Drew University - Madison, New Jersey 17940

European Semester Program – Fall term 2006:

Brussels (Belgium), September – December 2006

Syllabus:

The Political Economy of European Integration

(undergraduate course)

Angelo REATI

av. Emile de Beco 55 – 1050 Brussels

tel. ++ 32 2 648 20 60

angelo.reati@skynet.be

Course objectives:

The aim of the course is to present, within a non-mainstream approach, the main policies of the European Union, putting them in their theoretical context. At this purpose substantial attention is given to the theories inspiring such a policies as well as to alternative theoretical approaches that could usefully support a project for a progressive Europe.

General references:

JOVANOVIĆ, Miroslav N. 2005. The Economics of European Integration. Limits and Prospects, E. Elgar, Cheltenham (UK)

SWANN, Dennis 2000. The Economics of Europe. From Common Market to European Union, Penguin Books, London

HUFFSCHMID, Jörg (editor) 2005. Economic Policy for a Social Europe. A Critique of Neo-Liberalism and Proposals for Alternatives, Palgrave Macmillan, London

Additional reading highly recommanded:

THOMPSON, Grahame (editor) 2001. Governing the European Economy, Sage, London

Examinations

Two written examinations will be organised at the mid and the end of the course. The final assessment will be the average of the two results.

I. General background for an understanding European economic policy

1. Economic policy is guided by theory: a survey of paradigms

- the dominant paradigm (neoclassical)

- alternative paradigms:

Marxian, Keynesian, post-Keynesian, institutionalist, etc.

2. Background information on the economic history of the post-World War II period in Europe

· The facts: (i) macroeconomic evolution and economic structures; (ii) social situation and social struggles; (iii) economic institutions: national, international

· Their interpretation

neoclassical

the French “régulation” theory

the long waves approach

· Social values and ideology

3. The theoretical inspiration of the European economic policy

4. The stakeholders:

(a) employees; (b) unemployed people; (c) other marginalized people;

(d) capitalists: (d.1) financial capital, (d.2) productive capital, (d.3) big corporations, (d.4) small firms; (e) consumers, (f) gender aspects (when applicable)

Suggested readings:

BOYER, Robert and SAILLARD, Yves (editors) 2002. Régulation Theory. The State of the Art, Routledge, London 2002, chapters 1, 5 and 20.

Entry on: Regulation (by Robert Boyer) in: J. Eatwell, M. Milgate and P. Newman (editors): The New Palgrave: A Dictionary of Economics, Mcmillan, London 1987

FAGERBERG, Jan, GUERRIERI, Paolo and VERSPAGEN, Bart 1989. Europe – a long view, in J. Fagerberg, P. Guerrieri and B. Verspagen (Editors) 1999. The Economic Challenge for Europe. Adapting to Innovation Based Growth, E. Elgar, Cheltenham (UK), pp. 1-20

REATI Angelo and Jan TOPOROWSKI 2004 An economic policy for the fifth long wave, Banca Nazionale del Lavoro Quarterly Review, vol. LVII, n. 231, December, only pp. 395-408.

REATI Angelo 2000 The complementarity of the post Keynesian and Marxian paradigms: the case of labour value, Cahiers économiques de Bruxelles, n. 168, only pp. 482-489.

Entry: Post-Keynesian political economy: major contemporary themes, in:

O’ HARA, Phillip Antony (ed.) 1999. Encyclopedia of Political Economy, Routledge, London, pp. 883-887

II. Macroeconomic and Fiscal Policies

1. Recalling some basic notions on public finance

(i) definition of monetary aggregates; (ii) the quantity theory of money; (iii) the credit multiplier; (iv) functions of the Central Bank; (v) optimal currency areas

2. The theoretical approaches at stake:

Neoclassical, Keynesian and post-Keynesian

3. The present agreements:

· the Maastricht criteria

- definition of sustainable public finance

- discussion

· the Growth and Stability Pact

· the Lisbon strategy

· the 2005 guidelines

4. Assessment:

what is a sustainable public finance

the Maastricht criteria: arbitrary but a (politically) “second best” ?

who benefits ?

