Economics | West European Studies
E390 | 1704 | Prof. Gardner


The Economics of Europe

Economics E390/West European Studies W405/W501

Instructor: Roy Gardner
Wylie 215
855-6383
email: gardner@indiana.edu

Course Outline and Reading List

Text: Molle, The Economics of European Integration (ed.3) Besides
readings from the text, you will be responsible for current European
economic events, for instance as they are reported in the Financial
Times and The Economist. Copies of these are held on reserve in the
West European Studies Library, Ballantine 542. We are also well
supplied with free materials from the EU. There will be two
examinations. Students in E390 and W405 have the option of replacing
the final examination with a final paper, on a topic of interest, as
defined jointly by the student and the instructor.

Week I. (Molle, chapters 1-3) What is Europe? The 5 divisions of
Europe. Rich and poor Europe. What is economic integration? The
integration process worldwide--3 big blocs. Some useful acronyms
(EC,EU,EFTA,EEA,WEU,NATO). National vs. European identity. The
migration equation.

(Molle, chapter 4) The constitution of the EU. The four pillars
of the EU: the Commission, the Council, the Court, and the Parliament.
Analysis of recent election results. Alternative aspects of the EU:
economic, political, monetary.

Week II. (EU handout; Gardner paper) The cost of the EU. Sources of
revenue, impact of taxes. Spending categories. Principles of
bargaining as exemplied by the budget. Fiscal constitutions and budget
discipline.

(Molle, chapters 5-7). Theoretical benefits of a customs
union. Economic theory of such a union. Trade creation and  trade
expansion.

Week III. (Molle, chapter 19) The politics of trade. Trade in the
world context: the WTO. Trade diversion. Case: $bananas. The bottom
line figures for overall gains to trade to the EU.

(Molle, chapter 8--warning, this is the harder chapter in
the book to read). Theoretical benefits of a common market. Labor
migration and wage differentials. Capital migration and rate of return
differentials. The single market since 1992. Harmonization and mutual
recognition agreements.

Review session and first examination





Week V. (Molle, chapter 10) Limitations of the internal market.
Capital still not mobile. Lack of transparency in equity markets. The
problem of equity finance. Case: creating EASDAQ.

(Molle, chapter 16) Industrial policy and competitiveness.
Articles 85 and 86. Subsidies and competitiveness. Cases: cement,
steel, Boeing vs. Airbus.

Week VI. (Molle, chapter 18) The labor market in a common market.
Limitations to labor mobility. The natural rate of unemployment.
Double-digit unemployment in the EU. Labor market rigidities and
welfare state effects on total compensation.

(Molle, chapter 17) EMU. Exchange rate regimes. The necessity
of monetary union in a common market. The ERM and the EMS. The foreign
exchange crises of 1992, 1993, and 1995. The EMI and ECB. Naming the
euro. Euroland and ERM II.

Week VII. (Molle, chapter 20) The challenge of widening to the East
and South. The problem of Common polices and new members; reform
proposals. Negotiations with the group of 5 candidate members.
Security considerations, and widening the WEU.

Review session and second examination