Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Trade Performance In EU Internal Market In Euro Era

John Weeks 9th July 2018

John Weeks

John Weeks

European integration began as a political project to institutionalize peace and cooperation, with the Coal and Steel Community the initial step. In the late 1980s and into the 1990s, roughly coinciding with the end of the Cold War, priorities changed – from peace and cooperation to trade competitiveness.

The Treaty on European Union (TEU) formalized this shift (also known as the Treaty of Rome, subsequently amended by the Treaties of Amsterdam, Nice and Lisbon). Article 2, section 3 reads:

The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. [Eur-Lex, emphasis added]

The treaty makes political and ideological specifications for the European Union. It commits all member governments to a specific form of economic organization, a “market economy”. Other parts of the two major EU treaties make it clear that “market economy” is synonymous with “capitalism” (Treaty of the Functioning of the European Union is the other).

No constitution of a major country, even though it may have a capitalist economy, includes such an ideological commitment, with the possible exception of China’s (Smith and Weeks 2017). The treaty language further specifies that the EU economy be “highly competitive”. Because those words are used immediately following the mandate for “an internal market”, it is a reasonable inference that “highly competitive” means “trade competitive”.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

Because the treaty section commits to “a highly competitive social market economy”, singular rather than plural, the referent must be the Union as a whole. Thus, Article 2(3) must refer to extra-EU trade: that the EU economy taken as a whole should be internationally competitive. This interpretation implies that the TEU makes a fundamental change from the concept of the early initiators of integration. Their focus was to facilitate intra-EU trade, through a customs union that would lay the basis for political integration.

Intra- and extra-EU trade patterns

By definition the purpose of a customs union is to give preference to trade among members. With that in mind we can assess if the intentions behind the wording in the TEU have affected the pattern of EU trade. At the beginning of this century the adoption of the euro represented a major institutional change affecting EU trade. One would expect the euro’s entry to reinforce intra-EU trade.

Internal EU regulations on product safety and related rules also impact on intra- and extra-EU trade. We should expect EU regulations to have a different impact on extra-EU imports than on extra-EU exports. Extra-EU imports must conform to intra-EU regulations, while extra-EU exports need not do so. The restrictive fiscal policies pressed upon national governments after 2010 represent a second possible depressor of intra-EU trade, due to their growth-reducing effects.

That extra-EU exports may face less regulation than extra-EU imports suggests the possibility of different patterns for exports and imports. The statistics indicate such a difference. Chart 1 shows annual rate of growth of intra- and extra-EU imports for the 19 Eurozone countries and the nine with national currencies from the introduction of the euro in 2001 through 2017. For the 19 Eurozone countries in a bare majority, 10 of 19, intra-EU import trade grew faster than extra-EU import trade. Among the non-euro countries in 7 of 9 intra-EU imports grew faster.

One would have expected the opposite result, faster growth of intra-imports for the euro group, not the non-euro group. A major purpose of the introduction of the euro was to reduce transactions costs, making trade more “seamless”. The statistics do not support that prediction. It appears that any cost-reducing role of the euro was outweighed by other effects.

One such effect might relate to level of development and structural characteristics. The ten countries in which intra-EU imports grew fastest were from the Baltic region or central Europe, countries in transition from centrally planned economies (annual rates in percentages): Lithuania (10.9), Slovakia (10.7), Romania (10.5), Bulgaria (9.2), Latvia (8.7), Estonia (8.6), Czech Republic (8.5), Poland (8.3), Hungary (6.7) and Slovenia (5.1). For all ten except Slovenia intra-imports grew faster than extra-imports. These statistics suggest that the euro has not facilitated intra-import trade.

Chart 1: Annual rates of growth of intra-EU imports and extra-EU imports, Eurozone and non-euro countries, 2001-2017 (percentages)

weeks graph01a

Note: Rate of growth calculated by using end years. Black line divides the 19 Eurozone members from the nine non-euro countries.
Source: Eurostat

The same statistics on exports is consistent with the hypothesis that EU rules have a relatively restrictive effect. Of the 28 countries, for only one, Bulgaria, did intra-EU exports grow faster than extra-EU exports, and for another the rates were the same to one decimal point (Sweden).


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

The statistics also cast doubt on the reputation of the German economy as an engine of export growth. Over the 17 years, German intra-EU exports grew slower than in 12 other EU countries (faster than 15); and for extra-EU exports 16 countries showed faster growth rates (eleven slower). The expanding German goods surplus resulted from relatively slow growth of imports compared to exports, rather than rapid export growth.

Chart 2: Annual rates of growth of intra-EU exports and extra-EU exports, Euro zone and non-euro countries, 2001-2017 (percentages)

weeks graph02a

Note: Rate of growth calculated by using end years. Black line divides the 19 Eurozone members from the nine non-euro countries.

Source: Eurostat

Peace, not trade

These statistics suggest a few conclusions. First, the EU internal market has integrated the formerly centrally planned countries into international commerce, though more so for imports than exports. Second, the EU internal market has not fostered trade growth relatively to the non-EU market. Its benefit to EU citizens is probably consumer protection rather than cheap goods, with the former the more important benefit. Third, the euro has not facilitated trade within the internal market, neither for imports nor for exports.

Many others have for several years argued that “benefits from trade” is a weak argument for EU membership. The statistics support that conclusion and indicate that it may apply to most EU members.   The strongest arguments for membership are those put forward by the visionaries of European integration in the late 1940s, which are political and social, not economic. EU reform should be based on the sublime goals of peace and cooperation, not the commercial banality of export competitiveness.

John Weeks

John Weeks is co-ordinator of the London-based Progressive Economy Forum and professor emeritus of the School of Oriental and African Studies. He is author of The Debt Delusion: Living within Our Means and Other Fallacies (2019) and Economics of the 1%: How Mainstream Economics Services the Rich, Obscures Reality and Distorts Policy.

You are here: Home / Economy / Trade Performance In EU Internal Market In Euro Era

Most Popular Posts

Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic
Orbán,Hungary,Russia,Putin,sanctions,European Union,EU,European Parliament,commission,funds,funding Time to confront Europe’s rogue state—HungaryStephen Pogány

Most Recent Posts

reality check,EU foreign policy,Russia Russia’s invasion of Ukraine—a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl
Jacinda Ardern,women,leadership,New Zealand What it means when Jacinda Ardern calls timePeter Davis

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube