Economic Policy of the EU
September 2007
East China Normal University
Shanghai
Ondřej Schneider
Charles University, Prague
Czech Republic
Course description
This course covers all major aspects of the economic policy-making in the European Union. The course will explore main issues connected to the fiscal, monetary, financial and competitive policies within the wide European economy. We will focus on relevance of individual policies, on the political and economic impetuses for various policies and their institutional set-ups. Special attention will be given to the political economy aspects of the European policy-making and institutional structure of the decision-making within the EU.
Prerequisites
Introductory microeconomics and macroeconomics would be welcome. There is no formal prerequisite in mathematics and statistics, but some readings do involve empirical studies and elementary econometrics would therefore be an advantage.
Course textbook
There is no single required text that covers all of the material. There has been a proliferation of related textbooks in recent years; students may use any that are interested in. However: European Economics is an area of rapid evolution in both theory and practice, and some substantial developments are ongoing or have occurred very recently. Books therefore tend to become outdated very quickly. That’s why we include as recent books as possible. Good additional sources include the awesome Giancarlo Corsetti's euro website: http://www.econ.yale.edu/~corsetti/euro/Euroit.htm and the slightly chaotic EU website: http://europa.eu.int.
The following books are recommended and will be used during the course:
Richard Baldwin, Charles Wyplosz: The Economics of European Integration, McGraw Hill, 2004. (B&W)
Hellen Wallace, William Wallace and Mark Pollack: Policy-Making in the European Union, Oxford University Press, 2005. (WWP)
Paul de Grauwe: Economics of Monetary Union, 6th Edition, Oxford University Press, 2005. (DG)
Sylvester C.W.Eijffinger and Jakob de Hahn: European Monetary and Fiscal Policy, Oxford University Press, 2000. (EIJ)
Economic Policy – EMU Assessment, Issue of the Economic Policy, October 2003. (EP)
Ali M. El-Agraa: The European Union – Economics and Policies, 6th Edition, Pearson, 2001.(AGRAA)
Additional readings
Every topic is accompanied by a list of related readings. Required readings are bold; all are to be found in the course reader. Other items are optional extras for those who wish to read more widely. All papers are available on the request from us.
Useful web sites:
A range of EU statistical indicators can be found at:
http://europa.eu.int/en/comm/eurostat/serven/part3/3som.htm
Publications of the European Commission Directorate-General for Economic and Financial Affairs are available at
http://europa.eu.int/comm/economy_finance/publications_en.htm
Publications relating to financial services of the European Commission Directorate-General for the Internal Market are available at
http://europa.eu.int/comm/internal_market/en/finances/index.htm
http://www.ecb.int (European Central Bank)
http://www.econ.yale.edu/~corsetti/euro/Euroit.htm (Giancarlo Corsetti's euro website)
Leiden University History Dept maintains a good site on EU history in its broadest sense. The index also contains many links to European institutions, etc. Many original documents can be download (e.g. the Treaty of Rome) by following the links.
http://www.let.leidenuniv.nl/history/rtg/res1/index.htm
Course requirements and grading rules
Grades will be based on
i) class participation: 20%,
ii) written test: 40%,
iii) final 2000-word paper on a subject related to the course. The paper should be well structured, internally consistent and concise and will add 40% to the grade. See the guidelines for writing essays available on the course web page.
Percentages indicate relative weights to make a final grade
Course program and readings
A. European Integration: A Bird’s View
History, Institutions and Stylized Facts
Wyplosz, chapters 1-3
El-Agraa, chapters 2-3
B. Theories of European Economic integration
MANDATORY READING:
A.Moravcsik: In Defence of the “Democratic Deficit”, Journal of Common Market Studies 2002, pp. 603-24
OTHER READINGS:
Wyplosz, CH 4-7
El-Agraa, CH 5-8
Young, A.R. (2005) ‘The Single Market’, in: H.Wallace, W. Wallace and M.A. Pollack (eds.), Policy-making in the European Union, Oxford: Oxford UP (fifth ed.), ch.4.
Bhagwati, J. (1992), “Regionalism versus Multilateralism”, in : The World Economy, 15, pp. 535-555.
