible wordwide consequences .............................................................................. 310
Chapter 1: 75 years of European Integration: The Main Events and
Lessons
Start: minute 22.
There will be two periods:
• Between 1945 – 2008
• After 2008 - Present
In this exam, you have two periods:
- 1945 to 2008 (=optimism)
- 2008 - Present (=scepticism)
Period 1945-2008 (= an ever wider and deeper Europe) (optimism)
Period 2008-2023 (= but is integration good?) (scepticism)
What will we discuss in the course ‘Economics of the Single Market’?
→ Prevention of again another war between France and Germany (3rd time for Germany
already to start war with France) (1870, 1914, 1939)
European Integration has been driven by political factors:
-Prevent another way between DE and FR - By locking Germany into a European superstructure
-Prevent spread of communism and against SU
The Single Market Program only came 40 years after European Integration
→ the 4 freedoms:
• Free movement of services, persons, and capital…?
o First it was only goods.. later, it also became with services, persons, and
capital
Here, you can see… over time, more and more European Integration was involved.
→ If we establish economic integration → Then this would also lead to political integration
→ Solves Europe’s problems!
It took more than 4 years to get Brexit done!
It is impossible to understand Europe of today without studying the Political landscape
The early post-war period: From friends to enemies (axis powers versus the allies)
1.1.
Which groups had fought against eachother?
The Axis Powers
USA only intervened because of Japanese’s attack on Pearl Harbour.
The ‘Tripartite Pact’ is an agreement between the Axis Powers (Germany, Italy, and Japan)
• They allowed each other to imperialize other countries as long as they do not stand
each other in the way
• THIS pact was also called the “RoBerTo’ pact (Rome – Berlin – Tokyo)
Who were The Allies?
“Changing of camps”
There are countries that changed sides DURING the war:
•
•
•
•
•
Romania
Bulgaria
Finland
Italy
Sovjet Union
A Climate for radical change
In 2nd column, they looked at the GDP after the war. They compared the GDP to historic
data. (Austria was horrible!! 1945 = 1886 in GDP after the war! Despite winning the war…
After the war, food was rationed! In Germany, you received 900 calories per person per
day..
Hunger, riots, and refugee camps → Similar to Turkey now
Royal Question (koningskwestie) → Leopold III was living a “nice life” far away from the war
and he married a nice lady… while people in his home country were sending their sons to
the war to die. → After the war, his son Boudewijn was old enough to become the King.
1.2.
The Prime question after WWII and the guiding ideologies:
Postwar ideologies:
- UK wanted to prevent Germany from Rising
again
- US wanted a permanent end to fascist
regimes of Germany, Italy and Japan
- Stalin wanted to crush Germany and to gain
influence over Europe
Now after the war, Germany was divided into 4 parts! → See the split between west and
east Germany?
After WW22, three different schools of thoughts arised from the Allies.
1. Blame the Loser = Blame Germany (The Morgenthau plan = no army anymore, no
weapon production, destroy key industries for military strength)
These high ‘reparation’ payments from WW1 lead to Hyperinflation → Hitler got power!
→ Allied did not want to make the same mistake for WW2
And Germany has to be a strong country to protect themselves from Communism from SU
2. Blame Capitalism (adopt communism)
Stalin’s view:
3. Blame Nationalism (Pursue European Integration)
The Western Allies’ view: → If you establish economic linkages… then people will no longer
plan to start another war because they will damage their OWN economy!!
2. The Emergence of a divided Europe: The Beginning of the Cold War
The Cold War = the confrontation between the East and the West after the 2nd world war!
Why is it called the COLD war? → Because there was no war in EUROPE
However, there was a war! Look at Vietnam, Korea, and invasion of Cuba
These wars were alla bout Communism vs Capitalism!
But what led to the creation of this Cold War: 2.1. The Speech by an Englishman
(CHURCHILL pissed of Stalin by giving this speech) that led to the use of mass starvation for
political coercion
2.1.1. The Sinews of Peace-Speeches
But why was Churchill allowed to say such things???
But what did Churchill say exactly during the speech? (4 big topics!)
It was Churchill who used the name “Iron Curtain’ in 1946 → Considered to be the start of
the cold war!
IMPORTANT: So, why was Stalin exactly furious? Because Churchill compared the
Communist situation with the Hitler situation before the war!
• Rise of Hitler = Rise of communism?
What were Churchill’s aims? 2 AIMS!
2) Realize that the UK was the superpower before the world war. After the world war, it’s
USA that became the world power! → Churchill realized had to tell US to work together
before it was too late
THIS is the moment where the allies won the war together, but now they are facing each
other
After this speech, Stalin did something! (Stalin and the Western Allies went their own
way)
2.1.2. Stalin’s use of mass starvation for political coercion
Problem? BERLIN is considered Western!! Because Berlin was also divided into parts..
Stalin then did something horrible at the RUSSIAN SIDE of BERLIN!: He blocked everything
to Berlin
Stalin became very mad at the Western allies:
- Churchill’s speech
- The US, UK, and France merged their German parts together
- Introduction of Reichmark in West-Germany
Stalin felt like he was left out despite being part of the winners of the second world war!
Mass startvation for political coercion = common war technique
West Berlin at that moment = 2,5 mio people
So, what could the Western Allies do?
This bridge worked for 10-15 whole months while they expected it to only work for 4 weeks.
Why did we call him the “Uncle Wiggly Wings”?
→ Children asked: So, there are planes every 30 seconds flying in.. how do we know it’s
you? → The pilot said that he would wiggle his wings!
In 2023: Similar to how Turkey tries to collect money after the war → What works well to
collect money and supplies from the whole world? → Display children in bad conditions.
At some point, Stalin’s strategy started to backfire!
2.2. A clear cut between Western and Eastern Europe through the establishment of
several institutions (7 things!)
2.2.1. NATO (1949)
NATO can also be seen as a protection against the communism under the power of Stalin
How did it look like? From 1949 to 2022
Who are now NOT in NATO?
- Ukraine
- Belarus
- Moldova
- Finland
- Sweden
- Ireland
- Austria
- Switserland
- Serbia and Bosnia-Herzegovina
Is it important to know who is in there? NO
It is important to know who is NOT in there!
• Finland (until the invasion of Putin 2023, now they want to join NATO)
• Ukraine
In order to agree that Finland can join, there was recently (2022-2023) one country that
voted against: TURKEY
• But this might change
o If Erdogan will join and win the elections again (which the prof doubts), then
he may thank the West for the help he received to win the elections…
o If he does not get
o …?
• Why is Turkey hesitating?
o NATO has a strong opinion on the invasion
o While Turkey is still good friends with Turkey…
▪ Turkey is split in two…
Why is Putin so mad about this? And why did he maybe start the war?
→ Putin is seeing the expansion of NATO in Western, Central and now Eastern European
before and after the collapse of communism! → The front is now moving towards the
border of Russia!
BRD (1949): Bundesrepublik Deutschland) = A country in Western Germany = CAPITALISM
DDR (1949: Deutsche Demokratische Republic) = COMMUNISM
The Iron Curtain (1949)
How did the Iron curtain look like?
The Warsaw Pact (1955) (Russian’s version of NATO)
Members:
• Russia
• +7 Satellite states:
o Albania
o Bulgaria
o Romania
o Hungary
o Czechoslovakia
o Poland
o East Germany
▪ YUGOSLAVIA WAS NOT A MEMBER and ALBANIA withdrew in 1968
The Berlin Wall (1961 – Built YEARS after the war)
At some point, people wanted to leave East-Berlin for West-Berlin → They just walked
towards the Western side → BRAIN DRAIN of high skilled people!!
Stalin is DEAD at this point… So, the Soviet Union build a war to prevent BRAIN DRAIN in
1961 (43 km long)
PUTIN USED EXACTLY THE SAME REASONING FOR INVADING UKRAINE!!! AGAINST THE
FASCISTS!! (Special military operation)
The Brezhnev Doctrine (1968)
Two big protests in Hungary (1956) and Czechoslovakia (1968) against the fact that Kremlin
had all the power.
“As soon there is someone who raises their voice against communism, then it’s a threat to
all communism in the region!” → Justifies sending an army to a communistic country to fix
the problem.
Moscow/Kremlin holds a lot of power this way! This led to the Cold War that lasted more
than 40 years
look at this movie! www.youtube.com/watch?v=nwjFSQCrShM
Break from 2:00:00 till 02:18:10 (first lecture)
The Cold War is back!
“Mutual Assured Destruction” (MAD) → If you do something, you are dead as well.
3 Western Europe (1950 – 1990)
3.1 The Marshall Plan
France + Germany can work together to compete again the bigger countries UK and USA
First, there was a lot of protectionism… but after trade, they changed to TRADE
LIBERALIZATION
3.2 Two Views on European Integration
3.2.1 Federalism
Two vies on European Integration:
- Federalism (= More Europe with supranational institutions)
- Intergovernmentalism (= Less Europe)
3.2.2 Intergovernmentalism
•
•
•
•
•
UK
Denmark
Norway
Iceland
Neutral countries:
o Ireland
o Sweden
o Switzerland
OEEC would help financing European countries as long as they work together
→ MORE TRADE = BETTER
Summary:
• After the world war, Europe was destroyed. All European countries agreed that had
to be done. First you had the Marshall aid (financial support from the US)
• However, for the future, Europe knew that something had to be done (to prevent
wars and enhance prosperity)
• Europe decided to work more together! But to which extend?
o You have two views:
▪ Federalism (more Europe)
• Countries that were affected the most
Federalism: EEC
Intergovernmentalism: EFTA •
EEC (European Economic Community)
▪ Intergovernmentalism (less Europe)
IMPORTANT
• Countries that were affected the least
IMPORTANT
IMPORTANT
• EFTA (European Free Trade Association)
3.3 From two non-overlapping circles in the 1960s to two concentric circles in the
1970s
3.3.1 Two non-overlapping circles in the 1960s
EFTA!!! European Free Trade Association
Over time, EFTA wanted to join EEC
Two concentric circles in the 1970s
EEC went from 6 to 9 members after UK, Denmark, and Ireland joined the EEC
EFTA is outer circle, EEC is inner circle
3.4 Euro-Pessimism, 1973-1986
3.4.1 Political Shocks
TOO MUCH power to EEC… (Going from Veto rights to Majority Voting)
Charles de Gaulle was NOT happy with this..
3.4.2 Economic Shocks (The Bretton Woods failed)
Currency of different countries must be pegged to the Dollar (which is pegged to Gold again)
The war in Vietnam was expensive. Therefore, USA was printing a lot of money → Inflation!
3.4.3 Some bright spots in this period
EEC-9 → EEC-12
Spain, Portugal and Greece joined the EEC
3.5 The Single Market Program and new member states
3.5.1 The Single Market Program (This is WHAT we will discuss!!! = 4 freedoms)
4 Freedoms:
• Freedom of goods
• Freedom of services
• Freedom of labour
• Freedom of capital
Single European Act (SEA) / Single Market Program (SMP) / The Delors Report:
“The Delors report made it, for example, possible to study a Masters in one EU country with
a bachelors from another EU country! Before... that was not possible!”
3.5.2 How ‘Joining’ this union as an outsider? How to join the EEC
There are 3 ‘general ways’ to join EEC
• Norway solution
o No voting lol, this isn’t that nice (UK did not want this either, therefore..
Brexit?)
• Swiss option (Switzerland has some ties with EEC but has not transferred a lot of
sovereignty)
• Full member
4 Eastern Europe (1950-1990) ??? does not follow same order?
7 Communism’s failure, the Velvet Revolutions, and USSR’s spectacular collapse
= What happened in Eastern Europe
7.1 Building an island on it’s own: Using 4 things:
7.1.1 Iron Curtain (1949)
Finland had a more strict border control than for example Austria-Hungary!
People discovered this.. and this had effects in the future
7.1.2 The Warsaw Pact (1955)
YUGOSLAVIA WAS NOT A MEMBER OF THE WARSAW PACT!!!!
→ It became a non-alligned country with NATO nor Warsaw Pact
→ Yugoslavia did not want to choose between Communism vs Capitalism.
7.1.3 The Berlin Wall (1961)
BRAIN DRAIN
Remember, the Berlin Wall was built 15 YEARS after the 2nd world war!!!
7.1.4 The Brezhnev Doctrine (1968)
1968: Prague Spring (Czechoslovakia)
THEY WILL SEND THE ARMY if they
undermine the communist regime
(Moscow)
A threat to communism/Moscow = a
threat to all communist regimes!
7.2 Life in the SU (+-1950-1985)
7.2.1 Stalinism (start from WW2) (until 1953)
Socio-economic: They will provide:
• No unemployment!! → Bullshit jobs
• Free healthcare
• Free Education
NO FOCUS on consumer goods.
= no food, but weapons (1/3th of Ukraine died and Moscow did not know)
7.2.2 Destalinization under Chroesjtsjov (1953 – 1964)
Communism = Best system… we just had a shitty leader (Stalin)
FOOD!!! And a bit more on consumer goods.
→ Own production: but low quality, oof… (TRABANT CARS)
→ You can choose between Trabant or Trabant.
7.2.3 The ‘Old guys’: Brezjnev, Andropov, and Tsjernenko (1964 – 1985)
The 5 year plans did not align with reality (i.e., you had to wait 50 years for a shitty home)
→ Stand 5 hours in queue for basic products (like eggs, meat, bread)
Romanian saying: “If you do not have a grandma, you have to buy one”
→ Meaning: “whether you have money or not, it was impossible to buy a home. So, it’s
better to buy a grandma to wait till she dies so you can take-over the flat”
KEEPING up appearances: To pretend they don’t have societal problems due to
Communism
7.3 Perestroika and Glasnost
7.3.1 A crippled Sovjet Union by the 1980s
National income growth of SU declined 1928-1987
Stagnation (high unemployment and inflation!) and high military budget crippled the SU
7.3.2. Communism with a human face (Gorbachev)
(still alive this guy!)
Gorbachev wanted to bring more freedom to the people (LINK TO WHY EUROPE WANTED
ALSO 4 FREEDOMS (people, capital, goods, and services!)
Perestrojka (Restructuring)
This is the thing that made McDonalds possible in USSR!
Glasnost (Openness, transparency)
To be better than the “old guys” that with very corrupt!
People were able to see the rest of the world by getting access to information: More
transparency! People were able to learn more about the consequences of a failing
communist regime!
The “New Thinking” (a complete new foreign policy)
In order to achieve ‘Perestroika and Glasnost’, Gorbachev knew that he needed money →
End of cold war, because it costs too much money
But it did not work….
