EU’s Approach To Economic Regionalism

Weakness in the EU’s approach to economic regionalism exposed by the global financial crisis and its aftermath

Discuss about the EU’s Approach To Economic Regionalism.

The objective of this study is to focus on the EU’s approach to economic regionalism that have been exposed by global financial crisis and its aftermath. Economic regionalism refers to institutional arrangements that are designed to aid free flow of commodities as well as services and to organize international economic policies among the nations. It has viewed as an attempt in managing the constraints as well as opportunities that is basically formed by huge rise in foreign economic ties (Acharya and Amitav 2012). Few examples of economic regionalism include- free trade, economic unions, customs unions etc.  Different schemes of economic integration were mainly founded in Europe in that period of World War II. It mainly includes European Union, EFTA (European free trade association) and European communities.

Economic regionalism initiated in Western parts of Europe and extended to East Asia, North as well as Latin America and in other nations. Different types of economic regionalism are mainly differentiated by integration level in which the countries were involved (Gilpin and Robert 2016). One of the basic forms of economic regionalism is EFTA that facilitates in reducing customs duties among their members. The currency as well as economic Union mainly intends in economic integration with the help of general economic policy and removal of tariff as well as non-tariff barriers. Institutional integration level is one of the economic regionalism forms and is also known as tight regionalism (Beeson and Mark. 2014). One example of tight regionalism is European Union (EU) that has been evolved from free trade sector to customs union. However, incorporation within EU helps in creating spillover effects in political as well as social arenas.  In addition, another method that has been used for classifying economic regionalism forms is the method by which their non-members are treated. Non –members are not discriminated in case of open regionalism. The APEC and EU contain different institutional arrangements, which facilitates in promoting open regionalism (Haastrup and Toni 2013). Similarly, closed regionalism inflicts protectionist measures for limiting non-members entrée to the market of member states. There are few global factors that influence EU’s approach in economic regionalism includes- multilateralism evolution, statement of WTO rules and liberalization in global trade. In fact, these factors also complicate the foreign policy of EU.

The modern theory on economic regionalism is solely based on inter-governmental as well as inter-states cooperation on issues in trade. This cooperation refers to expression of vital changes that took place since 1990s. Firstly, they are the economic consensus expression that praises promotion of exports rather than substitution strategies. Developed as well as less developed nations shares the specific vision of economic policy (Lenz and Tobias 2012). This vision relies on the basic concept that economic activities that do not represent the way for successful development. Secondly, the necessity expression aids in reducing the multilateral negotiation complexity in liberalized trade. Negotiations among the regions help in reducing complexity through several problems and simplify agenda. Thirdly, this expression of need is to preserve cultural or social peculiarities that are generally perceived as homogenizing process of globalization. Economic regionalism has been basically featured by negative integration strategies. Regional authority is mainly used for reducing national barriers to trade. However, economic regions follow market supporting strategies and have splits its relations of governance between national polity as well as trans- national marketplace. In addition, the members of EU have utilized regional aggregation in order to change their nations by not changing their own institutions.

Economic regionalism and globalization

Economic Regionalism has become the worldwide phenomenon. Owing to increase in international interdependence, nations seek to cooperate with adjacent states in order to tackle problems that include environmental degradation and migration flows. The EU has been considered as the primary exponent of economic integration for transforming animosities among the states. Due to this, policymakers of other nations were attracted for providing stability and security among the individuals. The theory of diffusion offers analytical tools in analyzing the influence of communities on economic regionalism. The EU also seeks in strengthening existing organization in the regions around the globe. However, it provides financial assistance, trade agreements and confers interregional cooperation. In addition, the interregional channels providing economic resources influences regional dynamics. The financial assistance of EU ‘s also impacts on the regional dynamics. EU’s indirectly affects the economic regionalism through competition as well as emulation process.

Economic regionalism is related with globalization in the form of open regionalism that aimed at global market and resistance to market forces globally. EU’s approach in economic regionalism process was to provide peaceful field where sovereign nations unites their efforts for creating regional objectives (Lenz and Tobias 2013). Open regionalism is the framework that describes the relationship between globalization and economic regionalism. The key drivers for economic regionalism including decline in cost of transaction, policy externalities, advancement of technologies owing to rise in competition, rise in FDI ( Foreign direct investments), economies of scale  facilitates the states in gaining from trading of goods with each other. Regional cooperation as well as integration are the main drivers of economic regionalism.   