C. Political economy of EU integration
MANDATORY READING:
Alesina, Angeloni, Schuknecht: What does the EU do?, NBER 2001
OTHER READINGS:
Baldwin and Wyplosz, CH 3
WWP, Ch 2-3
Alesina, Perotti: The EU – Politically Incorrect View, NBER 2004
Tabellini: Principles of Policymaking in the EU, CESIfo 2003
Wyplosz: The Challenges for a wider and deeper Europe, 2003
Collignon, Stefan: The European Republic. Reflections on the Political Economy of a Future Constitution.
Collignon S. (2005), “The Three Source of Legitimacy for European Fiscal Policy”, at http://www.arena.uio.no/cidel/WorkshopStockholm/Collignon.pdf
Marian L.Tupy (2003): EU Enlargement – Costs, Benefits and Strategies for CEE Countries, CATO Policy Analysis No. 489, Washington D.C.
Berger (2002) ”The ECB and Euro-Area Enlargement”, IMF Working Paper http://www.imf.org/external/pubs/ft/wp/2002/wp02175.pdf
D. Fiscal Policy in an Integrating Europe
MANDATORY READINGS:
Baldwin, Wyplosz, chapter 15
Charles Wyplosz (2005): Fiscal Policy: Institutions Versus Rules, National Institute Economic Review No.191, January 2005. pp. 70-84 AVAILABLE ONLINE: http://heiwww.unige.ch/~wyplosz/
OTHER READINGS:
William Buiter (1999): „Alice in Euroland“, CEPR Policy Paper 1.
B.Eichengreen and Ch.Wyplosz (1998): Stability Pact – More than a Minor Nuisance?, Economic Policy, April 1998.
Fatás, A. (1998): Does EMU need a fiscal federation?. Economic Policy (1998, Nr. 26), 163-203
EC (2001) Budgetary challenges posed by ageing populations, Economic Policy Committee, EPC/ECFIN/655/01-EN [URL: http://europa.eu.int/comm/economy_finance/epc/documents/ageing_en.pdf]
Buiter, Willem H. (2003) "Ten Commandments for a Fiscal Rule in the E(M)U", Oxford Review of Economic Policy, Vol. 19, No. 1, Spring 2003, pp. 84-99, also at http://www.nber.org/~wbuiter/orep.pdf
Buiter, Willem H. and Clemens Grafe "Patching up the Pact; Some Suggestions for Enhancing Fiscal Sustainability and Macroeconomic Stability in an Enlarged European Union", The Economics of Transition, Volume 12 (1) 2004, pp. 67–102, also at http://www.nber.org/~wbuiter/trans.pdf
E. European Fiscal and Tax Policies: Co-ordination
MANDATORY READING:
S.Ganghof and P.Genschel (2007): Taxation and Democracy in the EU, Max-Planck-Institute for the Study of Societies, Discussion Paper 07/2
OTHER READINGS:
H.W. Sinn (1990): Tax Harmonization and Tax Competition in Europe, NBER Working Paper 3248, NBER, Cambridge, 1990. AVAILABLE ONLINE
Rachel Griffith, Alexander Klemm (2004): What Has Been the Tax Competition Experience of the Last 20 Years?, The Institute for Fiscal Studies, WP 04/05
European Commission (2001): Towards an Integrated market Without Tax Obstacles - Corporate Taxes in the EU, European Commission, 2001.
F. Political Economy of Monetary Integration in the EU
MANDATORY READING:
Paul de Grauwe: The Euro at Stake? The Monetary Union in an Enlarged Europe, CESIfo
OTHER READINGS:
B&W 16
DG 10
Ch. Wyplosz (2006): The dark side of a major success, Economic Policy, April 2006.
L. Cappielo et al. (2006) : « The impact of Euro on Financial Markets », ECB Working paper 598, March 2006.
P.R.Lane (2006): The Real Effects of EMU”, Journal of Economic Perspectives, Volume 20, no.4, pp. 47-66
P.Honohan and P.R.Lane (2003): Divergent Inflation Rates in EMU, Economic Policy, October 2003 Issue.