Suggested readings:

BUTI, Marco and FRANCO, Daniele 2005. Fiscal Policy in EMU. Theory, Evidence and Institutions, E. Elgar, Aldershot

(The mainstream view: chapt. 1: Theory in historical perspective; chapt. 2: The Maastricht Treaty and SGP)

COMMISSION OF THE EUROPEAN COMMUNITIES 2005. Integrated guidelines for growth and jobs (2005-2008) and Guidelines for the employment policies in the Member States, doc. COM(2005) 141 final dated 12.4.2005.

PASINETTI, Luigi L. 1998. The myth (or folly) of the 3% deficit-GDP Maastricht ‘parameter’, Cambridge Journal of Economics, vol.22, pp.103-116

STRETTON, Hugh 1999. Economics : A new introduction, Pluto Press, London

chapt. 56: A federal economy (pp. 777-795): A neoclassical versus a Social-democratic strategy

III. Monetary Policy and the European Central Bank

1. Recalling some basic notions

2. Competing theories on money and monetary policy:

· the new classical economics

· the Keynesian endogenous money

3. The progressive establishment of the European Monetary Union (EMU)

4. The European Central Bank (ECB) and the European System of Central Banks (ESCB)

(i) the objective of ECB; (ii) basic rules; (iii) instruments of monetary policy

5. The strategy of the ECB

The background for the ECB decisions: (i) the monetary indicator (M3);

(ii) supplementary indicators (the “economic analysis” pillar)

6. The Exchange rates

· Exchange rate of European countries outside the €

· External exchange rate of the €

7. Assessment

(i) the objective of ECB; (ii) the theoretical background; (iii) democratic and representative aspects; (iv) transparency on the rationale for decisions; (v) accountability

Suggested readings:

ARESTIS, Philip, McCAULEY, Kevin and SAWYER, Malcolm 2001. An alternative stability pact for the European Union, Cambridge Journal of Economics, vol. 25, n. 1, pp.113-130

EUROPEAN CENTRAL BANK 2004. The Monetary Policy of the ECB, Frankfurt

see chapters 3 (pp. 42-71) and 4 (pp. 72-91)

Entry: Endogenous money and credit; in: O’ HARA, Phillip Anthony (ed.) 1999. Encyclopedia of Political Economy, Routledge, London, pp. 259-261

IV. Employment Policy and the Unemployment problem

1. Unemployment: a tragic event

evidence: EU and the US;

effects

2. A problem for whom ?

opposite interests:

workers: stable full employment and good working conditions

capitalists: (a) a flexible and skilled labour force; (b) keeping a certain degree of unemployment to control wages and assure workers’ discipline

society as a whole (and public powers): loss of output + non-economic costs (frustration, social exclusion, social unrest)

3. Types of unemployment

4. Alternative theoretical approaches

(i) Marxian; (ii) Neoclassical; (iii) Developments within the mainstream; (iv) Keynesian theory; (v) Post-Keynesian developments (the role of structural change)

5. From theories to policies

· the neoclassical recipe;

· the Keynesian macroeconomic policy;

· structural change strategies

6. The European social model

7. The Treaty provisions on employment

8. The policy of the Union

· fighting structural unemployment

· an instrument for the knowledge based society (the Lisbon strategy)

· the annual employment guidelines

(with particular reference to the 2005 guidelines)

Suggested readings:

STRETTON, Hugh 1999. Economics : A new introduction, Pluto Press, London

see: Chapter 53: Employment, pp. 740-750; useful complement: chapter 54: Global markets, pp. 751-760

THOMPSON, Grahame (editor) 2001. Governing the European Economy, Sage, London. Chapter 5 on the European Social Model

V. Public Sector: Privatisation and Liberalisation

1. Preliminary

definition of public services, public sector and the mixed economy

2. Economic analysis of public enterprises

rationale

alternative institutional settings

3. Liberalisation and privatisation: what is at stake

4. The European legal provisions on public services

· services of general interest versus services of general economic interest

· articles 16 and 86 of the Treaty

· article 86 of the Charter of Fundamental Rights

5. The policy of the Union

· The White Paper on Services of general interest

· The liberalised sectors

basic principles

postal services: an emblematic case

6. Assessment: hints

prices; quality of the service; level of employment

Suggested readings:

COMMISSION OF THE EUROPEAN COMMUNITIES 2004. White Paper on services of general interest, doc. COM(2004)374 final, dated 12.5.2004