7.4 The Velvet Revolutions and USSR’s collapse
7.4.1 Moscow became more lenient
Remember, this Brezhnev Doctrine’ made it possible in the past for Moscow to send the
army… but this changed due to Gorbatsjov! “If they want to protest, then we let them
(satellite states) just do their thing. We will not interfere” → Poland protested hardcore! →
Independence??
Frank Sinatra’s song: “My way”, each satellite’s state was allowed to decide what they want
to do for themselves → FRANK SINATRA IS LIVING IN A CAPITALIST SOCIETY!
Ηοwever, people doubted whether Gorbatsjov was talking about ‘my way’ as in
“Gorbatsjov’s way” or “the satellite’s states’ way”
Lyrics: My Way by Frank Sinatra
→ Literally mentions: Facing the final CURTAIN (Iron curtain reference)
7.4.2 The Eastern Bloc collapsed like a house of cards
Only country that had violence was Romania!
No need to learn all the countries, just know that they all collapsed like a house of cards.
7.4.3 What happened with what was left of the USSR?
Yeltsin became the first president of the Russian Federation from 1991 to 1999!
8 Case Study: The fall of the Berlin Wall
The fall of the Berlin wall was due to the stupidity of one stupid guy
How did the wall fell despite the strong support of the Communist Party in the DDR?
→ They supported the fact that the army intervened in the Tiananmen Square
Remember, border between Hungary and Austria was the weakest spot (only barbed wires)
Lmao, the Communist Party introduced new travel regulations to please the citizens.
Why did the Kremlin did not respond to this??? → They had a big party/anniversary after
the October Revolution lol → VODKAAAA!!!... in the end, Kremlin did NOT react.
If SU read it, they would have definitely changed this! The wall is now useless!! → Fall
But the real Stupid guy is… a Spokesperson of the government
He was only a spokesperson for one week.
LOL
→ Everybody RAN to the wall!!! → CHAIN REACTION
This border opened up WITHOUT violence! Insane when you think about it. Imagien they
started shooting at each other.
this caused the chain reaction
9 Reuniting Eastern and Western Europe or not?
9.1 The Maastricht Treaty (‘Treaty on European Union’ (TEU))
After the split of Berlin Wall, there was a division on opinions whether it was a good thing or
not for Germany to be united! (Do not forget, they just had a big 2 nd world war)
9.2 The Copenhagen Criteria (1993)
After the fall of the USSR, the East still feared Russia because they did not know what the
next presidents could do.
The East wanted to join the West because they did not want to be isolated from the West
again with another Iron Curtain
IMPORTANT! “European” country because there was a not European country that applied
(Morocco) → Islam,
This criterion was not equal to all country… They just did not want Marocco to be in the EU.
9.3 Preparing for Eastern enlargement: A string of new treaties
The EU realized that in the event of enlargement (Eastern European countries joining), it
would have to reform its institutions.
The more countries you get, the more difficult it gets to get change!
There were 4 attempts at reform over a 16-year period: (No need to learn this in all details)
• Amsterdam Treaty (1997)
• Nice Treaty (2000)
• Constitutional Treaty (2004)
• Lisbon Treaty (2007)
9.4 The enlargement of the European Union since 2004
9.4.1 Central and Eastern Europe
9.4.2 Turkey?
Turkey is not a rich country… → Will Turkey be a competitive market?
Professor doubt about Turkeys criteria to join EU
EU will not write it down… but it’s definitely because Turkey is an Islamic country
But what about Cyprus?
Turkey invaded Cypris and took the yellow land
10 The Global and Eurozone Crises and the Institutional Responses
10.1 The Global Crisis started in 2008
“Great Moderation”: Just a period of great growth, better times… Sky was the limit!
Everything was possible.
→ They have done something with interest rates:
• To convince investors to go to their countries:
o Everybody thought that everything goes better and cannot go wrong
▪ They have converged all the interest rate
• All countries in EU has the same interest rate!
Greece and Spain had a SPIKE in interest rate!!! BUT WHY?!?!?
Why did they do that? In the USA, they believed that the housing market could not go
down!
10.2 The Eurozone Crisis started in 2009
They (Greece, Ireland, Portugal, Spanish Banks, Cyprus) had to change their institutions
(reforms) in order to bail-out loans
11 The Rise of Euroscepticism (=free movement of people?)
11.1 The appearance of Euroscepticism
Euroscepticism: Two waves!
- 1970s: EU’s (in)ability to implement European
economic integration
- 2008s: Should we continue or stop with European
Economic Integration
You can see this in the political parties of countries that are AGAINST Europe ?
→ What has Europe done for us?
I.e., Yellow jackets (not only against Macron, but also against Europe)
11.2 The causes of Euroscepticism
ECONOMIC HARDSHIP
“Why do we, wealthy countries, have to pay the consequences of poorer countries” →
Greece even had a lying minister
Greece has high unemployment….
MIGRATION SHOCK of 2015-2016
In 2015, 433k people came into Europe per month
SOLUTION? EU-TURKEY DEAL!
12 The Re-emergence of Populism (= free movement of people?)
12.1 What?
12.2 Why?
13 In 2020, the world was confronted with COVID-19
13.1 Direct consequences
13.1.1 I.e., in the case of Belgium
Chapter 2: Economic integration, Facts, and Budget
1 Economic Integration in the EU
EPC and EDC failed (example: France was difficult… veto and shit)
According to the prof, the course should be called ‘Economics (and Politics!) of European
integration → All the political collaborations failed → Maybe if we do it economically, we
will be politically aligned!
Jean Monnet: If Defense and Politic communities do not work... Why not economic?
1.1 The Treaty of Rome (1958)
Snowball effect: “If Europeans interacted more with each other (work, tourism) →
Europeans will discover that they all have common values and norms.
But IT is very important to know what is included but what is also OMITTED (not included)
1.2 The Main elements of the Treaty of Rome
1.2.1 The four freedoms
How did the EEC start again?
• EEC-6: Belgium, Netherlands, Luxembourg, West-Germany, Italy, France
o EEC-9: Ireland, UK, Denmark
▪ EEC-10: Greece
▪ EEC-12: Portugal Spain
▪ EEC-13: East-Germany (All of Germany)
Before:
• It was possible to
o Import a car in Germany
▪ You have to look at the rules in Germany
• Including tariffs
o This differ per country!
After Treaty of Rome:
• It was possible to import a car in Germany
o You have to look at the EEC rules to see what the common tariff is
▪ Benefits: You can now enter in Spain but end in Germany while only
paying one common tariff in Spain
Once you are in the community, you can sell a car in Germany but enter in Spain!
= CUSTOM UNION!!! To prevent tariff cheating for example!
→ Preventing countries from only going to countries with lower import tariffs
Public measures: State aid for companies! → Anti-competitive behaviour from countries
Harmonization of regulations: Quality standard for toys for children.
Prevents importing bad goods (from China i.e.) into Europe
Harmonization of taxes: Different taxes rules can influence European competition →
Companies will engage more in a country with a more lenient tax regime
All of these elements may harm trade… and this community is trying to reduce this to a
minimum
In the modern world, it is possible to provide services without being in the same room!
• Accountancy!
• Consulting!
• All due to the internet!
Examples:
• Licenses for doctors, taxi drivers, insurances for work are different per country,
• A degree in the Netherlands was 6 years for a doctor
o In Belgium, it was a degree for 5 years
▪ Can a Dutch doctor now work in Belgium??
• = harmonization of education in Europe → BOLOGNA
AGREEMENTS
Free movement of Workers
N.B. This refers to Free movement of WORKERS (NOT people)
As an employer, you cannot say “Oh, I only want Belgian employees”
“→ Free movement of people means that you have the right to live in another
country without having worked there.”
Long discussion by the UK after Brexit to see whether the Brits were allowed
to live in Europe Union countries
TWO TYPES:
• Right of establishment of any firm in any other member state
• ‘Abolishment of all restriction on capital flows and of all restrictions on current
payments on capital flows’
IMPORTANT: Why was there still very little capital-market liberalization despite all these
freedoms?
→ Most governments and economists suspected that the free movement of capital could
lead to a financial crisis!
→ And yet, they still did 2007-2008… it proves that it was true that it could lead to a
financial crisis
1.2.2 The Common Agriculture Policy (CAP)
They have put emphasis on the ‘Common policy in agriculture’, why to agriculture?
• A lot of price controls and trade barriers
• Remember: WAR… → Food is important to feed soldiers in case a war breaks out
Overview for the idea:
Priority: Food security → Competitiveness → Sustainability cohesion → Policy efficiency
In 2011, the top 1,5% farms captured a THIRD of EU’s CAP subsidies: The more you produce,
the more subsidies you receive.
Unfair between West-Europe and Eastern-Europe
• Unequal division
o Western European countries were more efficient that East-Europe
This is obviously coloured, but it sparks a debate!
Not everything is decided by the EU, therefore, it seems that we pay a lot to farmers in
Europe (percentage wise), but in total… E.U. is okay compared to other domestic
governments in the member states (Norway, Switzerland!)
1.2.3 Exchange rate and macro-economic coordination
→ Competitive devaluations = weakening your currency to enhance export! (better for the
economy)
→ This was only possible, decades later, with the introduction of the ECB, the Euro, and the
Eurozone countries
1.3 The omitted elements of the Treaty of Rome (NOT included in the Treaty of Rome)
1.3.1 The harmonization of social policies
There were two schools of thoughts on this question:
• The ‘Harmonize-before-liberalizing-school’
o = You need to harmonize before you liberalize otherwise countries with low
wages will have an advantage, at least in the short run (in the long run wages
might adjust)
▪ Companies go to countries where wages are lower (cheaper labour =
lower costs)
• The ‘no-need-to-harmonize-school’
o = wages and social policies are reflections of productivity differences and
differences in social preferences
▪ i.e., the wages are lower, because of a lower productivity or because
the people must work less hours a week, or have more holidays
o So, this school states that you don’t have to harmonize, you just have to wait:
social policies will tend to converge over time when nations get richer:
wages, working conditions, etc. will adjust to offset any systematic
differences. This is the LONG RUN SITUATION
1.3.2 The harmonization of taxes
•
•
•
•
Like social policies, tax policies directly touch the lives of most citizens
They are the outcome of a national political compromise between groups of
citizens, firms and labour unions.
Thus, the EU leaders have always found it difficult to harmonize taxes
So, taxation remained a matter of national concern, except taxes that acted like
subsidies or other trade barriers (EU competition law)
o There would be no requirement to harmonize taxes that affected the
economy very widely, such as income taxes or profit taxes
o However, taxes that affected a particular sector
▪ COMPETITION LAW → No unfair advantage
1.3.3 The harmonization of intellectual property rights
2 Some important facts
2.1 Population and per capita income
Without UK, Europe would consists with 55% in only the 5 biggest countries in Euroep
(Germany, France, Italy, Spain, Poland)
2.2 Size of the EU Economies (no need to study numbers, just know it was UNEVEN)
• The size distribution of the European economies is very uneven, measuring
economic size with total GDP
• Just six nations, the ‘Big-5 (Germany, France, Italy, and Spain) and the Netherlands:
75% of the GDP of the whole EU)
• All the others less than 3% each:
o
3 The Budget
3.1 Expenditures
FARMING and POOR REGIONS (foreign EU state aid?)
Spending is relative small (1%) → WHY? → EU does not decide on spending for most
countries
3.2 Revenue (EU members pay around 1% of its GDP to EU!)
•
•
•
The EU’s budget must, by law, be balanced every year
All the spending much each year be financed by revenues collected from EU
members or carried over from previous years
EACH EU MEMBER PAYS A BIT LESS THAN 1 per cent of its GDP, regardless of its
income level
o Exception: BELGIUM
The Four Main Own Resources (Of EU Budget)
Summary
Chapter 3: Market Size and Scale Effects
3.1. Introduction
•
•
•
•
Before the Treaty of Rome Europe’s national markets were separated by lots of
barriers to trade
o These barriers only diminished from 1958 onwards, although sometimes
compensated by new non-trade barriers
As a result of trade barriers EU trade was diminished
o Firms could be dominant in their home market, while being marginal players
in other EU markets
o Think of the European car market as an example
It results in an industrial structure with too many inefficient, small firms that charge
high prices to cover the cost of their inefficiency
Moreover, because of lack of competition, the goods and services might also lack in
quality:
o i.e., The European telephone services before liberalization
o i.e., In East Germany before the fall of the wall: The Trabant Car
European leaders always viewed integration as compensating the small size of the
European Nations!
• = Under the implicit assumption that market size is good for economic performance!
So, the key economic reason for European economic integration was to achieve a market
as large as the USA’s by integration European nations economically:
• “Unifying European economy would allow European firms to have access to a bigger
market, make European firms more efficient and this, in turn, would allow them to
lower prices, raise quality, and gain competitiveness in external markets
Conclusion: MARKET SIZE DOES MATTER!
3.2. What happens when countries integrate?
Process of integrating two countries:
1. Liberalization → Removal of borders
2. Defragmentation → Not fragmented markets anymore, but one enlarged market
3. More competition (= pro-competitive effect’
a. Puts pressure on profits
b. Merger mania = industrial restructuring and scale effects
i. Lean and mean
4. Improved material wellbeing for consumers
a. Prices fall, output rises, employment rises
3.3. How can we measure the impact of integration on competition?
RESEARCH HAS PROVEN: → Integration leads to a decrease in the price-cost ratios →
industrial restructuring and better performing firms
•
•
•
Research on the Global Crisis showed the crisis had a massively negative impact on
European mark-ups
“The mark-ups have recovered since the crisis but are still below the levels they were
in 2007” = a statement in the book so a statement from before COVID-19 hit the
world)
So, what will happen now with (and after) the Coronavirus?
3.4. The BE-COMP diagram in a closed economy (to show process of integrating two
countries)
BE-COMP means:
There is a COMP Curve and a BE curve
COMP Curve = relationship between mark-up (μ) and the number of firms
Is there is X amount of firms, then there will be a change in mark-up → more firms = lower
mark up (more competition = lower prices!)
BE Curve (Break-Even curve):
COMP Curve = If you have more firms, you have a lower mark-up
BE Curve = If you have a higher mark-up, you have more firms
IMPORTANTIMPORTANTIMPORTANT
IMPORTANTIMPORTANTIMPORTANT
IMPORTANTIMPORTANTIMPORTANT
IMPORTANTIMPORTANTIMPORTANT
IMPORTANTIMPORTANTIMPORTANT
Right panel = Price equals cost (total revenue = total expenses)
Middle panel =
Left panel =
3.5. The BE-COMP diagram in an open economy (= impact of European liberalization)
•
•
•
•
•
European integration has involved a gradual reduction of trade barriers
The basic economic effects of this gradual reduction can, however, be illustrated
more simply by considering a much more drastic liberalization:
o Taken a completely closed economy and making it a completely open
economy
To keep things simple: We suppose that there are only two nations (Home and
Foreign), and that these nations are identical
The Immediate impact of the “no-trade-to-free-trade liberalization” is to provide
each firm with a second market of the same size and to double the number of
competitors in each market
We focus on the Home market for convenience (we could also have looked at the
foreign market instead. However, as we assume the markets to be identical, we
should find the same results)
3.5.1. How does liberalization change the outcome?
What happens step by step?
