The European Union owes its very existence to the economic integration that defines today’s increasingly global economy. From the ashes of World War II, six core European nations forged a coal-and-steel community designed to foster industrial competitiveness. Over time, the nations realized that a common market would best promote European growth, and the mission gradually broadened to include the general goal of ever-closer union. ; Successive waves of integration raised membership to 15 countries a decade ago, then to 25 today, with Turkey and several other nations eager to join in the near future (see map). Along the way, Europe has seen significant increases in its standard of living as it became economically freer and more integrated. ; Creating a common market has brought benefits. At the same time, it has meant exposure to worldwide competition, which creates difficulties for nations with high taxes and inflexible labor markets. EU members maintain less competitive economic policies than the United States, and globalization has exacerbated the consequences of these policies for their economies. Some analysts question whether further economic liberalization offers the best path to future prosperity, advocating instead greater policy coordination to bring taxes, regulations and other measures into even closer alignment. ; Should EU members integrate their economies in a way that resists global economic pressures? Or should they embrace globalization through greater economic freedom, with each nation vying to compete effectively in the world economy? As technology and freer trade integrate economies, the EU stands at a policy crossroads. Two conflicting strategies of integration are facing off to see which will guide Europe’s future. The stakes are nothing less than the continued advance of globalization and its consequences for national and regional economies.
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Article provided by Federal Reserve Bank of Dallas in its journal Economic Letter.