The United States of Europe: European Union and the Euro Revolution, Revised Edition: Volume 292


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This series consists of a number of hitherto unpublished studies, which are introduced by the editor in the belief that they represent fresh contributions to economic science.

In 1936, John Maynard Keynes taught us macroeconomics in the context of a sovereign nation state and the Keynesian Revolution successfully overwhelmed the critics. In the post-WWII decades, the concept of supranational macroeconomics became the core theme of the continental economic integration of Europe. The progression of the historic movement, anchored to the concept of one European family is an accomplishment of immense magnitude. Students of economics are now aggressively challenged to study the new paradigm of continental macroeconomics. One common economic unit with its well-specified micro- and macroeconomic parameters has been mapped onto one common geographic unit, the continent of Europe, a group of sovereign European nation states voluntarily surrendering their erstwhile sovereignty. Of course, each EU Member State has retained its authority to approve the EU decision, mostly by Treaties, before it can be functionally operational. The official inauguration of one common money, the euro, managed by one common supranational central bank, the European Central Bank (ECB), on January 1, 1999, has been an epochal event in the eventful history of the European Union (EU) from 1958 through the present.

Over one half of the previous century, the Europeanization of Europe has reached a high point, of course, with its unique challenges. From the Treaty of Rome in 1957 to the Treaty of Lisbon in 2009, it has been a glorious march forward from the modest effort at regional integration of a select group of six West European economies to the bold pronouncement of political identity of the EU-27. The European Union (EU) has now become a learning model for other continents.

To begin, we must understand Jean Monnet's vision of the Europeanization of Europe. As early as the 1940s, when Europe still struggled to recover and rebuild from the devastation of WWII, he forcefully argued: “The countries of Europe are not strong enough individually to be able to guarantee prosperity and social development for their peoples.” Indeed, in terms of economic magnitudes, the individual sovereign nation states of Europe were marginal entities (see Chapter 1). “The States of Europe must therefore form a federation or a European entity that would make them into a common economic unit” (Monnet, 1978; see also

In just a short half century, the European Union (EU) has emerged as a paradigm of supranational, continent-based, integrated single economy with its micro- and macroeconomic parameters. The process began soon after World War II. The initial steps, which started with the Benelux Customs Union and the European Coal and Steel Community (ECSC) of France and Germany in 1951, soon progressed to the European Economic Community (EEC) in 1957 (see Chapter 1). A unique framework of Free Trade Area (FTA) came into existence. Its success called for the Single Europe Act (SEA) in 1986, followed by the Maastricht Treaty in 1992, whereby a select group of sovereign nation state economies on one common geography volunteered to become one single economy. The Amsterdam Treaty and the Treaty of Nice followed. The EU-25 as of 2004, on to the EU-27 as of 2007, became an epochal event.

The General Theory of Employment, Interest and Money by John Maynard Keynes (1936) gave us the macroeconomic theory for an economy of a sovereign nation state. Concerned students of macroeconomics may study earlier works. Did Karl Marx's Das Kapital and the Physiocrats' A Tableau Economique offer to teach us some aspects of macroeconomics? One may venture to suggest that Arthashatra by Kautilya, written in Sanskrit some two thousand years ago, was an ancient treatise on macroeconomics.

On January 1, 1999, the euro became the common currency of the 11 Member States of the European Union (EU) – Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, The Netherlands, Portugal, and Spain, to be joined by Greece in 2000. The 12 were joined by Slovenia on January 1, 2007, Malta and Cyprus on January 1, 2008, and Slovakia on January 1, 2009. Estonia was scheduled to be the 17th member of the Eurozone on January 1, 2011, and was admitted to the Eurozone membership in September 2010. Following Slovenia and Slovakia, Estonia is the third former Communist state to join the Euro regime. It is, however, the first former Soviet republic to earn this honor. The remaining East European countries, who were admitted to EU membership by the Treaty of Rome in 2004, will become members of the Eurozone after a process of scrutiny. Each must satisfy the terms of the Maastricht Treaty of 1992. Denmark, Sweden, and the United Kingdom, three of the original EU-15 countries, continue to be outside the Eurozone. However, Sweden and Denmark have limited exchange rate fluctuations with the euro. The United Kingdom has a different story. Its economic structure and its relatively small share of world GDP have become an issue. The declining share of the United Kingdom's pound sterling as an international reserve currency warrants much critical evaluation.

The Treaty drafting the Constitution for Europe was signed in Rome on October 29, 2004. The Constitution provided for a federal form of government. Signatories to the Treaty included all heads of state or government of the 25 Member States of the European Union (EU). As per the EU principle of consensus, it requires unanimous approval by all Member States to become effective. As per protocol, the two – Bulgaria and Romania – who joined the EU in 2007, accepted the Treaty.

Allied forces commanded by the American five star General Dwight D. Eisenhower won the War in Europe on May 8, 1945, and Western Europe was liberated. Immediately thereafter, in 1947, President Truman signed the Marshall Plan to make funds available for the economic reconstruction of war-ravaged Europe. To the applause of thousands of Europeans, President Kennedy stood at the high podium facing the Berlin Wall and proclaimed, “I am a Berliner.” President Reagan called for the end of the Cold War and the Berlin Wall came down in 1989. During the conflicts in Southeastern Europe in the 1990s, President Clinton led the war under North Atlantic Treat Organization (NATO) command, with full support of European allies, and stopped the massacre of innocent peoples in the region. Since WWII, the core of America's European policy has been one of participation and cooperation.

One world at one step will be too big a step. For some one in Luxembourg, it will be relatively more convenient to locate Latvia on the map of Europe, but to search for Laos in Asia will be too much of a task. A man or a woman in Nepal can easily guess that Mongolia is somewhere in the continent of Asia, but he or she will have great difficulty in figuring out where Martinique is in South America. A citizen of Chad will have less problem in locating Burkina Faso on the map of Africa, but will struggle hard to find Brunei Darussalam in Asia. The message is simple and straightforward. The map of a continent is easily accessible, but the map of the world is much too large and relatively unfamiliar. Hence, the European Union (EU) covering the continent of Europe and its progress over the past half century toward successfully developing a framework of continental regionalization has become a learning model.

Literature on economic cooperation among sovereign nation state economies has been extensive. In the post-WWII decades, the two Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank (WB) each with 184 Member States, have been instituted to sustain the global financial system for the noncommunist free-market economies. Under the umbrella of the United Nations, which currently has a membership of 192, the institutions, such as United Nations Conference on Trade, Aid and Development (UNCTAD), United Nations Educational, Scientific and Cultural Organization (UNESCO), United Nations Institute for Research and Training (UNITAR), World Health Organization (WHO), the World Food Organization (WFO), have their respective economic assignments. The World Trade Organization (WTO), currently with 148 memberships, has been much involved in the negotiation of global trade agreements; an international regime of free and competitive trade has been a subject of substantive negotiations. The WTO came out of the General Agreement on Tariffs and Trade (GATT).

In the post-WWII decades, the United States, with its overwhelmingly large shares of the world GDP and world trade, became the Group of 1 to attend to the needs of the rest of the free world. The United States offered the military protection inclusive of the nuclear umbrella to the noncommunist countries, and provided aid and financial support for the economic reconstruction of the world destroyed by WWII. The US dollar, with its fixed gold value, became the foundation of stability and growth for the free market economies in the world. The United States could not deliver what were demanded of it indefinitely, as emphasized by Professor Kindleberger. Under the historical circumstances, the fixed gold value of the US dollar came to an end on August 17, 1971 (see Chapter 1).

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Pages 267-274
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