Market liberalization leads to MORE COMPETITION
Remember:
• After liberalization → More competition
o COMP Curve: If there is more firms → higher competition → lower mark-up!
• Not only did mark-up decreased, also short-run price p’ to pA (because p = μ + MC)
• A will not be in equilibrium on LT → Why?
Point A = Below BE curve → BE curve say show many firms can exist with a certain mark-up.
The operating profit is not enough to cover fixed costs → Below BE = all firms will be losing
money. Not a bad thing, most important is that you go break-even in the long run!
During this equilibrium correction → filter on bad performing companies (banktrupt)
What does this mean??
3.5.2. What are the welfare effects on the long term?
Market liberalization on the LT leads to:
- Change (gain) in consumer surplus
- No changes in producers’ surplus and government revenues
•
Examples of firms that try to collude are plentiful, however examples of
governments that try to interfere are not that visible:
o Let us look at two real life historical examples of the latter
▪ 1) Europe’s liberalization of air travel
▪ 2) European Banking
•
•
However, many governments wanted to prevent the restructuring:
o At first, airlines were reluctant to merge (because most airlines were
government-owned and their governments were willing to use taxpayer
euros to cover the losses) = because it was politically sensitive
o More recently, however, European airlines are rationalizing their costs by
forming cooperative alliances = trying not to actually close firms
▪ For instance, while the actual number of firms has not yet fallen, the
number of planes flying a particular route was reduced
▪ For example, before the two firms went bankrupt, cooperation
between Swiss Air and Sabena meant that, instead of having two
planes flying the Geneva-Brussels route (one Swiss Air and one
Sabena), only one plane flew. Nevertheless, Swiss Air called it a Swiss
Air Flight and Sabena called it a Sabena flight
▪
Such ‘code-sharing’ arrangements are a way of achieving scale
economies WITHOUT actually eliminating a national carrier (reduce
firms)
o Both airlines eventually went bankrupt, but the Swiss and Belgian
governments stepped in to create replacement airlines, Swiss and SN Brussels
Airlines!
→ Banks (companies) do anticipate on these kind of decisions!!
Banks were already acquiring each other without waiting for banks to go bankrupt first!
3.6. Summary
Companies try to usually avoid step 1 (big restructuring = big lay offs) → They acquire
(manually reducing the firms without going bankrupt)
Chapter 4: 25 Years of the EU Single Market: Impact on Member
States
4.1. Introduction
This article is NOT European → Reduced biasy
•
Since 1993, several decisions were taken to ‘Improve the functioning of the Single
Market’ or to ‘advance the development of a “true” Single Market’
o It’s a work in progress!
▪ What is the current stage of the Single Market? (Before Covid hit the
world)
4.2. Current state of Single Market integration
4.2.1. The implementation of the four freedoms over time
4.2.1.1. Goods
Was this the case for ALL member states? Nope, UK has lower inter-European trade than
Belgium/NL for example
4.2.1.2. Services
Note* The financial crisis did not have an influence!
There is one big outlier → Luxembourg is a services country!
Luxembourg is too much of an outlier to fit in the graph lol
• Banking sector
Ireland: trades a lot with the rest of the world compares to the other
• Banking sector
Malta: ???
4.2.1.3. Capital
•
NOTE FOR EXAM:
o We do not look at FDI flows (very difficult to measure)
o Biggest increase due to European Integration! Intra-EU Outward FDI GREW
with a factor of 7 (+700%)
o Also, financial crisis had no influence! → Why? FDIs are usually planned
years in advance and contracts are signed years in advance
4.2.1.4. People (least available data)
Remittances are flow of money from foreign country to home country (i.e., Eastern
Europeans send money back home)
Indirect indicator 1: The share of EU workers from outside of the host country in total
employment in the host country
→ New member states → More people → Requires more freedom in people → Critic from
Richer Western countries: THEY ARE STEALING OUR JOBS
Indirect indicator 2: The Value of Intra-EU remittances sent by individuals
Remittances did not go down → GDP increased faster than increase in remittances (shift of
proportions) → It has not decreased
4.2.2. The performance of member states in implementing EU Single Market legislation
How is this measured? A ‘TRAFFIC-LIGHT ASSESSMENT’
A traffic-light assessment is an assessment where the European Comission looks at 5
indicators and give each country either red (-5) , orange (0) or green lights (+5)
4.2.3. Homogeneity (convergence) of economic performance and policies across member
states
European Economic Integration have led to:
- Convergence of GDP per capita
- Divergence of VAT rates, Debt, Salary differences
GDP per Capita converged (got less different → More towards the average)
Debt did NOT converge!
AND STILL LARGE DIFFERENCES IN AVERAGE VAT RATES
• 27% in Hungary
• 15% in Luxembourg
4.3. Summary indicator of Single Market integration
4.4. Stories of Single Market Integration
4.5. Covid-19 and the EU Single Market?
4.6. Summary
Chapter 5: Trade in Goods and Services
5.1. Introduction
EU-28 trades more than China! Do not underestimate Europe’s trade. EU is the biggest
trader.
We see that the share of China in world trade INCREASED in the last decade while the share
of the EU-28 and the US remained constant.
•
•
•
•
The EU is a leader in the world trade system, as:
o A key player in the World Trade Organisation (WTO)
o A massive signer of bilateral trade agreements
o An extender of unilateral trade concessions to the world’s poor and poorest
nations
→ The latter is especially true as the Trump administration in the US had launched a
trade war on most of its trading partners by unilaterally imposing tariffs on exports
from almost all nations
→ So, many developing nations are happy the EU has no trade war with them
This chapter covers the EU trade policy by representing
o The basic facts on the EU trade in goods and services
o The EU’s institutional arrangements with regard to its trade policy
o The EU’s policies towards its various trading partners
o The use of a tariff and an export subsidy
o The reasons why nations protect their industries through all kind of trade
measures
o An analysis of Regional (Preferential) Trade Agreements (RTAs)
5.2. Patterns of trade
5.2.1 Trade in Goods
5.2.1.1. Composition of the EU’s external trade in services
•
•
What types of goods does the EU export to and import from the rest of the world?
= Mainly manufactured goods:
o They account for most of EU exports, with about 40% of all exports being
machinery and transport equipment
o On the import side, about two out of every three euro spent on imports go
to buy manufactured goods
o Other types of goods play a relatively minor part in the EU’s trade
More than 50%! Is from manufactured goods
5.2.1.2. Who are the main trading partners?
•
•
The EU trades it goods mainly with Europe!
The right bar shows the share of EU exports of goods that goes to the EU’s various
partners. The left bar shows the share of EU imports of goods that comes from the
EU’s various partners
o The figures include EU sales to and from non-EU nations as well as imports
and exports from one EU nation to another
o This gives perspective on the relative importance of intra-EU trade and
external trade
o MAIN POINTS ARE: REMEMBER
▪ About 70% of EU-28 exports and EU-28 imports are to and from other
EU-28 nations
▪ If we add another European Nations – Namely EFTA (Switzerland,
Norway, Iceland, and Liechtenstein) and Turkey – Both export and
import figures rise with 5%!
Asia is less important for Export compared to Import!
We import most from China
We export most to USA
After UK left EU-28 (→ EU-27 now)
Is UK important for EU? → Nope. Ireland exports the most to the UK!!!
•
But who are the main trading partners (countries, not regions) for the EU-28 for
trade in goods?:
o USA
o China
o Switzerland
5.2.1.3. Differences among member states
•
•
One of the things that makes EU trade policy a contentious issue is the fact that the
various Member States have quite different trade patterns
o
So, the importance of various trade partners varies quite a lot across the EU-27
o The Iberians trade more with Latin America and Africa
o Members with easy access to the sea, such as UK, Denmark, and Poland trade
more with Asia.
5.2.1.4. The EU’s Common External Tariff (CET)
Services ARE NOT DIRECTLY COVERED → Tariffs DO NOT APPLY TO SERVICES
Look at these differences!! Oilseeds, wtf → Agricultural products!! (why different? TO
PROTECT THEIR OWN INDUSTRIES
Compare this to other goods: → Way less differences!!! Due to CET!
5.2.2. Trade in Services
• We not only trade in goods (although this was mainly the case in the 1950s). In the
meantime trade in services became very important
• Not only for the EU, but worldwide:
o For instance, the WTO agreeds on a “GATS” agreement (General Agreement
on Tariffs and Services) next to the already existing GATT agreement (General
Agreement on Tariffs and Trade)
• The next figures show what services are and how important trade
5.2.2.1. Composition of the EU’s external trade in services
In terms of services, we mainly trade in Telecommunications, computer, and Information services!!
Which of these types does EU trade the most (SERVICES)?
Most important services:
• EXPORT > IMPORT: Telecommunication, computer, and information services (81,9
Trade Balance!)
• IMPORT > EXPORT: Charges on Intellectual property!
5.2.2.2. Who are the External-EU-28 main trading partners?
•
Who are the main trading partners for the EU-28 for trade in services with non-EU28 partners:
o USA, Switzerland, and China
5.2.2.3. How are services supplied to foreign customers?
•
•
Trade in services statistics, are divided by 4 Models of Supply (MOS)
The services broken down by these 4 MOS take into account both international trade
in services statistics (ITSS) and foreign affiliates statistics (FATS)
•
The General Agreement on Trade in Services (GATS) defines trade in services as the
supply of a service through any of the following our modes of Supply (MOS):
Trade between Country A and Country B → Do you need all the modes? NO > You only need
to know:
• There are different types of services where
o A customer can be in country A or B
o Or the service can be done in Country A or B by a firm or person
5.2.3. Patterns of trade overall (goods and services)
See figure next page
5.2.3.1. Who are the main external EU-28 trading partners?
• = the main trading partners for the EU-28 for trade in goods and services to non-EU28 nations combined
Main trading partners (outside of EU-28) that EU-28 trades with:
o USA
- USA
o China
- China
- Switzerland
o Switzerland
5.2.3.2. How important is the EU- trade in goods versus its trade in services?
• Trade in goods counts for 70% of the total external-EU-28 Trade
• Trade in Services for 30%
5.2.3.3. How is the trade balance of the EU-28 with its main trading partners?
• Is it positive or negative? (Figure next page)
• Overall, our trade balance has been POSITIVE since 2012
• However, there are large differences according to trading partner:
o With some important countries, we have a positive trade balance (US)
▪ Export > Import
o With other important countries, we have a negative trade balance (China is
biggest negative trader
▪ Import > export
• Mainly with Asian countries
5.3. EU institutions for trade policy
CH5_Part_2_ (32:14)
5.3.1. The EU competences on trade
= the powers/authorities of the EU with regard to trade
5.3.1.1. Its competences from the 1950’s onwards
•
The EU’s first big step towards economic integration was the formation of a customs
union
o This is the elimination of tariffs on intra-EU trade and the adoption of a
common external tariffs (CET)
5.3.1.2. A change in the nature of international trade, asking for changes in the competences
• In the twentieth century (20th), the EU’s power on trade policy was basically
limited to tariffs on goods, back then by far the most important aspect of trade
policy
• However, as EU tariffs came down during the course of multilateral trade
negotiations, and the nature of international commerce grew more complex, the
range of important trade barriers broadened
• Hence, there was the need to expand the competence of the EU beyond tariffs
o Over the decades, the various Treaties have granted the EU more power in
the area of trade
o In the Maastricht and Nice Treaties, a series of small and practical steps were
taken
o The 2009 Lisbon Treaty did even more …
5.3.1.3. The Lisbon Treaty of 2009: extending the common commercial policy (Trade in
Services, Protection and enforcement of IP rights, FDIs!)
•
•
Currently, the Commission works with the WTO and third nations in the context of
bilateral trade agreements (I.e., the EU-Korea FTA that came into effect in 2011)
So, since the Lisbon Treaty, the EU made some extra agreements.
o However, prior to the Treaty, investment was NOT part of the EU’s
responsibility, so Member States signed a large number of bilateral
arrangements (called Bilateral Investment Treaties, BITs)
o It is not year clear how the EU will deal with this tangle of agreements
▪ For example, Turkey has a BIT with 11 separate EU members
▪ These will presumably eventually be merged into one, but such preexisting BITs are likely to remain in force for some time
5.3.2. The Allocation of responsibilities (= who is responsible for what?)
Ordinary legislative procedure = majority voting in the Council and the Parliament
First, trade policies were only pro-business → Later, it became a political tool as well
5.3.3. Anti-Dumping measures
a
5.4. The EU Trade policy
5.4.1. Broad goals and means (Renewed Lisbon Strategy: Economic and Social Europe)
•
For most of its life, and since its beginning in 1958, the EU’s external trade policy
meant negotiating three different things:
o Reciprocal tariff cuts in FTAs with other European nations (I.e., the EU-EFTA
bilateral trade agreements of the 1970s (CH1)
o Reciprocal tariff cuts with non-European rich (=developed) nations in the
GATT/WTO (This happened for instance in the WTOs 1967 Kennedy Round
for 1994 Uruguay Round)
o Unilateral tariff preferences for developing nations
Unilateral = Only EU was giving these to developing nations (goods entering from poor
nations did not have to pay taxes), but when EU exports to poor nations, EU has to pay!)
•
•
This started to change as a result of a 2006 landmark communication from the
Commission known as “Global Europe”
o It set out a more global strategy for the EU’s external trade policy as a
complement to the renewed Lisbon Strategy
What was the Renewed Lisbon Strategy?
o The first Lisbon Strategy (2000) was a set of initiatives that EU members
were supposed to undertake domestically to improve their growth
prospects
o The Lisbon strategy focussed on both an ‘economic Europe’ and a ‘Social
Europe’: It focused on “economic efficiency with the aim to reduce social
inequalities”.
o It failed, mainly due to the different macroeconomic levels of the member
states and because the national implementation of the Strategy was weak
o So, it was renewed in 2005 (Hence, ‘renewed Lisbon Strategy):
▪ This new strategy focused more on the EU’s economic objectives
alone. Social cohesion was considered a by-product of the
favourable economic goals:
• “More jobs would create economic growth, which in turn
would benefit future social inclusion and cohesion policies.”
Instead of just changing tariffs or provided tariff cuts, we should DO more
But why these regions?
YESSS!
5.4.2. The existing arrangements (= content of the EU’s external trade policy)
TTIP failed due to Trump lol
4 main areas for external trade policy:
• Hub-and-Spoke Bilateralism (intra-EU) (two concentric circles = EFTA and EEC)
• Preferential trade agreements of the EU with its former colonies
• Unilateral preferences of various types that the EU grants to almost all developing
nations
• Trade agreements with other industrialized countries
o CETA (success)
o TTIPS: with USA
5.5. How do tariff and an export subsidy work?
A
5.5.1. Types of trade restrictions
A
5.5.2. Cost-Benefit analysis of a tariff
A
5.5.2.1. The effect of a tariff in a small importing country
A
5.5.2.2. The effect of a tariff in a large importing country
A
5.5.2.3. Case Study: A comparison of the size of tariffs throughout time
A
5.5.2.4. Other potential costs of a tariff
f
5.5.2.5. Measuring the size of protection
F
5.5.3. Cost-Benefit analysis of an export subsidy
Ff
5.5.3.1. Effect of an export subsidiy in a small exporting country
f
5.5.3.2. Effect of an export subsidy in a large exporting country
f
5.6. Why do nations protect their industries through tariffs and other trade measures?
5.6.1. Revenue
f
5.6.2. The Labour Argument
f
5.6.3. The Infant Industry argument
f
5.6.4. The National Security Argument
5.6.5. The Cultural Protection Argument
5.6.6. The Retaliation Argument
5.7. Regional (preferential) trade agreements)
5.7.1. Different types of Regional Trade Agreements
•
•
Regional trade agreements (RTAs) are bilateral (two countries) or
multilateral/plurilateral (several countries)
Regional trade agreements can be classified into different categories:
o Each level is cumulative and incorporates the features of previous level
o In reality, however, actual trade agreements usually combine elements from
a couple of categories
There are five types of regional trade agreements
• Types of agreement (5):
o Partial trade agreement → Free trade in the outputs of one or a few
industries
o Free-trade area → Free trade it outputs (goods and services)
o Customs union → Free trade in outputs plus a common external tariff
o Common market → Custom union plus free movement of inputs (capital and
labour)
o Economic union → Common market plus substantial harmonization of
economic policies, including a common currency
5.7.2. For and Against RTAs? Are RTAs good for the national welfare? (Trade diversion and
trade creation)
•
The central economic question is:
o Are RTAs supportive of gradual, long rune increases in world trade (building
blocks or stepping stones) = Optimists
o OR do they tend to become obstacles to further relaxation of trade barriers
(stumbling blocks) = Pessimists
You have X – Y – Z countries that trade → X and Y start a trade agreement → Z will not be
included and excluded from trade. (The Z has higher cost relative to Y with X)
•
•
“Regional/Preferential trading agreements increase national welfare when new
trade is created, but not when existing cheap trade from the outside world is
diverted to more costly trade with member countries:
EXAMPLE:
o 3 Countries: UK (UK), France (F), and New Zealand (NZ)
▪ Initially: A tariff in the UK on goods coming from france (Pf + t) and
coming from New Zealand (Pnz + t) (t=tariff)
▪ This tariff is the same for F and NZ
▪ Assume: The UK is a small country that cannot influence worldprice.
o Now, you get a new RTA between UK and France?
o Will this RTA lead to trade creation or trade diversion?
▪ Two possible situations:
• France is the most efficient producer (→ The RTA will lead to
trade creation: The next slides
• OR New Zealand is the most efficient producer (→ The RTA
will lead to trade diversion: The following slides thereafter)
• MOST efficient = Produce the good at the lowest costs and sell
it at the lowest price
If France is the most efficient producer:
• France has a lower price → Due to more efficiency
o Pf = lower than Pnz
• With the RTA: People in the UK can now buy wine from France without tariffs (= Pf)
whereas people in New Zealand has to still pay the price including tariffs (=Pnz +t)
• The English will rather buy from the French and never from New Zealand
•
The producer surplus = everything above the supply function and below the demand
function → With the RTA, it lowers the producer surplus
•
With the creation of a tariff, the government will lose something..!
o F = loss of government revenue
Net gain = triangle E and G → TRADE CREATION
•
Conclusions:
• France is the most efficient producer: Only trade creation (+)
o Increase in imports
o The reverse effect of a tariff (decrease in PS, increase in CS, decrease in
income of the government
o Welfare effect: (D+E+F+G) – D – F = E + G
o E + G = positive: Trade creation leads to a positive welfare effect
Now, let’s look at the 2nd situation where New Zealand is the most efficient producer
With the RTA, we see that the costs are lower in France for lamb meat despite New Zealand
is the most efficient producer (lamb meat is produced cheaper in New Zealand)
→ The production is replaced from the cheapest producer (NZ) to the more expensive
producer (France)
F1 + F2 = size of tariffs (same size, because you only earn tariffs on pFR + t)
•
NZ is the most efficient producer
o Increase in imports
o But this import no longer comes from the cheapest producer
o Welfare effect: (D+E+F1+H) – D – (F1 + F2) = E + G + F2
o The result is dependent on the size of both effects: Which effect is the
biggest? E + G or F2?
▪ E + G > F2 → (+) = Trade creation = Good!
▪ E + G < F2 → (-) = Trade diversion = Bad!
▪ So, trade diversion can lead to both a positive or negative welfare
effect!
•
So, RTAs can be a first step towards free trade, but they don’t mean automatically a
welfare improvement
o If trade creation: → (+)
o If trade diversion: → (+) OR (-):
▪ Is the RTAs a ‘stumbling block’ or a ‘stepping stone’?
▪ This depends on which effect is the biggest: E + G or F2
5.8. Summary
•
•
•
There is a difference between nominal and effective rates of protection
Regardless of their cost or their ability to achieve a desired objective, every nation
uses trade barriers, and this for different reasons
A regional (or preferential) trading agreement (RTA or PTA) is beneficial for a
country i fit creates new trade but it is harmful if it divers existing trade to highercost alternatives → Usually, we do not know if trade in this case is bad or good
Chapter 6: The Eurozone in Crisis (= free movement of capital)
6.1. Introduction
•
•
The Eurozone was just celebrating its first decase of existence when the global
financial crisis and the Eurocrisis made an end to this celebration
Why?
A lot of convergence of interest rate around 2000-2007
Let us have a look at both crises:
• The 2008 global financial crisis
• And
• The 2009 Eurozone crisis (or “public debt” crisis)
6.2. The Global Financial Crisis (2008)
6.2.1. Financial deregulation
The banks knew they are too important to fail → Take MORE risks = Moral Hazard… This is a
pre-2007 mentality
6.2.2. The roots of the financial crisis
•
•
•
Banks took major risks, and too many risks, implicitly borne by their governments
Why? During the Great Moderation the perception was that growth was sure to
persist forever, so bankers became even less sensitive to risk
→ The “We can do anything” and “The sky was the limit”
6.2.2.1. The Mechanism
Remember, after deregulation: Banks were allowed to invest more → Bought these
mortgages from these mortgage companies
•
In 2005 and 2006, about 20 to 25% were subprime mortgages!
o People were basically allowed to buy everything with loans!
▪ A car
▪ A television
▪ … etc
After the transfer of mortgages from the mortgage companies to the banks, the banks now
carried the risks → They sold them again to OTHER banks (Securitization!!!)
•
The banks that bought these bundles were not so worried
o Although, it was likely that some of the loans would not be paid back, it was
very unlikely that many loans would sour together (at the same time)
o However, the problem was that the subprime loans relied on the belief that
housing prices would continue to rise for the indefinite future
o So, this system ‘worked’ for a long time, since the housing prices doubled
between early 2000 and early 2006
Why is securitization dangerous? What are the disadvantages of securitization
6.2.2.2. So, what happened? What went wrong?
•
•
•
•
But, when housing prices started to fall, the supposedly unlikely event of all loans
going bad at the same time proved to be reality. This meant that the even AAA
tranches were junk, as the ultimate holders then discovered
It took four years for prices to find a floor
By then, the world was in crisis
6.2.2.3. Why did the rest of the world get into trouble?
6.2.3. Banks: Meltdown and rescues
•
Central banks worldwide started to provide liquidity directly to their banks in the
hope to save them. The size of their balance sheet increased enormously within a
few months → However, not all banks were able to be saved
6.2.4. Avoid a new Great Depression
•
•
•
•
The policy makers (governments and central banks) at first labelled what happened
as “reckless risk taking”
So, at first, they resisted what they considered some form of blackmail (i.e.,
investors starting that the crisis would only worsen until the governments and
central banks would bail the troublemakers (= bad banks) out)
However, they soon remembered the lessons they had learned from The Great
Depression
o Banks and other large financial institutions – that could drag the whole
financial system and the economy down into a tailspin –
o Deep distress in the financial system is soon followed by a profound and longlasting recession
o Central banks must provide liquidity to the financial system and governments
must use fiscal policy to prevent a vicious cycle of recession and large budget
deficits
The authorities did all of that: Central banks provided massive amounts of liquidity,
interest rates were slashed to zero lower bound and banks were kept afloat
•
The built-up of public debt is the immediate cause of the next crisis, the Eurozone
crisis
•
However, the UK and USA let their budgets deteriorate to the same extent (see the
right-hand chart in figure 19.2) as the Eurozone countries that expected a crisis
(those in the left-hand chart)
So, Why did some of these countries end up in a crisis and others did not?
Let us look at what happened so that some European countries ended up in the socalled “Eurozone crisis”?
•
•
6.3. The Eurozone Crisis – The ‘public debt’ Crisis (2009)
Ch6: Part 2 (56:56)
6.3.1. The legacy of the financial crisis: A paradox
•
•
•
The goal of the measures that had been taken was to return quickly to positive
growth
This goal was reached: The recession has been deep but relatively short-lived
HOWEVER, while the USA went on growing, the Eurozone underwent a ‘double dip”
with a second recession in 2012-2013. Moreover, the recovery from that second
recession was very slow
6.3.2. Greece: Crisis and bailout
6.3.3. Contagion inside the Eurozone: Why?
6.3.3.1. A large indebtedness
Many believed that these weak countries had unhealthy finances (which was not the case!
Ireland and Portugal had okay finances)
• Some countries were cancelled due to bad finances
• Some countries were not cancelled due to bad finances
6.3.3.2. There was no lender of last resort (FED, Central Bank) (= why only Eurozone countries)
•
In the Eurozone, instead, the ECB was believed to be forbidden to rescue public
debts
o In the European Treaty, there was a “no-bailout clause”
o = it was impossible for the ECB and other Eurozone governments to ever lend
directly to any other Eurozone government
o This idea was to underline the importance of fiscal discipline and to warn
governments they would have to fend for themselves (through applying IMF
emergency assistance) if they became unable to borrow from financial
markets, banks and individuals
•
•
The same with banks that got into trouble: The ECB did not want to bail them out
Why? Because they feared MORAL HAZARD
o = “an Encouragement to continue with budget deficits or risky investments,
and the possible sharing of losses if a government or bank were to default”
o If countries or banks knew other Eurozone countries or the ECB would help
them out, they would be more likely take on larger risks
•
However, the ECB has abandoned this view – I.e., the no-bailout clause – when its
president Mario Draghi announced in July 2012 that “the ECB is ready to do
whatever it takes to preserve the Euro”, with spectacular results
o Why? The ECB realized that all eurozone countries could go down if it didn’t
do something and that the eurozone could even ‘collapse’
o However, by then (2012), the genie was already out of the bottle. The ECB
could only contain the damage and make the financial markets calm down
again.
6.3.3.3. A loss of competitiveness (= why these specific countries and not other Eurozone
countries?)
•
An Eurozone country that has let its competitiveness deteriorate must regain it the
hard way, through wage and price moderation
o Why?
▪ The exchange rates were irremediably fixed (i.e., at the moment the
euro was introduced their own currency was fixed to the euro
currency)
▪ So, they could not simply devaluate their currency, as they did not
have an own currency anymore as they all used the Euro now.
In the countries that got into troubles, they all had HIGH unit labour costs
• This figure reveals that the crisis countries are those where the indicators
deteriorated the most
• The differences, accumulated over a decade, are very large: labour costs in Ireland,
Spain, and Greece increased by 30 percentage points faster than in Germany
6.3.3.4. Policy mistakes (the bailout that alarmed the financial markets)
•
•
The bailout of Greece was justified by the belief that a bailout combined with harsh
conditions would decrease the fears of Greece being not able to recover?
However, the opposite happened. The bailout had alarmed the financial markets
and made things worse
6.3.3.5. Which of these four factors was decisive
6.3.4. Not all crisis countries are alike
•
The figure below shows there were huge differences between the good and the bad
eurozone economies, immediately after the global financial crisis as well as a few
years later
At the moment the global financial crisis hit the world → Everybody (both the core and the
weak periphery) went down
But years later, you see that the core (healthy) countries restored.. while the weak
periphery is still seeing economic slowdowns.
6.3.5. Four policy responses
•
•
What was done to prevent the Eurozone from collapsing and what were the
consequences of the measures taken?
See the documentary as background:
o BBC. (2019). Inside Europe: Ten Years of Turmoil:
▪ Part II: Going for broke. GREAT
6.3.5.1. A few small insufficient steps (The loan to Greece, which was considered insufficient)
• The financial markets were very worried when the situation in Greece became clear
o They worried that some governments might only partly repay their public
debts, thus imposing large losses on investors
o They also worried about the wider repercussions, including bank failures and
a possible break-up of the Eurozone
o Moreover, more than anything else, markets they hated uncertainty.
• So, they expected steps taken by the EU to solve the problem
You need to know WHY the financial markets were not so worried first about the financial
help (to bailout) to Greece…
•
•
•
So, this bailout was considered too weak and insufficient
o This flow of money to Greece could not convince the financial markets that
everything would calm down.
o For instance, many of the steep increases in interest spreads (Figure 19.8.)
can be traced back to this decision that the financial markets had perceived
as ‘too little and too late’.
The financial markets concluded that the crisis would continue because nothing
decent was undertaken to stop it
The EC realized it had to do something extra, and quickly!
6.3.5.2. The Promise of a “Bazooka” (no need to know this)
6.3.5.3. The creation of bailout institutions
•
•
October 2010: Five months later Merkel and Sarkozy met.
They went for a walk on the promenade (only the two of them without advisors,
without security people) to stage an image of the “Franco-German couple”
o = prove to the rest of the world that France and Germany were two hands on
a belly, that they tought alike!
6.3.5.4. A fourth policy response: A monetary policy strategy (FINALLY, ECB is going to do
something!!! = Βecoming a lender of last resorts!)