CHANG, Ha-Joon and GRABEL, Ilene 2004. Reclaiming Development. An Alternative Economic Policy manual, Zed Books, London

see chapter 8, pp. 82-92

STRETTON, Hugh 1999. Economics : A new introduction, Pluto Press, London

See chapters. 37, 38 (public efficiency, p. 448-470), and chapter 39 (pp. 444-484)

VI. Competition Policy

1. Power and domination: the ubiquitous feature of markets and society

· asymmetrical relationships and the domination effect (Perroux);

· power at the macro level:

macro unities and macro decisions; propulsion effect and constraining effect

· power in the market;

· power outside the market

2. Market, planning or both ?

· the inadequacy of a pure market economy;

· private planning (Galbraith);

· indicative planning and economic policy;

· competition as an instrument of economic policy

3. Which kind of competition ?

· perfect competition and the free market ideology;

· the second best theorem: from perfect to “workable” competition

4. A self-destroying system

· free competition leads to monopoly

· restrictions of competition: agreements between enterprises, mergers and acquisitions

· abuses of dominant positions

5. Assessing power and competition

· the relevant market;

· market structures

concentration and its measurement; barriers to entry; product differentiation

6. The competition policy of the Union

· the Treaty of the Union and the present liberal approach

· provisions of the Treaty and regulations

restrictive agreements (article 81); concentrations (regulation 139/2004); abuses of dominant positions (art. 82); public enterprises (art. 86); State aids (articles 87 and 88)

· selected examples

7. Assessment

Suggested readings:

Entry: PERROUX, François (1903-1987), pp. 425-432 in : ARESTIS, Philip and SAWYER, Malcolm (Eds.) 1992. A Biographical Dictionary of Dissenting Economists, E. Elgar, Aldershot (UK).

GALBRAITH, John Kenneth 1967. The New Industrial State, The New American Library, New York, see chapters 2, 3 and 5

HIMMELWEIT, Susan, SIMONETTI, Roberto and TRIGG, Andrew 2002. Microeconomics. Neoclassical and Institutional Perspectives on Economic Behaviour, Thomson, London

see chapter 11 (A strategic view of competition), pp. 281-310

PERROUX, François 1950. The Domination Effect and Modern Economic Theory, Social Research, vol. XVII, n. 1, March, pp. 206 ff.

articles 81, 82, 86 to 88 of the Treaty of the Union

Council regulation on mergers No 139/2004 dated 20 January 2004

Commission notice on the definition of relevant market, dated 9 December 1997

(this material will be provided by A. Reati)

VII. European Research Policy

1. Introduction: effects and sources of technical change

definition of technical change; effects; sources of technical change; the linear versus the evolutionary model of innovation; systems of innovation

2. Historical perspective: the long-waves theory

3. How to promote innovation

· intellectual property rights

· public support of research: justifications

(a) market imperfections and market failures

(b) public goods

4. The innovation effort: EU and USA

· evidence

· the European paradox

6. The European Framework Programs

7. The Broad Economic Policy Guidelines 2005

Suggested readings:

REATI, Angelo 2000. Policies for promoting R&D, Discussion paper, mimeo

REATI, Angelo and TOPOROWSKI, Jan 2004. An economic policy for the fifth long wave, Banca Nazionale del Lavoro Quarterly Review, vol. LVII, n. 231, December,

see pp. 427-431 on intellectual property rights

THOMPSON, Grahame (editor) 2001. Governing the European Economy, Sage, London,

see chapter 6, pp. 165-198

VIII. Common Agricultural Policy (CAP)

1. General characteristics of agricultural markets

2. The rationale for a Common Agricultural Policy (CAP)

the situation in 1958 (Treaty of Rome);

CAP: a trade-off between France and Germany;

objectives of the common agricultural policy in the EEC Treaty

3. The system : basic principles.....

market unity and common prices

Community preference

financial solidarity

4. .....and their consequences

· immediate effect: self-sufficiency

· perverse effect: surpluses

5. The system: instruments

· the European Agricultural Guidance and Guarantee Fund (EAGGF)

· the intervention stores

6. Evolution over time

· the first monetary developments;

· from the Unit of account to the ECU (1979) to € (1999);