K. Dominguez (2006): “The ECB, the Euro and Global Financial Markets”, Journal of Economic Perspectives, Volume 20, no.4, pp. 67-88
F.P. Mongelli and J.L. Vega (2006): What effects is EMU having on the Euro area and its member countries, ECB Working Paper 599
G. Labour Markets and Social Security Systems
MANDATORY READINGS:
Blanchard, O. (2006): “European unemployment: the evolution of facts and ideas”, Economic Policy, January 2006
OTHER READINGS:
B&W: Chapter 17
Horst Siebert (1997): “Labor Market Rigidities at the Root of Unemployment in Europe”, Journal of Economic Perspectives, pp. 37-54
Stephen Nickell (1997): “Unemployment and Labor Market Rigidities: Europe vs. North America”, Journal of Economic Perspectives, pp.55-74
Martin Feldstein and Horst Siebert (eds.) (2002): Social Security Pension Reform in Europe, The University of Chicago Press
Kieran McMorrow and Werner Roeger (2002): EU Pension Reform - An Overview, Economic Papers, European Commission, Brussels.
H. Common Agriculture Policy – if time allows
MANDATORY READING:
Peter Nedergaard (2006): „Market Failures and Government Failures: A Theoretical Model of the Common Agricultural Policy“, Public Choice, Volume 127, no.3-4.
OTHER READINGS:
Kay, A. (2003): “Path dependency and the CAP”, Journal of European Public Policy, No.3., pp. 405-420.
Swinbanka, A. and Daugbjerg, C. (2004) ”The CAP and EU enlargement”, Journal of Common Market Studies, No.1, pp. 99-120.
B&W: Chapter 8 (an updated version on the web http://heiwww.unige.ch/~baldwin/papers/BW/Chap8_CAP__Jul03.PDF)
AGRAA: Chapter 11
Swinnen (2002) Towards a sustainable European agricultural policy for the 21st Century, CEPS Task Force Report n°42, Brussels.
I. Regional Policy – if time allows
MANDATORY READING:
OTHER READINGS:
B&W: Chapter 9
AGRAA: Chapter 18
Sapir (1998): The Political Economy of EC Regionalism”, European Economic Review, pp. 717-732.
Midelfart-Kravnik, H. and Overman, H. (2003): “Delocation and European integration: Is structural spending justified”, Economic policy, No.35, pp. 323-358.
Suggested essay topics:
Tax Harmonisation within the EU
Tax breaks and their impact on economic growth
War on terrorism and public budgets
What were the possible causes of the collapse of the EMS in 1992?
What do you consider to be the strengths/faults in the design of the system and the lessons to be drawn from them for EMU?
Discuss the potential costs involved in monetary union
Is the EU of 15 today an "optimal currency area"? Do you think that a common currency should circulate in fewer or more countries?
Analyse and explain the spillover effects from national fiscal policies on other countries in a monetary union. Discuss whether there is any need for fiscal policy coordination or centralization in a monetary union?
Would a larger Federal Budget be desirable in the EU?
Discuss the Stability and Growth Pact as an appropriate basis for fiscal policy coordination within EMU
Critically discuss the model that has been adopted for the ECB, and its role within EMU.
Fiscal stabilisation policy – pros and cons: a theoretical analysis
Fiscal stabilisation policy – an empirical study (Czech or European case)
Economic growth and fiscal policy – theoretical essay
Economic growth and fiscal policy – empirical analysis
Fiscal policy after entry into the EU
Size of the government and the economic growth
Stability and Growth Pact – pros and cons
Stability and Growth Pact – what happens in Germany and France in 2003?
Stability and Growth Pact – and the accession countries
Stability and Growth Pact – should structural deficits be used instead of nominal?
European budget – can it play any stabilisation policy? Should it?
European budget – what needs to be changed if it is to play any stabilisation policy?
European budget and new entrants – what is going to happen?
Long-term impact of ageing on European fiscal policy
Pension reforms in the EU (and new entrants)
Should social security be unified in the EU?
Should the EU create unified fiscal policy institution on par to the ECB?
How could different national preferences vis-a-vis the social security and taxes be harmonised?
External effects of fiscal deficits on other EMU members
Political economy of fiscal centralisation
Tax coordination within EU – necessary for higher efficiency?
Tax coordination within EU – what need to be coordinated most?
How fast should new entrants enter the EMU?
Do the new entrants need higher deficits? Why?