The new economic regionalism approached by EU typically involves nations that involved in low tariff barriers and follows outward oriented strategies. These policies facilitates in reducing the diversion cost of trade. However, it also stresses the gains from cost of transaction and tarde barriers. On the contrary, the Asian as well as Latin American nations claim to pursue open regionalism (MacLeod and Gordon 2015). It refers to cooperative arrangement and is also referred to as concerted unilateralism. Moreover, it avoids diversion cost of trade that troubled developing nation’s regional groups.  

Research on economic regionalism is mainly classified into two various outcomes.  As opined by Hettne and Björn (2016), theories on international relations have considered regionalism as international cooperation. This means that international relations significantly affects on the regionalism. Firstly, integration as well as cooperation is the two main results of regionalism. Furthermore, regional cooperation involves joint exercise of political authority of each state in intergovernmental organization for solving action problems in relation to political and economical issues. In contrast to this, regional integration involves framing up of supranational organizations in which the political authority has been delegated in making binding decisions. For example, setting up of foreign conflicts and dealing with adverse effects of liberalization. Secondly, integration theories mainly initiates from European integration. However, European integration also serves in estimating regional integration in other nations. As a result, theories relating to regional integration have been applied to EU’s economic regionalism. On the other hand, theories of cooperation cover economic regionalism outside European countries.

New economic regionalism approach by the EU and other nations

The global financial crisis has some affect on its framework of regionalism and thus the model that EU promotes such as liberalization in trade and democracy is presently in crisis for many nations in EU. For example, the main issue for South American economic regionalism is mainly due to disagreements among the nations. The main aim of EU is to protect its nations or regions from external competition. This however is also referred to as closed regionalism that focuses at pursuing few strategies that includes import substitution for ensuring self-sustainability as well as growth in the economy. Moreover, this approach of EU changed completely during its second wave that is from the year 1990 onwards. Since then the economic regionalism has been promoting exports of the nations and this led to initiation of new markets. Another problem that has been identified for regionalism in South American is the protectionist governmental measures and attitudes towards change in free trade between the regions (Jeffery and Charlie 2015). In addition, the crisis of this nation’s regionalism has been the outcome of several intergovernmental factors that led to the prototype of overlapping, duplicating and sub-regional schemes.

Since the year 1990, economic regionalism in East Asian countries has observed emergence of three various phenomena that includes Trans- pacific regionalism, rise in intra regional organizations in this nations and influence of APEC. It has been noted from recent study that economic regionalism has shown huge progress in European countries than in Asian countries (Rose-Ackerman and Susan 2013). However, by promoting coordination among national authorities, economic integration and developing intuitions among the regions, the EU has created economic gains and reduced the gap of income among its member nations. On the other hand, regionalism in East Asian has developed in different way. In this situation, the markets drive regional integration more than their respective nations governments. Cooperation among the authorities of these nations remains hub for economical issues and formal institutions.

• The banking Union- The global financial crisis has exposed the weakness of EU’s approach in economic regionalism among the member nations. The weakness mainly lies in monetary union without the banking Union. This monetary Union however divided Europe both inside as well as outside Eurozone. However, in this circumstances, banking Union and proper implementation of economic policies can be the best method in solving this issue.
• Foreign policy- Foreign policy that has been adopted by EU has been one of their weaknesses in their approach in economic regionalism. In fact, other countries also pose various challenges through their foreign policies, which in other way affects their economic growth of these nations.
• Political integration-One of its great weakness of EU‘s has been political integration degree within the economy. The present level of political integration has been relatively low and hence this gave rise to huge contradictions. Moreover, the EU has less powers in the process of election of national governments in which the citizens has less participation in direct way (Telò and Mario 2013). On the contrary, the economic decisions that has been taken at the European level that affects the citizens of the country are mainly resolved through governments negotiations.

