Economic Union Essay

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An economic union is the deepest form of economic integration between two or more countries that allows the free movement of capital, labor, and all goods and services. It also involves the harmonization and unification of social, fiscal, and monetary policies as well as labor market,  regional development,  transportation, and industrial  policies. An economic union is also a common  market with provisions for the harmonization of certain economic policies, most notably macroeconomic and regulatory policies. Since all countries would essentially share the same economic  space, it would be counterproductive to operate divergent policies in those areas. The Latin Monetary Union in the 1800s, the Benelux Custom  Union in 1944, and the European Union in 1957 can be given as examples for the existing economic  unions.  International institutions would be required to regulate economic, political, and social interaction  within the union to ensure uniform  application  of the  rules. These laws would still be administered  at the national  level, but countries would abdicate individual control in this area.

Any established  economic  union  frequently includes the use of a common  currency  and a unified monetary  policy. According to Paul De Grauwe, eliminating  the  national  currencies  and  moving  to a common  currency  is expected  to lead to gains in economic  efficiency for two  main  reasons.  One  of the reasons is to eliminate  transaction  costs associated with the exchanging of national  money and to allow businesses to choose their locations freely. The other reason, for Ali El-Agra, is to eliminate the risk of uncertain future movements of the exchange rates. Eliminating   exchange   rate   uncertainty    improves the  functioning  of an economic  union  by allowing trade  to follow economically efficient paths without being  disproportionately affected  by exchange  rate considerations.

European Economic Union

Jorgen Hansen stated the ultimate goal for the European  Economic  Union  was to  create  a  European identity  based  on  common  values and  a common desire to develop a Europe free of wars and to organize economic, political, and social relationships between  the  European   member   states  and  their peoples in a coherent  manner.  In order  to create a dynamic  framework  for  the  European  economies and to foster economic  growth in that zone, a kind of economic interdependency among member states had to be created.

To be able to create the economic interdependence between countries, the first key goal was security. To be able to avoid the excesses of nationalism  and of the nation-state system, in particular  after two devastating world wars, establishing economic union in Europe was considered  the best strategy. To protect countries  from each other’s destructive  attacks, having similar  goals was the  best  policy for  common security. The second key goal was economic. Because of World  War I (1914–18), economic  depression  in the  1930s, and  World  War  II (1939–45), countries adopted  protectionist trade  policies to protect  their economies  and to stand  on their feet. Nevertheless, after their  initial recovery, they later  examined  the benefits of establishing a single market  to minimize the damages of wartime destruction and to keep alive their economic ideology. Therefore, it was commonly believed that building the economic union would benefit all member states in Europe once all trade barriers were lifted gradually. The third and the final goal was political. To protect  Europe  from  the  Soviet threat and its political ideology was the main deterministic goal in establishing an economic union.

The first six member  states—Belgium, Germany, France,  Italy, Luxembourg,  and  the  Netherlands— came together in 1951 with the intent to establish the economic  union.  Then, in 1973, Denmark,  Ireland, and the United Kingdom joined, although not as full members. In 1981 Greece, in 1986 Spain and Portugal, and in 1995 Austria, Finland, and Sweden joined the European  Economic Union club. Since then  the enlargement  has continued  and  other  nations  have applied for membership.

The GATT (the General Agreement on Tariffs and Trade),  the  OEEC (the  Organization  for  European Economic Cooperation),  and the EPU (the European Payments  Union)  were also established  to  increase trade liberalization and economic integration. The GATT was established in 1947 to reduce tariffs between countries and later in 1995 was transformed into  the  World   Trade  Organization   (WTO).  The OEEC was established in 1948 to coordinate financial assistance to rebuild European countries  after World War II. The third organization, EPU, was established in 1950 to secure  convertibility  of currencies  when countries engage in trade. Initializing the Single Market in 1986 was the next step toward influencing the economic structure  of the countries involved.


  1. Ali El-Agra, The European Union: Economics and Politics, 7th ed. (FT Prentice Hall, 2004);
  2. Paul De Grauwe, Economics of Monetary Union, 5th ed. (Oxford, 2003);
  3. Daniel S. Hamilton and Joseph P. Quinlan, Globalization and Europe: Prospering in the New Whirled Order (Center for Transatlantic Relations, Johns Hopkins University, 2008);
  4. Jorgen Hansen, European Integration: An Economic Perspective (Oxford, 2001);
  5. Wolf Sauter and Harm Schepel, State and Market in European Union Law (Cambridge University Press, 2009);
  6. Wistrich, After 1992: The United States of Europe (Routledge, 1990).

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