→ After this ECB announcement from Draghi immediately had effects on the interest rates
of the weaker economies (Greece, Italy)
•
•
It was only when Draghi made his announcement that the financial markets became
convinced that the ECB finally understood how it worked
The Euro was out of danger. The financial crisis was considered over, as they ‘only’
had to deal with a few “small” problems: Like Greece
•
They would deal with Greece, no problem. However, later they would realize that
they had largely underestimated the consequences of their decisions …, namely the
political cost of the European austerity measures…
Quick summary of what happened to the Public Debt Crisis:
• Solution:
o Started with the bailout of Greece after long negotiations with IMF → Did not
work
o “Load the full bazooka” by Merkel (500bn)
o “Banks have to pay for their shares” by Merkel → Did not work
o Only when Draghi said: ECB will work as lender of last resort → IT WORKED
However, this was not the end of all troubles… → They have underestimated the political
cost... the consequences of getting all this money from ECB
NO NEED TO STUDY
6.3.5.5. A fourth policy (The European political cost of austerity and the nearly bankruptcy of
Greece
But something completely opposite happened...!
6.3.5.6. The outcome of all this? (A few extra concepts)
DO NOT GO INTO DETAILS. LOOK AT THE STEPS TAKEN TO TACKLE THE CRISES. AND EUROPE
IS SLOW. ECB SHOULD HAVE INTERFERRED FIRST
6.4.1. The doom loop
=
doomloop
Conclusion: Doom loop = dangerous lock in between banks and governments:
• Governments needed banks to buy their government bonds
• Banks owned a lot of government bonds, but were also depending on the
government’s supervisions
→ If government fails, then banks would fail too (banks owned a lot of governmental bonds)
→ If banks fail, then governments would fail too (government depended on money from the
banking sector)
6.4.2. Stress tests I and II (to check the health of a bank)
6.4.2.1. Stress tests I
6.4.2.2. Stress tests II
•
•
•
•
In Europe, further tests were conducted in 2015 and 2016
As a result, several banks had to be recapitalized or merged
This has been somewhat reassuring
It did not help, however, that some banks failed in Italy in 2017
6.5. What did Europe learn from both crises?
•
What did Europe learn from both crises, and what are the most important changes
that have been adopted as a consequence?
6.5.1. The need for fiscal discipline
6.5.2. The need to deal with the increased public debt
6.5.2.1. Eurobonds
•
But, they are politically unfeasible as opponents of Eurobonds observe that it would
imply that one country would underwrite the debt of another government
o If the responsibility is shared, what would then prevent a government from
running deficitis year in, year out? It already proved tob e a problem now
with their own national bonds = FREE RIDER PROBLEM
▪ Angela Merkel was against this (Germany!)
Without fiscal discipline, you cannot have solutions such as Eurobonds!
6.5.2.2. Public debt restructuring
6.5.3. The need to deal with the bank fragility
•
•
•
•
•
•
The other lesson to be (re)learned is how fragile banks are
At the global level, new regulations have been put forward by the Basel Committees
and enacted in national laws
Supervision has been strengthened too, often by delegating it to central banks
However, the Eurozone banking system remains in a delicate situation as the crisis
has led to a surprising degree of fragmentation of the system
The policy response was the establishment of the “Banking Union”, which started
operating in 2014 and involves 3 building blocks:
o Common regulations
▪ Rules on the banks’ capital, their leverage ratio, their liquidity ratio
▪ Stricter rules for larger banks
o The Single Supervision Mechanism” (SSM)
▪ The supervision of the 119 largest banks of the Eurozone is
centralized and under the authority of the ECB
▪ The SSM is managed by a supervisor board
▪ The smaller banks remain subject to national supervision
▪ Non-Eurozone countries may choose to join the SSM
The “Single Resolution Mechanism” (SRM):
o An independent European institution
o Less extensive than the SSM, since national resolution authorities remain in
place
o Operates under the authority of a Single Resolution Board (SRB)
o The SRB is responsible for all large systematically important banks of the
countries have signed up to the Banking Union
o Several tasks, amongst which:
▪ Minimize the costs of a bank failure borne by the taxpayers
▪ The establishment of a new resolution fund to which banks
contribute, that can be used for cash injections if needed
▪ All banks deposits by households and SMEs are fuly protected up to
100k euro!
6.5.4. The need for a real European system of governance (we still don’t really have this in EU
2023)
•
•
•
•
A spectacular feature of the crisis has been its de facto management by the
Eurozone’s two largest countries, namely France and Germany, and then only when
they could agree
The Commission has been largely passive
Here, the large divide between more “intergovernmentalism” or “more federalism”
played once more a role
The crisis has witnessed a shift to intergovernmentalism, often reduced to a
dominating role by the two largest countries
What are the reasons for this shift towards intergovernmentalism?
• A crisis requires prompt decision making, while the 19 Eurozone countries cannot
collevtively deliberate effectively.
• In addition, the Commission’s mandate is not limited to the Eurozone, so it has no
particular authority in terms of Eurozone affairs
• So, because of the lack of an actual real “system of governance” Germany and
France took over at that moment
6.5.5. The Euro architecture needs to be improved
• Some observers argue that the Eurozone is doomed and will break up because:
o Europe is not an optimum currency area
o There is a lack of fiscal discipline:
▪ There is a gap between the well-functioning North and the badly
wounded South and solidarity has come under pressure
o Many international investors do not believe that the Euro can survive (this
believe can become a self-fulfilling process)
•
Others argue that the Euro will survive
o A breakup would have catastrophic implications, and this ties countries
together
▪ Some countries would face a deep depreciation, which would make it
difficult or even impossible to repay public and private debt that were
contracted in Euros
▪ The other countries would face a strong appreciation, which would
severely hurt their international competitiveness
o A new currency would have to be printed and reintroduced
▪ Unclear how to manage this in a short time period
▪ How will transactions be carried out in the meantime?
o There is no legal procedure for a country to leave – or to be expelled from –
The Eurozone: The Euro was meant to be a one-way street
o The deeper problem has been political mismanagement of the crisis, not the
common currency
o In this respect, the crisis has just made it clear that the Euro architecture
needs to be improved
6.6. Summary
Chapter 7: Economic integration, Labour markets and Migration
7.1. Introduction: Free movement of ‘workers’ or free movement of ‘people’?
•
•
•
However, countries that opened their borders, such as Ireland, Sweden, and the UK,
report no or little increase in net inflows
Why?
o A resistance to moving
o The prospect to catch up with the EU15 countries reduced the incentives to
leave their home, family, and friends.
What was the idea of including the free movement of workers (later on people) as
one of the fundamental principles of EU economic integration?
o Allowing workers (and later all people) to move freely within the Union was
thought to be a good thing on economic grounds and political grounds
▪ It was meant to enhance economic efficiency by allowing workers to
find the jobs that best suited their skills and experience, while
simultaneously allowing firms to hire the most appropriate workers
▪ On a political level, the architects of the EU hoped that mobility
would lead to mutual understanding among the peoples of Europe
• For instance, research had shown that the fact that many
young Europeans spend some time living, studying, or working
in other EU nations has had a big impact on the way
Europeans view one another.
7.2. European labour markets and unemployment
7.2.1. The average employment rate (national level…)
7.2.2. the long-term unemployment levels
7.2.3. The idea of ‘social dumping’
7.3. Migration
Start Ch_7_Part_2_2022-2023.mp4 (48:30)
7.3.1. What is a migrant?
A person that lives outside of his/her country of birth. But there are multiple definitions
depending on different institutions.
According to the IoM, a migrant is a migrant when he leaves his/her country for a better life
standard.
Not only are there different
definitions per institutions but also PER country!!
7.3.2. Some facts
7.3.2.1. The overall EU population and ‘original EU population growth’
7.3.2.2. Do we have lots of extra-EU migration?
•
On average, Europeans do not do much migrating:
o The overall outflow of people, what is called emigration, of EU citizens has
been quite stable over the last 10 year, namely about 20 people per 1000
(=2%)
o For the Eastern and Central Europeans nations, the number is TWICE that,
about 50 people per 1000, but still that is rather SMALL
o This emigration was much larger in the past: Eg in the 1880s, 50 to 100
people per 1000 in nations like Ireland left Europe over a 10 year period
Which were the main destination countries?
Did citizens from some Eastern and Central nations went to specific Western EU countries?
7.3.2.3. Do we have lots of integration from outside the EU?
•
•
•
Yes: Immigration from outside the EU is very important
Why? Different reasons:
o Economical, social, political, historical, and cultural factors explain the large
number of extra-EU migrants in some member states
What are main migrant’s motives?
o 1. Work
o 2. Education
o 3. Family reasons (i.e., family reunification)
o 4. Others (which includes refugees, beneficiaries of other protection schemes
and residence permits issued for unspecified reasons etc)
Throughout time, the reasons to migrate changed!
In the remaining part of point 3 ‘migration’, we talk about migration to go and ‘work’ in
another country, not refugees (for refugees, see part 4)
Where do these workers come from? (figure 8.10)
• In 2015, on average 70% of foreign workers in EU Member States were from non-EU
countries
• So, only 30% came from other EU member states
• However, there are huge differences between countries.
o The figure runs from above 40% in Britain to almost 70% in Italy
7.3.2.4. Composition of EU country population (coming from other EU nations and from
elsewhere)
7.3.3. The economics of labour market integration
= How does immigration tend to affect the sending and receiving nations?
•
Labour migration is probably the most disputed aspect of economic integration in
Europe. Why?
o In most Western and Several Eastern European nations, popular opinions
hold immigrants for high unemployment, abuse of social welfare progress,
street crime, and deterioration of neighbourhoods.
o As a result, a number of explicitly anti-immigration political parties have
done very well in recent elections
7.3.3.1. What does the theory tell us?
•
It all depends on the “type” of migrants that come to work in your country, more
specifically on their educational level
o Immigrants often fill jobs that no native wants to do, such as kitchen workers,
street sweepers, and so on
o However, sometimes they are competition for native people such as lowskilled workers, builders, etc
o On the other opposite, it is possible that an immigrant can have very specific
skills that are lacking in the receiving nation, i.e., by a specific education (=
highly skilled)
▪ More generally, immigrants who have skills that are complementary
to the skill mix in the receiving nation – i.e. a degree that you can only
obtain in certain universities worldwide – are typically less likely to
create losers in the receiving nations
▪ Since these workers do not compete with native workers, or compete
with very few native workers, such immigration is usually less
contentious since it creates few losers
▪ This is called “Micro level matching” and this is good for your country
7.3.3.2. What does the evidence tell us? (= we don’t really know.. can either be + or -)
•
Research on the impact of migration on the wages of domestic workers found that:
o A 1% rise in the supply of migrants workers changes the native wages by
between +1 and -1 per cent, with most studies putting the figure in the even
narrower range of +- 0,3%
o This small outcome is due in part to the fact that countries tend to restrict
the types of labour inflow that would have a large negative effect on wages
•
So, these figures suggest “micro-level matching” when it comes to migration among
EU15 nations (so migrants with specific education, like University)
o This in turn, helps explains why this type of immigration is generally
uncontroversial (wanted!)
When it comes down to immigrants from outside the EU, we find the opposite
o These are often less educated to fill in elementary tasks/jobs
o This can still be a good thing in the hosting nation (if it is a job that no-one
else wants to do), but as it tends to create more competition for the nation’s
lowest-paid workers, it tends to be more politically controversial.
•
7.3.4. Barriers to mobility (About Europeans?) (Do not learn this by heart! Just read them)
•
Why is there such low mobility within the EU (a low freedom of movement), as can
be seen from the low share of the foreign-born population in most EU nations?
o One reason is that EU citizens do not regard freedom of establishment as an
attractive option.
o Another is that, in spite of the stated policy, there remain a large number of
barriers, some extra points implicit.
▪ Restrictions for new EU members’ nationals’ mobility
▪ Differences in social protection
• Health insurance
• Unemployment benefits
• Pension rights
▪ Regulated professions
▪ LANGUAGE
▪ Housing
▪ Etc
7.4. The refugee crisis
7.4.1. Definitions
•
•
What is the difference between an asylum seeker and a refugee?
o An asylum seeker: “Someone who is seeking protection in another country
but has not yet obtained official refugee status.”
o A refugee: “Someone who was forced to flee because their home country is
unsafe and their government cannot or will not protect them.”
→ This means that ALL refugees are initially asylum seekers, but not all asylum
seekers are ultimately recognized as refugees
7.4.2. The size of migration worldwide
7.4.3. The refugee crisis in Europe
7.4.3.1. What?
Through Hungary!
•
•
Many of them moved to Germany and other Norther EU nations
The EU and its members were not prepared to this huge flow of refugees
•
Although not all of those arriving in Europe choose to claim asylum, many do
o In 2015, the number of people applying for asylum in the EU peaked at 1,26
million
o Most of the asylum seekers in the EU in 2015 came from Syria, Afghanistan,
and Iraq
7.4.3.2. Challenges
•
•
The large inflow of asylum seekers posed immense difficulties in dealing with their
applications, which is also reflected in the number of pending applications.
Also, not all of the refugees who seek asylum belong to the category ‘others’: there
are also lots of so-called ‘economic refugees’
There were two key EU shortcomings when it came to their immigration policy:
• 1) The removal of internal border checks on people made the EU’s external borders
a matter of common concern to all members
o Very little was done at the EU level to reinforce the EU’s external borders
(once they are in, they can move freely in Europe)
o The main responsibilities were left to the individual member states
o This led to investments in border controls in the frontier members that was
sub-optimal from the perspective of the EU as a whole
• 2) The rules for managing asylum requests were not designed for so many requests
at once
o The basic principle of the EU’s asylum system (the Dublin System): An asylum
seeker can only apply in one EU nation, and that should normally be the EU
nation where (s)he first entered
o However, within 1 year, more than 1 million immigrants arrived in a few EU
nations, that were either poorer than average (i.e., Hungary), economically
suffering from the crisis (Italy, Spain) or both (Greece)
7.4.3.3. How did the refugee crisis nearly led to the end of the EU? (NOT IN EXAM)
•
•
•
Eastern Europe said also no to quotas, both voluntary quotas as well as forced
quotas. “If you have quotas, you will only encourage refugees: They will know that
they can come and then Europe will have to deal with them”
Moreover, the plan to spread the refugees would not apply to everyone: Some
countries would be out of the system, such as the Uk who was out of the EU
passport free Schengen agreement. They could opt out (which they did! BREXIT) of
any system to share the burden of migrants. So, the UK stated: “We want to help by
bringing the refugees to the nearest country, most likely Italy, but we will not take
these refugees in”
So, in the end, at this European council meeting, they agreed on a proposal to
distribute the migrants, but on a voluntary basis.
o However, some countries would never agree to do this.