EU faces huge challenges for the continuing economic crisis and these impacts on the European countries. The governance principles of EU approach in regionalism includes-

• In order to make economic regionalism inclusive, they gives extra advantage to small nations as well as minorities in making decision
• Making decision on some economical issues by majority voting
• Open procedure of coordination that allows EU’s member nations for agreeing on intergovernmental cooperation initiatives
• Economical decisions are mainly taken based on subsidiarity principle at the governmental level

There are some theories that provide insights about regionalism effects. Economic regionalism is stepping stone for globalization and it also influences the domestic policies of the nations and political processes. It has been noted from the recent study that globalization process and rise in economic regionalism approached by EU have profound effects on the financial systems. In addition, regionalism involves less governmental action of the states for intervening in the process of globalization (Söderbaum, Fredri and Shaw 2013). The resistance framework basically concerns with the social values that includes distribution as well as social justice that is considered as the key driving force for economic regionalism. Legitimacy has been the fundamental concern for the policymakers that contemplates the regionalism form. Economic regionalism also responded to globalization through rise in cultural identity and regionalist parties. With broadening of economic regionalism, the uniqueness of EU becomes less with respect to other regionalism forms. Rationalist cooperation approaches takes economic regionalism as strategic states responses to the globalization challenges (Ravenhill and John 2017). On the other hand, social constructivist approaches facilitates in suggesting the cultures of the nations in EU that are more or less well-suited with regionalism outcomes.

Theories on integration and cooperation in economic regionalism

The global financial crisis (GFC) during the period 2008 -2009 was a vital event around the globe. It caused slowdowns as well as massive wealth loss around the globe and reversed world trade growth.  Moreover, the effects of this GFC varied across different nations as well as regions. But this crisis influences greatly on US and Europe and peripheries of Europe. The effect were conveyed through channels of real economy as economic slowdowns of developed nations led to decreased demand for produced commodities that have been manufactured by emerging markets. Global financial governance that has been most relevant to economic regionalism in Europe is crisis management. Several attempts have been done by ASEAN( Association of South East Asian Nations), AU (African Union) and GCC( Gulf Cooperation council)  in order to gain regional integration within the nations, but they have failed in achieving it resembling the EU ‘s progress. Following the GFC, several challenges faced EU that weakened their approach in economic regionalism (Okeke and Aniche 2012). The first challenge that faced EU is rising fiscal coordination along with worsening outlook of the economy.  However, it is suggested that EU must improve their financial system and also follow through severity measures initiated by its member states (Malamud, Andrés and Gardini. 2012). Additionally, the share of EU in global GDP reduced from 24% to 22% during the period 1990 to 2010. Another challenge that is faced by EU is resolving their identity crisis.  In addition, EU has improved from customs union to only one market as well as Eurozone of the member countries. Hence, they have been unable in strengthening political institutions and is consistent with the requirement of integration.

Economic regionalism has proven effective in facilitating to protect the markets of the member nations and provide strength in the economy through formation of RTA (Regional trade Agreement). However, the globalization organizations namely IMF (International Monetary Fund) and WTO (World Trade Organization) agreements unite the governments to their market liberalization that confines their ability in pursuing macroeconomic policies (Sunkel, Osvaldo and Inotai 2016). However, some regions or states of EU have reacted through economic regionalism for preserving stability in culture and economy. However, debate creates from the fact that economic regionalism simply places international system and hence the scale of regulation as well as stability that initiates from regionalism has been incomparable.  Thus, with economic stability that has been offered to nations by economic regionalism, it has been forecasted that interregional relations will also rise in future.

Conclusion

Conclusion

From the above assignment , it can be concluded that the unifying factor in various types of economic regionalism is basically the desire of the member countries for using wider space in advancing economic interest.  Economic integration is one of the example of its regionalism that have been exposed by GFC . Moreover, economic regionalism approach by EU failed due to two factors. Firstly, multilateralism served their major nation’s interest and hence economic rational did not seemed to exist in these economies for pursuing regional alternatives. In addition, the member nations have been apprehensive of trade arrangements and have restrained themselves from this attempt. It is controversial that economic regionalism impacts on the political aspect of nations agreement and global governance. Thus, foreign policy, political integration and banking Union are the three main weakness of the EU’s approach that has been exposed by GFC and its aftermath.

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