Economic integration is a process of combining different economies into a single, larger, unified one. It encourages convergence of economic systems as well as free trade and stronger economic ties between countries or regions. Europe is one of the most economically integrated regions in the world because of the efforts of the European Union (EU). Here, we take a look at the achievements and challenges of EU economic integration.
Achievement of the EU Economic Integration
The European Union (EU) has been an impressive example of economic integration. The process was jump-started by the Treaty of Rome in 1957, and since then, several steps have been taken to further the process. Some of the most notable accomplishments of the EU economic integration process are as follows:
Increase in Trade: One of the main goals of economic integration is to increase trade between countries. This has been achieved by the EU through the implementation of the single market system since 1993. As part of this system, goods, services, money and people are able to move freely within the union. This has had several positive economic impacts such as increased competition, lower prices and improved quality.
Elimination of Tariffs and Other Trade Barriers: Tariffs and other non-tariff barriers represent a significant cost to traders. By reducing or eliminating these trade impediments, the EU has been able to facilitate trade both between its members and with the rest of the world. As a result, intra-EU trade has risen significantly and with it the benefits to the countries involved.
Stable Macroeconomic Environment: The common currency ‒ the euro ‒ has helped to create a more stable macroeconomic environment in the union. This has benefited both producers and consumers since it has become easier to compare and assess the prices of goods and services. In addition, being part of a common currency has allowed firms to operate at a larger scale with fewer restrictions from exchange rate volatility.
Challenges of the EU Economic Integration
Despite its impressive accomplishments, the EU economic integration process has also faced some significant challenges. These include but are not limited to:
Regional Disparities: Economic integration has resulted in an increase in the level of competition between firms and countries. This has been beneficial overall; however, it has also accentuated existing disparities between different parts of the EU. Some areas of Europe have been able to see faster economic growth than others, while some areas have been left behind.
Lack of Fiscal Coordination: The Stability and Growth Pact has been established to promote fiscal responsibility amongst member states. However, the lack of adequate enforcement measures has resulted in some countries breaking their commitments and thus placing a strain on the overall stability of the euro zone.
Rising Nationalism: There is a popular perception amongst some that decisions made in Brussels are irresponsible and even harmful. This has resulted in a rising tide of nationalism within Europe, as seen with the Brexit vote. The consequences of this are still unclear, but it could potentially lead to greater economic instability and lower levels of economic integration.
The European Union has accomplished a lot in its efforts to promote economic integration. Trade flows have increased significantly as have the benefits of a stable macroeconomic environment. However, there are still some challenges which have to be addressed such as regional disparities, lack of fiscal coordination, and rising nationalism. Going forward, it is important that the union continues to strive towards economic convergence while addressing these challenges in a responsible manner.