Juncker versus Tusk! (liberal)
•
•
At that moment – After the Arab Spring – many refugees from Africa and the Middle
East were coming in → We reached record levels.
Clearly two camps in Europe: Eastern Europe versus Western Europe: The two
protagonists: Hungary and Germany
o 1) Eastern Europe – The poorer countries, mainly Hungary – were against
refugees. They were taking an increasingly hard line.
▪ Victor Orban, the Hungarian Prime Minister built a very huge fence
along his southern border to keep migrants out. “If you want me to
defend my border, that is what I do.”
o 2) Germany, biggest player in the EU, saw things differently.
▪ The public sentiment there was more pro-migrant, as was the
chancellor, Angela Merkel, who grew up behind the Berlin Wall, and
knew very well how painful closed borders can be.
▪ Many German people also thought it was time to show the friendly
face of Germans, and to liberate them of the memories of Germany’s
dark past.
• In the meantime, civil war was driving millions out of Syria,
creating the biggest wave of refugees to hit Europe since the
second world war.
•
•
Hollande called Merkel and said: “yes, we have to go for compulsory quotas in the
EU, but also for a better control of the borders”.
o So, Hollande also agreed to a division of the refugees
o So, the two most influential leaders of the biggest EU economies were on
one line
But Orban was still not convinced, and was opposed as countries like his would have
to deal with massive amounts of refugees that would enter through the Balkanroute
aiming at getting to Germany
o He said: “The problem is not a European problem, but a German problem.
No-one of these people would like to stay in Hungary, Slovenia or Poland, or
any other country, they all want to go to Germany, so it’s their problem, not
ours”.
o Orban wanted to demonstrate that the current system was unsustainable, so
he stopped all migrants who were bordering trains from Budapest to
Western Europe. He said he was applying EU law: They do not have valid
documents (passports and travel permission), so I can’t let them through.
•
•
•
•
•
•
•
•
Merkel said: “We will take our fair share of these people, so that they can live in
peace”
At that moment, she faced a decision that would have consequences for the rest of
her political career
The Austrian government wouldn’t let the refugees in at the border with Hungary
unless Merkel would confirm they would be able to continue on to Germany
Germany has 80 million inhabitants, so 20.000 refugees from the Budapest station
was not a real problem.
Merkel said “Yes”
Everyone was able to cross the border without accidents
Merkel asked her closest allies to help with this stream of refugees
The other nations asked Merkel why she did take that decision without first checking
whether they were genuine refugees (economic refugees)
•
•
•
Registration centers were set up in Italy and Greece. But there were simply too
many refugees, and it took ages
Only two months later, in November, they decided to flew the first refugees to
Luxembourg. But the refugees didn’t want to go there, as they had never heard of it.
They wanted to go to Germany
o 30 refugees were convinced to go to Luxembourg, while more than 200.000
had in the meantime arrived in Greece in the last month alone
The goodwill towards migrants was evaporating. Across Europe anti-migrant
parties emerged
o Cologne New Year’s Eve (Weihnachstmarkt): Dozens of migrants were
accused of attacking women. For many, this was the final straw
The wall had holes…
•
•
•
With the gate to the rest of Europe closed, there was little incentive for more
migrants to make the journey from Turkey to Greece.
So, indirectly, this ‘move’ of Eastern Europe gave the UE a much stronger position
in their negotiations with Turkey.
Tusk said: “People, do not come to Europe. Do not believe the smugglers. Do not risk
your lives or money. Greece is NOT a transit country anymore.
7.4.3.4. Measures taken by the EU to manage the refugee crisis
•
•
What were the measures taken by the EU chronologically seen from the moments
the number of refugees started to increase (=from 2013/2014 onwards)?
They can be broadly divided into 4 measures:
o 1. MONEY: Some (transit) countries faced and still face important
challenges in terms of emergency response capacity (Greece, Libya, Turkey).
They needed MONET. The EU gave money:
▪ Over €8 million have been transferred to Libya since mid-2014
▪ 2016, the EU allocated €83 million for emergency support projects to
assist refugees in Greece.
o 2. Partnerships with North African countries were built to limit illegal
immigration and smuggling of migrants and to improve the protection of the
EU borders, including the Mediterranean coast
▪ Several measures were taken, such as the Migration Partnership
framework (2016)
o 3. Reform the Dublin Convention (apply refuge status in country of entrance)
▪ Why?
▪
What? What was the Dublin Convention of 1990?
7.4.3.5. Public debate on migration?
IMPORTANT, MAYBE EXAM?
Now, we have Dublin IV (4):
7.4.3.6. Effects of migration flows on destination countries.
7.5. The situation today
•
Since the end of the “2015-Refugee crisis” and the “2016-EU-Turkey Deal” several
things happened:
7.5.1. An update on the EU-Turkey deal
•
This deal was and still is controversial for several reasons:
o Through thigh financial agreements with Turkey, the EU outsourced the
protection and care of most of the refugees from the Middle East to Turkey,
because the EU could send all new irregular migrants that were arriving in
Greece back to Turkey
o However, in Turkey the refugees are only granted ‘temporary protection’ and
have fewer rights.
o In this respect, Amnesty International already reported violations against
refugees in Turkey
o Migrants started to take other, more dangerous routes
o The EU had put itself in a more vulnerable relation about Turkey.
7.5.2. Covid-19 slowed down the influx of refugees
7.5.3. Putin’s Special Military Operation led to a wave of Ukrainian refugees
•
Putin’s operation in Ukraine (see a later chapter) that started in February 2022 led to
a huge influx in the EU of Ukrainian refugees
• By February 2023 (1 year after the invasion) 8 million Ukrainians have fled their
country (on a population of 43 million)
• The EU activated its “temporary protection directive”, granting Ukrainian refugees
the right to residence, work, education, housing, health care, and social security in
the EU country of their choice
o This protection was initially granted for one year and has already been
extended until 4 March 2024
o It can be extended for another year, depending on the evolution of the
situation in Ukraine
o About 5 of these 8 million refugees registered for Temporary Protection or
similar national protection schemes in Europe
• However, contrary to refugees coming in from non-European countries, EU citizens
were more open to welcome these Ukrainian refugees than non-European refugees
Where did the Ukrainian refugees go to?
Poland, Germany!
7.5.4. A new peak in arrivals of refugees since end of 2022 / Beginning of 2023
•
The situation in a nutshell:
o In 2022, just under 1 million people applied for asylum in the EU, Norway,
and Switzerland
o The Ukrainian asylum applications are not included in this figure because
they go through a different asylum procedure
o This is the highest number since 2016, when there were about 1,25 million
asylum applications
o The number of asylum applications rose by half since 2022
But why this increase?
• Corona travel restrictions that have fallen away
• Violent conflicts in several countries
• Prevailing food insecurity (also partly caused by the war in Ukraine, see a later
chapter)
•
Where did they come from?
o Most of these refugees and migrants come from Syria, Afghanistan, and
Turkey, due to:
▪ The Syrian civil war that has been going on since 2011
▪ The Taliban’s rise to power in Afghanistan that led to an increase in
violence in the country
▪ Skyrocketing inflation in Turkey and the erosion of democratic
principles in the country
o Where did they go to?
▪ Official data is not available
▪ However, according to an internal report from the EU, Germany tops
the list, followed by France, Spain, Austria, and Italy
▪ Belgium received 36.871 asylum applications in 2022, on top of the
63.356 asylum applications from Ukrainians
•
•
Reaction of the EU?
o The 5 million asylum applications put a lot of pressure on the EU
o Contrary to the refugee crisis of 2015, the EU does not use the “Dublin III”
regulations anymore, but the newer (2020) “pact on migration and Asylum”,
with a fairer division between member states is not used yet either and will
probably only be implemented by Spring 2024. So, we are somewhere in
“between” now.
o However, several countries asked for European money for new or better
fences at their borders to stop illegal migration.
Is this something new fences in Europe?
o No, at the moment along the entire continent there are already more than
2.000 km’s of fences. This is 13% of the entire European land border
o However, most of them are built and paid for by the countries themselves
o FYI: Most are built after 2014: 300 km existed already before 2014 and 1.700
km was added between 2014 and 2022
Why are they being built? 3 reasons:
•
•
•
To stop illegal migration
o I.e., the fences at the borders in Greece, Hungary, Austria, and Bulgaria
o Or the fence around the Calais port and train tunnel that were all built since
the refugee crisis of 2015-2016
For security reasons
o I.e., the fence that splits Cyprus versus in two and the fence around the
Russian exclave of Kalingrad, between Poland, Lithuania, and the Baltic Sea
Or both
o I.e., Finland is also building 200 kms of fences on its border with Russia
7.6. The Public debate on migration
•
•
•
In 2015, this huge wave of immigrants has led to strong reactions in most
countries:
o Reactions from the left side: Socialist reactions
o Reactions from the right side:
▪ = fear that the newcomers steal their jobs, overrun their
communities, and undermine their way of life
▪ = Xenophobia (angst voor buitenlanders)
Is this something new?
o No, public debates on migration policies have always existed in countries
with significant migrant populations
o Crises (economic, refugee, terrorism) often re-animate these debates
How does the average EU citizens think about migration?
o Since May 2011, the EU’s Eurobarometer opinion survey has included a
question about the most important issues facing the European Union
▪ Between 2011 and 2014, EU citizens were most worried about the
economic situation, unemployment, and the state of member states’
public finances (figure next page)
▪ These concerns gradually became less pressing as the economic
situation improved
• People tend to be more satisfied when there is prosperity
• Vice versa → Poor economy → Blame the migrants.
▪ On the contrary immigration and terrorism became more important
▪ After 2015, there has been some decline in the important of
immigration issues, while terrorism remained a big concern.
EUROPE IS MOST ANTI-MIGRATION!!!!
•
What should the EU do in the future? Go for a European approach to fight illegal
immigration from outside the EU or “each country on its own”?
7.7. Summary
Empirical evidence: Foreign labour DOES NOT lower wages – NO SUPPORT
Chapter 8: Brexit
8.1. Brexit (‘British Exit’): What and why?
8.1.1. What?
•
•
•
•
•
A referendum on whether the UK wanted to stay in the EU or get out.
On 23 june 2016
A turnout of 72,2% (33,5 mio voters)
51,9% voted in favour of the Brexit, 48,1% against
o Majority voted in favour of Brexit! (almost 50-50%)
Distribution across the country:
o The North: Scotland and Northern Ireland: AGAINST BREXIT
o London ALSO voted against the Brexit
o The South: England and Wales: In favour of the Brexit!
8.1.2. Why a referendum?
•
•
•
•
Early 21st century: EU membership was questioned (Why? See below)
Political situation?
o Parliamentary elections of 2005: Labour was the largest party
o May 2005: David Cameron became the leader of the
conservative party
o Parliamentary elections of 2010: The Conservative party
became the largest party in the parliament but without a
majority → a coalition government was formed, with Cameron as prime
minister
o Elections of May 2015: The conservative party won again most of the votes
→ An exclusively conservative government was formed, led by David
Cameron
Holding a binding referendum on British membership of the EU had been one of the
Conservative Party election promises in the May 2015 elections.
Cameron himself was in favour of remaining a member of the EU (i.e., the ‘remain’
camp) and was therefore not eager to organise a referendum. However, he was
under great pressure:
o
•
•
So, the pressure to organise a referendum became larger and larger
Hence, Cameron decided to organize a binding referendum on the UK’s membership
of the EU, framed on an “in/out question” to:
o On the one hand, curb the rising popularity of UKIP
o On the other hand, appease/sooth the Brexiteers within his own party
8.1.3. Why did so many British citizens wanted to leave? (THEY HAD THEIR OWN COMMON
WEALTH and they were angry) → PLUS 7 Reasons!
UK was not in the discussion between the coal and steel deal between FR and GE
The people that were PRO EU:
• UK wanted high-skilled people to restore UK’s competitiveness
• However, this means that low skill workers can be replaced by migrants
o There were a lot of low skill workers
IF WE LOOK AT NUMBERS, these Middle Eastern refugees did not necessarily wanted to go
to UK!
YOUNG vs OLD people!
• Young wanted to remain in Europe (27% pro Brexit)
• Old people wanted Brexit! (60% pro Brexit)
There was a turn up rate of 70% about this referendum. 30% DID not vote!!! Probably,
young people voted less..!
•
•
Also, higher educated people and less nationalistic people voted against Brexit.
And lower educated and more “people that identify as English” voted pro Brexit
8.1.4. The direct consequences of the referendum
•
•
•
•
•
•
Cameron realized he had heavily lost.
At 10 am, the day after the referendum, he stated: “I will do everything I can as
Prime Minister to steady the ship over the coming weeks and months, but I do not
think it would be right for me to try to be the captain that steers our country to its
next destination.”
As he himself had campaigned for British EU Membership, his position had become
untenable, so he resigned.
On 13 July, 2016, Theresa May succeeded David Cameron as Prime Minister of the
UK
Problem: There was no script of what had to be done to actually make that Brexit
happen as Cameron had thought he was going to win
What kind of relationship had to be built within the EU?
RULES ON HOW TO LEAVE THE EU (LISBON TREATY)
8.1.5. The choice between a hard Brexit (no-deal Brexit) or a soft Brexit (With Deal Brexit)
8.2. The Brexit negotiations and outcome? (only most important things)
8.2.1. The UK Government announced its intention to withdraw on 29th March 2017
8.2.2. And then more than two years of bickering started… (non stop discussions for a deal)
8.2.3. The final outcome?
There was a little bit of a “deal Brexit” → Something with fishing policies with Scandinavia
(Norway) (Common fishery policies, CFP)
With Sunak, you have a deal with something about Northern Ireland → NO BORDER
CONTENT OF THE PROPOSAL (Northern Ireland can get EU goods through Ireland)
8.2.4. Is the EU more important for the UK or vice versa?
•
The EU is very important for the UK
o The EU-27 accounted for about of 50% UK’s imports and exports in 2016
o The rest of UK imports and exports went to Asia, the Americas and the nonEU countries in Europe, such as Switzerland and Norway
8.3. Do residents of other members also want to leave?
8.3.1. Was/Is there a demand for a “Belxit” in Belgium? → Answer: NO
8.3.2. And in the other EU Member States? (Czech Republic, Italy, France are maybe more
favouring EU exit)
8.4. Summary
Chapter 9 – Part 1 (01:16:57) : Changing world order (Putin’s War)
9.1. A bipolar world (1945 – 1991)
9.1.1. During the Cold War (1945 – 1991)
•
•
The US versus the SU
o Most other countries/regions were under one of the two spheres of influence
Europe:
o Blue
▪ = under capitalistic influence
o Red
▪ = under communistic influence
9.1.2. The end of the Cold War
9.2. A unipolar world (1991 – 2008/2009) (US became leader of the world)
9.2.1. The economic model of the US – Capitalism – seemed to work
9.2.2. The US took the lead in the war on terror after 9/11
•
•
•
•
“This made sense” from a terrorist attack perspective
o It were terrorist attacks in the US
Targets?
o The WTC towers → Symbol of economic power
o The pentagon → Symbol of its military power
▪ → Approximately 3.000 deads and over 6.000 power
▪ → Terrorist struck the US at the heart of the American society
▪ “The USA is no longer protected by vast oceans”
o Responsible?