· the changing structure of the EAGGF

· reduction of external and internal support

7. The main problems and reforms

· huge surpluses

· food destruction and food degradation

· cost of support

· complexity of the system and risk of frauds

· intensive farming and environment degradation

· the three successive reforms

8. The present situation

import levies reduced

decreased export refunds

reduction in internal support

new goals for the CAP

9. Assessment

who gains and who looses

Suggested readings:

EUROPEAN COMMISSION 2004. The Common Agricultural Policy explained, Brussels

booklet providing the essential data on CAP reform

available on Website: http://europe.eu.int/comm/agriculture/index_en.htm

JOVANOVIĆ, Miroslav N. 2005. The Economics of European Integration. Limits and Prospects, E. Elgar, Chelteham (UK), See chapter 4, pp. 209-266

SWANN, Dennis 2000. The Economics of Europe. From Common Market to European Union, Penguin Books, London, See chapter 8, pp. 232-250

IX. Development Aid Policy

1. The present situation

· a huge gap between the North and the South of the world

· why should we help the poor countries ?

2. Causes

· a gap that has deep roots into history

· the end of colonialism and the domination of the periphery

3. Alternative theories

· neoclassical

· structuralist approach (Lewis’s model; Technology and structural change)

· dependency

the domination effect; core-periphery analysis (Prebisch-Singer); unequal exchange (Emmanuel);

4. Policy implications

neoclassical theory;

structuralist approach

dependency approach

technology and structural change

5. The European Policy

· four successive stages

Yaoundé Convention (1963); First Lomé Convention, 1975 (STABEX) ; Lomé 2, 1979 (SYSMIN) ; Lomé 3, 4 and 4bis ; Cotonou Convention, 2000

· political institutions

· financial instruments

6. Assessment

Stabex and Sysmin

the preference system

7. The current debate

· regulation through the market or regulation through the State ?

· international cooperation and sustainable development

· the Maputo Declaration (Mozambique) June 2004

Suggested readings:

DARITY, William Jr. and DAVIS, Lewis S. 2005. Growth, trade and uneven development, Cambridge Journal of Economics, vol. 29, n. 1, January, pp. 141-170

Entries:

Development economics: 3 entries: orthodox (p. 194-196), history (p. 199-202), major contemporary themes (p. 202-206);

Structuralist theories of development (p. 118-120);

Lewis’s theory of economic growth and development (p. 661-3);

Core-periphery analysis (p. 145-148);

Structural adjustment policies ;

Uneven development ;

Comparative advantage and unequal exchange (p. 127-131)

in: O’ HARA, Phillip Anthony (ed.) 1999. Encyclopedia of Political Economy, Routledge, London

X. External Relations and the World Trade Organisation (WTO)

1. Recalling the theory of international trade

· absolute advantage (Smith)

· comparative advantage (Ricardo)

· factors endowments (Hecksher-Ohlin-Samuelson)

· hints on modern developments:

increasing returns and intra-industry trade; international trade with imperfect competition; the approach by technical change

2. Free trade versus protection

discussion: when protection is justified

3. The present institutions

· history of the policy of trade liberalisation:

from the Great Depression to trade liberalisation

GATT: aims; their implementations; results

· WTO

aims; structure; rule of decisions; general principles; main current agreements

4. What is at stake with WTO (hints)

· general aspects: (i) Exporters’ interests; (ii) no “social clause”; (iii) ecodumping

· critical analysis of the main agreements:

services; agriculture; investments; property rights

Suggested readings:

ACOCELLA, Nicola 2005. Economic Policy in the Age of Globalisation, Cambridge University Press, Cambridge

See Chapter 15 (pp. 343-356) on free trade and protectionism, and chapter 17 (pp. 379-391), on trade organisations

CHANG, Ha-Joon and GRABEL, Ilene 2004. Reclaiming Development. An Alternative Economic Policy manual, Zed Books, London

see chapter 7, section 7.1 (pp. 55-70)

PALLEY, Thomas 2006. Time for a New trade Agenda, document dated 26 May 2006, www.thomaspalley.com (look at Archives May 2006)

STRETTON, Hugh 1999. Economics : A new introduction, Pluto Press, London

see chapter 49 (pp. 665-687)

THOMPSON, Grahame (editor) 2001. Governing the European Economy, Sage, London

see chapter 9, pp. 269-302