▪ Osama Bin Laden and Al-Qaida
o Motive?
▪ Revenge for the American-Israeli oppression of Palestinians in Israel
▪ An aversion to Western (American) Films, music… and values that
would undermine the Islam
Bush Jr’s reaction: “The War on Terror”
o
Bush Jr. called them “the Rogue States”.
o Who were they?
▪ Muslim extremist states harbouring terrorists
▪ States suspected of possessing weapons of mass destruction
▪ Dictatorships with human rights violations
IRAQ AND
AFGHANISTAN joe biden promised to withdraw the soldiers from afghanistan
9.3. A multipolar world with increasing rivalry (2008/9 – 2020) (more than one or two
Powers)
•
The last decade we could witness a change in the geopolitical system
o → Covid-19
9.3.1. 2008-2011: a number of important events
9.3.1.1. 2008-2009: The crises (global crisis + Eurozone crisis)
9.3.1.2. From 2011: The Arab Spring and Islamic State
Only tunesia was blue =
became democratic
•
And WHAT had the terrorist group IS to do with all this?
•
•
Changes in the balance of power within Iraqi society had led to the creation of ISIS
o
•
•
•
•
•
•
•
Frustrated SUNNIS joined AL-QAIDA in Iraq in 2006 under Abu Musam al-Zarqawi to
“protect the Sunni Iraqis and defend Islam
o They committed hundreds of attacks against the Shiites and against the
multinational forces in Iraq (US, UK, etc.)
The Americans and the Shiite government fought Al-Qaida and Killed the leader Abu
Musab al-Zarqawi in 2006
In 2010, Al-Qaida in Iraq becomes ISIS, led by Abu Bakr al-Baghdadi with the original
goal:
o A Jihad against the Americans in Iraq and their accomplices (mainly: Shiites)
Meanwhile, the Arab Spring had broken out in several countries, including Syria
o Where the common man started protesting 40 years of the Assad family
o These protests had started peacefully, but soon Basshar al-Assad reacted
with violence
o This resulted in a bloody civil war starting in the spring of 2011 (started on 15
March 2011)
ISIS saw an opportunity here by extending its field of operations to Syria
ISIS became large and popular, both in Syria and Iraq
It then got complicated!
Tourist cities were hit! Orange colour on map
ASSAD WAS BIG WINNER AFTER IS!
9.3.2. Which “Great Powers” have (or have not) played a role since 2008/2009?
9.3.2.1. The US, the great world leader of yesteryear
•
•
•
Over time since 2008 and 2009 and definitely by January-March 2020 (the moment
of the Covid-19 outbreak), the US was no longer the uncontested world leader
The US itself was partly to blame by its own policies: it became more focussed on
itself and less on the rest of the world and this for several reasons (see below)
o = Bush (2001-2009) versus Obama (2009-2017) versus Trump (2017-2021)
o What policies will Biden follow?
So, a power vacuum was created over the last decade (China???)
This overview shows the difference in foreign policy of the different Presidents in the last
decade of the USA and their geopolitical situation of that time, and what their trade policy
was.!
9.3.2.2. Russia, trying to play a role again
•
At the time of the fall of the USSR (beginning of 1990s)
o Russia was not a large power anymore: 1/3rd of the former land area was
gone and half the population
o Moreover, the main industries of the SU and its raw materials were in the
meantime located in independent nations, such as Ukraine
o At that time, Vladimir Putin, who saw how the great empire was
disintegrating, and how it was losing power and relevance, was a 37-year old
KGB agent in East Germany
o He would never forget the humiliations and set out to restore Russian honor
and territory
o The common man expected a lot from the capitalism of the ‘free West’
▪ But who was the first president of Russia?
•
•
•
•
•
•
Boris Yeltsin tried to increase Russia’s strength again when he came to power:
o He tried to build a modern Russian nationstate at peace with its sovereign
neighbours, on the ruins of the Soviet Empire
o He began a “Westernising experiment” to try to turn an imperial power into a
democratic state
o Namely by turning a science state-owned command economy into a free
market system
However, Yeltsin wanted to go too quickly and he failed (see figure next pages)
o The sudden liberalization made the economy collapse
o Gangster capitalism was created, whereby a tiny elite became fabulously rich
by plundering the assets of the major industries – especially oil and gas
o In 1998, Russia entered a financial crisis when the economy completely
collapsed: the rouble lost two-thirds of its value in 1 month and inflation hit
80%, the government was financially bankrupt
o Ordinary Russians felt robbed. The great westernising experiment
Over the next 20 years – under mainly Vladimir Putin – Russia would retreat from
democracy and return to authoritarian rule
o = retreat from nation-statehood
o + a return to a more assertive imperial attitude to its “near abroad”
o – the countries that had previously been part of the Soviet Union.
However, in the mean time that “near abroad” had become several independent
nations after the fall of the Berlin wall and were not longer “theirs”
Some of them had even joined the European Union, others not
One of these ‘others’ was Ukraine, geopolitically situated literally in between the
East and the West (buffer state?)
o The country’s name comes from a Russian word for edge, or periphery
o Putin had always regarded it not as a neighbouring country, but as the
frontier land of Russia itself – and all this time, he wanted it brought back
into the Russian fold
o Later more on this..!
In recent years, Russia has also tried to play a role, both militarily and politically
9.3.2.3. China, trying to restore its former glory as a Silk Road
•
Economically, China has become a global player:
Explanation of this transition?
• The conservative modernisation continued after 2000.
• Big companies, financial power, and economic power of Chinese people overseas
(Taiwan, Singapore) and the components technocrats within the communist party
played a very important role in this transition
2) At the same time, China is a fragile superpower:
It’s growth model is mainly based on EXPORTS (75% of its GDP)
•
•
There is a lot to do around this initiative and there were many suppoers, but also
many opponents
i.e., within the EU, Greece and Italy had joined, while other EU countries (such as
France and Germany) viewed the initiative with some suspicion
9.3.2.4. And the EU? It did not do much
EU is individualistic in this sense?
9.4. The World Order today: A shifting world? An A polar world? A new Cold War?
9.4.1. Two recent events will have an influence on the future world order. (COVID and Putin)
9.4.1.1. The Covid-19 crisis (2019)
•
•
•
•
Already hundreds of articles have been written on the Covid-19 and its possible
consequences
The virus hit every state, great and small! The later states acted, the more people
died, the greater the economic and social disruption. And the deeper the debts from
which they will need to recover!
At the height of the COVID-19 pandemic (so, in 2020), the international diplomacy
was mainly about shifting the blame and creating distraction
o Various powers threw conspiracy theories at each other as well as
disinformation campaigns; They tried to reassure their own people
▪ I.e., President Trump had to make his own people forget his initial
dismissal of the pandemic as “a small flu” and a “hoax by the
democrats”. To do so he repeatedly blamed China for “that Chinese
virus”
At that moment (2020, Biscop stated the following with regard to the existing and
future rivalry of the great powers
o
9.4.1.2. Putin launched a Special Military Operation” in Ukraine (February 2022)
•
•
•
See case study at the end of this chapter
In 1948, Winston Churchill said – When talking about Russia – the following:
o “I cannot forecast to you the action of Russia. It is a riddle wrapped in a
mystery inside an enigma. But perhaps, there is a key. “That key is Russian
national interest” – Winston Churchill
You need to understand the interest of the other in order to design effective
strategies to respond and anticipate while reducing the risk of an escalation of
tensions
o In this respect, great powers compete and cooperate with each other at the
same time. They are partners, competitors and rivals at the same time –
(Biscop, 2020)
o We need to understand WHY Putin did this.
9.4.2. How do the different world players look at the world today?
9.4.2.1. The US
•
Immediately before and during the Covid-19 pandemic
o The order of priority had changed for the US
▪ While during the cold war mainly good connections with Europe
• = Berlin had priority over Saigon
▪ The last years (and increasingly under Trump), China became the
priority (and then mainly its rivalry with China)
• = Saigon has priority over Berlin
South Korea is
also a big chipmaker
9.4.2.2. Russia (poor due to low oil/gas prices during Covid! Manufacturing went down)
9.4.2.3. China
9.4.2.4. The EU
•
How?
o Instead of joining the rivalry, the EU sought to contain it
o However, it also had become more aware that it needed to look after its own
interests
o This new idea could be found in several of the EU’s strategies, papers, etc.
from the year 2016 onwards. For instance:
▪ The 2016 EU global strategy
▪ The EU-Asia Connect Strategy of 2018
o = “Cooperate when you can, but push back when you must”
NEW COLD WAR: (US + EU) vs (China + Russia)
•
A few examples:
o i.e., with regard to the US:
▪ The EU’s default position was to work with the US to defend the
European interest
▪ HOWEVER, if the interests of the EU and the US on a specific issue
diverged, the EU world be able to work with other powers, including
China.
o i.e., with regard to Russia:
▪ The EU had maintained sanctions since the Ukraine crisis of 2014, but
it decided that it could still cooperate with Russia on other things
▪ (= disagreement on one thing and cooperation on another)
▪ (= deterrence and détente)
o i.e., with regard to China
▪ Instead of only telling China it had to respect the unity of the EU, and
that the Chinese market had to be equally open to European products
as the EU market was to Chinese products, they recently added
something: In 2019, the EU clearly stated that if China would not do
that, the EU would have to limit China’s access to the EU in the
future!
▪ Europe also started to realise that China had increased its presence
and power into a number of key African countries after the financial
crisis and wanted to stop this
• China did this through FDIs (they were sitting on a pile of cash)
▪ The EU also started opposing China who was simply “buying itself into
certain strategic companies or strategic locations” (i.e., by buying
strategic Greek ports after the 2009 crisis)
•
Since February 2022:
o However, since the invasion of Ukraine, this changed
o The EU realizes it is dependent from the US as it doesn’t have its own army
o It also understands that the invasion of Ukraine can be seen as a threat to the
EU. What are Putin’s aims? Where will he stop?
o So, if we ended up are in a new Cold War, the EU is clearky on the side of the
US
9.5. CASE STUDY: Putin’s “Special Military Operation”
9.5.1. Why did Putin invade Ukraine? By invading he wanted: (Puppet government and a
neutral Ukraine)
•
Official justification (= how Putin sold it in in Russia)
o Russia was threatened by Ukraine, so he claimed he had to put this to an end
▪ “Modern, Western-leaning Ukraine was a constant threat and Russia
could not feel “safe, develop, and exist”
o Moreover, he claimed Ukraine was full or Nazis and had too many arms, so
he said he had to:
▪ “demilitarise and de-nazify Ukraine, to protect people subjected to
what he called eight years of bullying and genocide by the Ukrainian
government”
o Furthermore, Putin insisted “we do not intend to impose anything on anyone
by force”
o Moreover, he claimed that it was not a war or an invasion, but merely a
special military operation
▪ It’s not a war, because an invasion can only happen if you invade a
FOREIGN country. → UKRAINE IS RUSSIA according to Putin
Putin wanted the following by invading:
•
•
•
Puppet government in Ukraine
Neutrality of Ukraine (refrain Ukraine from joining NATO)
That Ukraine recognises the Crimea as part of Russia and to liberate the Donbas
9.5.1.1. To overrun Ukraine and put a ‘puppet government’ in place. After all ‘Ukraine is
Russian’
9.5.1.2. That Ukraine would become neutral
9.5.1.3. That Ukraine would recognise Crimea as part of Russia and that it would ‘liberate the
Donbas’
9.5.2. Wat are the reasons for these demands?
How did he came to these ideas? → We have to look in history!
9.5.2.1. Why does he think Ukraine is Russian? (Explains why he wants a puppet government)
•
•
•
However, Ukraine important for the Soviet Union
o After breakup of SU, Ukraine was
▪ 2nd most powerful republic of the SU
▪ 2nd largest area
▪ Most people
o Soil wise a rich country → BREADBASKET of the SU and now EU
As stated before, Putin considers the fall of the Soviet Union in 1991 as the “biggest
mistake in history” → According to Putin, it was a mistake that Ukraine became
independent
HOWEVER, if you go further back in history, you see that Ukraine has already been
a state before. (before it became independent after the fall of the USSR in 1991)
o Austria-Hungary, Ottoman empire and they called this – NEW RUSSIA
(Novorossiya)
▪ This became later part of his 2014 propaganda.. more on this later!
This means that Putin was cherry picking his history facts → SELECTIVE HISTORIOGRAPHY!
After the Russian revolution, the Ukrainian People’s Republic was formed in 1917 but was
forced to join USSR.
•
What happened after the fall of USSR in 1991?
o Referendum on independence on December 1st 1991, so right before USSR
collapsed
▪ All were in favour of independence
▪ Even in the East (Donetsk and Luhansk)
▪ Even in Crimea, more than 50%
But what did Ukraine want after the fall of the USSR? → To look at West or East?
•
What were the main challenges at the moment Ukraine became independent?
o 1. It took a long time to agree on the bords
▪ Big border!
o 2. What to do with the black sea fleet in the Crimean Peninsula?
▪ It was a huge naval base
▪ Strategically important, both to the USSR and Russian Federation
(Putin)
▪ Russia didn’t want to abandon it → Negotiations: Russia could lease
this naval base for 20 years in exchange which got extended to 2041
later due to a Pro-Russian president, Ukraine got a reduced gas
price..!
o 3. The question of nuclear non-proliferation: (verspreiding/wildgroei/snelle
toename)
▪ After independence, Ukraine had the 3rd largest nuclear arsenal
▪ Russia was scared that Ukraine would have so many nuclear arms
▪ To convince Ukraine, the Russian Federation signed in 1994 the
“BUDAPEST MEMORANDUM”, a treaty on non-proliferation of nuclear
weapons.
• Co signees: USA, UK
▪ Ukraine would get “security” and “protection of territorial integrity” if
it would join the treaty
▪ RUSSIA VIOLATED THE THIS TREATY ‘Budapest memorandum’
So, did Ukraine wanted to “join” the East or the West since its independence?
1. There was no ethnic violence after 1991, but there was a divided country when
looking at the elections:
a. Almost in all elections, the West voted for a pro-European candidate and the
East voted for a Pro Russian candidate
Yellow = pro EU AND Blue = pro Russia
2. Regionalism (LANGUAGE)
a. Is there a peaceful coexistence in Ukraine or is it a divided country>
b. The amount of Ethnic Russians in Ukraine is only 17%, but the amount of
Russian speakers is between 46 and 48%
c. Russian was a regional language in several provinces in Ukraine, but in 2018,
because of the conflict with Russia, Ukraine considered this unconstitutional
and since that moment “Ukrainian” became the only official language in
Ukraine
i. Putin did not like this
A lot of Russian
speakers in Crimea and Donetsk and Luhanks
•
4. Until Maidan, in 2014, that became a breaking point in this balancing.
o
Maidan after the protest lol → Before & After
5. Russia responded in 2014:
a. With the annexation of Crimea in March 2014 and by triggering a rebellion in
the East (Donetsk and Lugansk) in April 2014
b. More on this later…
6. In 2019, Volodomy Zelensky became president and he clearly looked to the West for
closer cooperation
a. He was an actor playing a teacher who was presidential candidate who
became a president in real life
b. During his presidential campaign, Zelensky:
i. Promised to end the conflict with Russia and to enter into dialogue
with Putin
ii. Said that he supported Ukraine in becoming member of EU and NATO,
but Ukrainians had to decide on these two things
c. Maidan had made the regional division in Ukraine disappear: → Many people
voted for Zelensky, both in East and the West (won with 75%), defeating
Poroshenko
9.5.2.2. Why does he want a neutral Ukraine? (= ending for good Ukraine’s desire to join
NATO)
•
•
NATO’s eastward expansion since 1997 is seen by Putin as a threat
o What’s Putin’s problem with NATO? According to Putin, the NATO has one
aim: Namely, “To split society in Russia and ultimately destroy it”
Why? This all goes back to NATO and the fact that NATO extended Eastwards after
the fall of the USSR.
•
•
What was NATO? (Northern Atlantic Treaty Organisation)?
o Formefd in 1949
o It was seen as practical means through which the security of Nort America
and Europe would be permanently tied together
o = They agreed to come to one another’s aid in the event of an armed attack
against any member stae
o In 1949: 12 members: USA, Canada and 10 Western European states
o As a response, the East created its own pact: WARSAW PACT
o However, the Warsaw pact dissolved together with the SU in 1991
Following the collapse of the SU in 1991: A number of former Warsaw Pact
countries switched sides and became NATO members
o 2022: 30 members: → Today, it is more important to know who is not in!:
▪ Ukraine, Belarus, Moldova, Finland, Sweden, Ireland, Austria,
Switzerland, Serbia and Bosnia-Herzegovina
You see how big of an expansion NATO would
be if Ukraine joins NATO
This is what USA and EU meant with “not to move one-inch further East”
•
•
•
Ukraine was also offered membership of NATO back in 2008.
o This would mean NATO would create military bases and missile systems at
Russian border → It would bring NATO forces into Russia’s backyard.
Putin wants to shrink NATO and prevent Ukraine from joining NATO before 1997
So, when he prepared to invade in February, he tore up the unfulfilled 2015 Minsk
peace deal, and accused NATO of threatening “our historic future as a nation”,
claiming without foundation that NATO countries wanted to bring war to Crimea
•
In a speech, few days before invading Ukraine:
Important note: In the constitution of Ukraine in 2019, it says that it’s a goal to join NATO
(and the EU). To change this, a referendum is required!!!
B) Now, why isn’t NATO sending troops to Ukraine and why is it not imposing a no-fly
zone?
•
•
•
Ukraine is not in NATO
If NATO sends troop → WORLD WAR 3?
NATO has also rejected imposing a no-fly zone over Ukraine, to deny Russia air
superiority and protect civilians. Why?
o It wants to avoid entering the conflict with Russian air forces
o Because if Russian planes would deny the no-fly zone and fly, NATO planes
would have to shoot them out of the sky
o Russia could then use this as a reason to declare war on the NATO
C) How is NATO helping Ukraine?
9.5.2.3. Why does he think Crimea is part of Russia and why does he want the Donbas region
to be independent?
•
•
More than a third of this Donbas area was already seized by Russian-backed
separatists in the war that began in 2014
Donbas consists of Luhansk + Donetsk
A) Why did he wanted Crimea and the Donbas region so badly?
•
•
•
Crimea
o Black sea fleet, a huge naval base that Russia could lease from Ukraine until
2042 (due to pro-Russian president). By conquering Crimea, this float became
theirs
o And most people in Crimea speak Russian
Donbas (Luhansk + Donetsk)
o In 2021, agriculture was the biggest sector of the economy (breadbasket of
Europe). Ukraine is rich in natural resources, particularly in mineral deposits
(iron, manganese, titanium, nickel
o Apart from that Ukraine was also called the industrial base of the SU. Ukraine
has several industries such as ferrous and non-ferrous mettalurgy, chemical
and petrochemical, machine building… etc)
▪ Workshop of EU?
The region of Donetsk and Luhansk is referred to as the Donbas Region
o It is in the South-East of Ukraine
▪ Donbas = large coal basin = old industrial heart of Ukraine
▪ Donbas is a big industrial region
B) What happened since 2014 in Crimea and the Donbas Region
•
The annexation of Crimea (March 2014):
o After Maidan, the president fled and there was a regime change, which was
more western minded
▪ → From then onwards Putin started to talk about a coup that had
been committed in Ukraine by ‘Neo-Nazis’
▪ → So, that discourse was already proclaimed in the Russian state
media from then onwards. → It’s not something just from February
2022
o Putin reacted on Maidan:
▪ → “Little green men appeared all over Crimea and took over control”
▪ → At the same time, in Russia, there was a propaganda war justifying
the invasion by these men, although at that moment Putin denied it
were his men
End of part 3 … videolecture
9.5.3. Could (should?) we have seen it coming?
•
•
•
Experts in the field and people in the intelligence service knew that at some point,
something will happen. Politicians ignored the signs.
However, the last decades, several events should have triggered ALARM bells in the
West!
o But the West ignored it all because of our own economic interest (and then
mainly our energy supply)
▪ → There was a big fear of what we would lose if we went against
Russia
▪ → So, we turned around and looked the other way
But which events should have triggered alarm bells?
9.5.3.1. Putin’s wars abroad should have received more attention and should have alarmed us
(THE WAR IN GEORGIA 2008 = generale repetitive voor Oekraine)
9.5.3.2. Putin started using gas and oil as geopolitical instrument
•
•
•
Already, in January 2006: Russia turned off the gas tap to Ukraine for the first time
This lasted a few days, but set off alarms in Brussels
o → We need to diversify our energy supplies more because Russia not NOT
REALLY THAT RELIABLE
But what happened in practice?
o → More pipelines were built with Russia and energy dependence with Russia
only increased, not decreased
o → Think about the big pipeline projects, such as Nordstream 1 and
Nordstream 2
When the West challenged Russia with sanctions due to the War in Ukraine:
• Putin reacted by going to China and signed the biggest gas supply contract to show
to the West:
o We don’t need you as clients, we have China to support our economy
9.5.3.3. A changing world view in Russia that we didn’t want to see or had realized too late
But this changed halfway the 200s!
→ Russia demanded more geopolitical demands (Syria, Georgia, Ukraine!)
→ West had only a small reaction (We did nothing in Syria and Georgia)
9.5.3.4. Putin’s ultimatum to the US and the NATO at the end of 2021 that we had not
accepted (USA had to dismantle American security umbrella over Europe and NATO has to roll
back expansion after Cold War)
9.5.4. The reaction of the rest of the world? (Through United Nations)
Do you need to know all the votes? No. But it’s important to know that NOT the whole
world had the same “surprised/shocked” reaction towards the invasion of Ukraine. There
are also countries that do not vote against Russia.
Eritrea + Mali were the only two African countries that openly voted against!
Eritrea because
• Got arms from Russia
Mali because
• Russia helped them with a coup to… okay
And what is China’s stance on this invasion??
India is a country between:
• Russia for oil
• USA for defence
• China for more cooperation
9.5.5. How are Ukraine’s “allies” helping Ukraine? 5.6. How did Putin’s strategy already
change?
•
•
Several NATO nations as well as the EU have been sending military equipment
(including anti-tank weapons, anti-aircraft missiles, ammunition, fuel, helmets, body
armour, tanks) to Ukraine
Sanctions have been imposed on Russia, by the EU, US, Canada, some Asian
countries, Australia, New Zealand…
o
9.5.6. How did Putin’s strategy already change? (Plan A: Quick attack on Kiev and Zelensky for
puppet government)
•
•
Plan A (February 24th)
o Invade Ukraine from three directions – North, East and South – with the aim
of reaching the capital Kiev, getting rid of Zelensky quickly and install a new
regime
o However, this failed, Putin lost the battle of Kiev. There was fierce Ukrainian
resistance, heavy losses on the Russian side, and also, logistical problems
such as a mortgage of gasoline and food.
Plan B (already after 1 week):
o Erode Ukrainians’ resistance. This is called “softening” in military terms
▪ This is a bad term, because literally this means “artillery shelling from
a distance” → So, they no longer engage in real combat, but try to
weaken the enemy by firing from a distance and shooting at
everything – including civilian buildings – Flattening everything!
(Mariopul, Boetsja, Borodjanka, trainstation in Kramatorsk
o This caused enormous destruction, and many dead civilians
o However, it did not have the desired effect. Ukraine is too big and there’s not
enough troops
Plan C (April, 8th 2022): Repositioning (towards Donbas, connecting a land corridor)
Plan D (since April 2022): Lots of things happened (= creating conflict in Ukraine for long
time so that Ukraine is not allowed to become NATO member = rule)
• While focusing mainly on the East, Putin also literally bombed everywhere in
Ukraine, from Lviv in the West near the border with Poland to Marioepoel in the East
• He also bombed railroad stations and strategic hubs for the transit of Western
weapons and infrastructure (electricity facilities)
• He conquered some regions
• He illegally annexed 4 terriroties in September 2022
• But he lost lots of territory
• He mobilized 200.000 additional troops
• Putin also suspended the disarmament treaty “New START (Strategic Arms Reduction
Treaty)” that Russia had signed with the US
o His goals seems to be strategically make a land bridge between the Donbas
and Crimea
o That way, he can mortgage the future of Ukraine:
▪ → As long as there is a conflict zone in Ukraine, there is no question
of Ukraine joining NATO
9.5.7. A few of the possible word wide consequences (Hunger worldwide, bigger NATO, new
Cold War)
9.5.7.1. The war is causing more hunger worldwide
• At the collapse of the Soviet Union Russia and Ukraine combined had 1,5% of global
wheat export
• In 2021, both countries combined were good for 28% of global wheat export, 30%
of global barley export, and 18% of global corn export
• However, due to war Ukrainian export stopped:
o 6 million ton of wheat of the harvest of 2021 had not been exported yet at
the beginning of the invasion
o 95% of the grain is normally transported through the ports in the south.
These ports were destroyed or closed
o Many farmers in Ukraine were fighting (so grain was not being farmed and
harvested)
o Most grain is sown in the South-East (Donbas?)
Also, Russia stopped exporting (due to
sanctions)
•
•
This wheat shortage led to:
o Demand > Supply, so grain prices started to increase
Food riots were at the root of the Arab Spring at the time. Could this happen
again??? Rich countries paid the higher price, but this was not possible in poor
countries
And for some countries – Mostly poor countries in Africa and Asia – more than 50%
of their grain needs normally comes from one of those two countries
In Egypt it is even more than 80%
•
UN expectations for 2023: 8 to 13 million more people would go hungry
•
And this is on top of millions of people that were already in East-Africa because of
the worst drought in 40 years.
The war in Ukraine was expected to have an influence on the worldwide food supply
for years to come
So, something had to be done: → The two sides signed the “Black Sea Grain
initiative” in July 2022, to ship grain and other foodstuffs from Ukraine through a
safe corridor in the Black Sea
o Some food had gone directly to poorest countries → But large share of the
Ukrainian food exports went to rich countries
o Russia pulled out for some time in November 2022, accusing Ukraine of using
this safety corridor to attack Crimea
March 13, 2023: Russia agreed to extend this deal with 60 days
•
•
•
•
•
9.5.7.2. NATO will become even bigger, the opposite of what Putin wanted (Finland already
joined and Sweden wants to join)
•
Putin wanted to decrease the size of NATO, but the opposite will happen
o After decades of neutrality, Sweden and Finland applied for membership in
May 2022, following the Russian invasion
o Any expansion of the NATO always has to be approvied by all its members
o Finland became a member in March 2023 → 31 members
o Currently, only the “yes” vote of Turkey is still missing for Sweden…
▪ So far, Turkey is blocking Sweden’s accession. It accusses Sweden of
taking insufficient actions against “terrorist organisations”, more
specifically against the Kurdistan Worker’s Party (PKK)
o However, sooner or later it is very likely Sweden will also become a member
of the NATO
Finland has a lot of bunkers and shelters!! The Eastern border will become ONE big border
WITHOUT GAPS!!! Good good good frontier for West
Revival of NATO? → Macron said this already.. that NATO is braindead
9.5.7.3. The war might lead to a new Cold war, maybe in reality, for sure in people’s minds
Personally, it feels like:
• EU + US
• Vs
• China + Russia
But if Russia loses (which we hope):
Then it’s China vs USA!!
•
•
•
•
Chip war (ASML)
Spying on each other
Shooting down balloons
Asking people that work for the government to no longer use TIKTOK on their
corporate phones.
It seems the cold war has already started?? Between USA and China
•
•
And how will this Cold War look like?
o Only deterrence or more?
▪ During the Cold War, the Soviet Union was not engaged in large-scale
offensives under the nuclear deterrent
▪ Today, Putin does
o So, will this lead to a new Cold War with only psychological intimidation as
was the case during the first Cold War? Or will this be combined with real
violence?
In People’s mind? → It is possible that we see the Russian citizen as the “enemy”
even though it’s not the people’s war but Putin’s war
o During the Cold War, and for some time even after the fall of the wall,
people from the East and West distrusted each other as being the enemy
o Many people fear this Cold War mentality is back to stay
o One of the songs on this duality between the East and the West is the song
“Leningrad” from Billy Joel
▪ He wrote it in 1987 when going to Russia to give some concerts (so
during the Glasnost and Perestroika)
• Russia opened up to Western influence.
▪ His motive to go there was to show his daughter she did not have to
grow up with this paranoia of the big enemy on the other side
▪ He met a Russian fan who had to be the representative of his enemy,
but instead seemed to be just a normal guy and he became a friend
▪ He wrote a friend on this encounter on this DUALITY
END
Mathew Wong
Professor is a fan of Billy Joel – A Matter of Trust