Case Paper A

Josh You
2/17/14
As one of the most prominent examples of regional integration, the European Union is an
important case study for international cooperation. The history of European economic integration
and its response to the financial crisis of 2008 lends support to both liberal and mercantilist
conceptions of political economy. While European integration was influenced by economic
motivations and has benefited the European economy, it has not escaped political and economic
competition and falls well short of the liberal ideal of economic cooperation.
The main schools of thought in political economy differ in two main aspects: whether
economics determines politics or vice versa, and the extent to which economic cooperation is
possible. Liberalism, proposed by classical economists such as Adam Smith, holds that states
have mutual economic interests and the action that is best for each state economically is usually
the action that is best for the system as a whole. Thus, there is ample room for mutually
beneficial economic cooperation, which nations should pursue.1 Liberals also believe that
economics are the primary motivation for states and emphasize households and firms when
examining state behavior. Government policy thus primarily represents the aggregate economic
interest of citizens.2 These ideas stand in opposition to another main school of thought in
political economy, mercantilism. Mercantilists of the German Historical School view nationalism
and security concerns as the primary influences on policy.3 Additionally, they take a more
pessimistic view of economic cooperation, positing that economic interests often conflict,
leading to zero-sum competition. Finally, the Marxist view agrees with the liberals that economic

Gilpin, Robert. The Nature of Political Economy. Essential Readings in World Politics. Ed. Karen Mingst and
Jack Snyder. New York: W.W. Norton and Company, 2014. 526
2
Gilpin, 527.
3
Gilpin, 529.

relations are the primary determinant of policy, but also posits that the economic relations
between classes are fundamentally antagonistic.4 Therefore, when applied to the situation in
Europe, these theories can be tested by examining the extent to which policies are driven by
economic concerns, and how successful economic cooperation has been.
In the case of European integration, there were substantial economic justifications and
motivations for the policies pursued since the end of WWII. The European Economic
Community (EEC), established in 1957, was quite successful at reducing trade barriers and
increasing economic integration, leading to excellent growth rates in subsequent years.5 The
European Union itself was established in 1994 through the Maastricht treaty, leading to increased
cooperation on policy, including economic issues like consumer regulations and immigration. 6
However, the most dramatic move towards economic integration has been the introduction of the
euro in 2002 by most countries in the EU, with the notable exception of Britain, and the
establishment of the European Central Bank (ECB) to set monetary policy for the Eurozone.
However, economic integration was also heavily influenced by political and security
concerns, lending credence to the mercantilist view. The basic premise of European integration
immediately following WWII was to prevent war in Europe, especially between France and
Germany, by making them economically interdependent and rendering a war buildup
impossible.7 This indicates that integration policies were motivated by security as well as
economic concerns. Additionally, economic cooperation in the 1940s was partnered with
political and military cooperation in the form of NATO against the common enemy in the form

Gilpin, 527
Stiles, Kendall. Case Histories in International Politics. Pearson, 2013. 262
6
Stiles, 269
7
Stiles, 259
5

of the Soviet Union.8 Other non-economic political issues have been salient throughout the
integration process. Many European nations had political motivations in joining the EEC:
Germany wanted international acceptance, and France wanted greater diplomatic influence.9 In
the case of Margaret Thatcher, politics appeared to trump economics when she jeopardized
Britains relationship with the EEC by decrying the fees it had to pay, telling them I want my
money back.10 For Britain, being a net contributor to EEC budget was not politically popular:
lower contributions may have been in Britains economic interest but nationalistic sentiments
undoubtedly played a role in Thatchers actions. Finally, the European Union promotes
democratic ideals and requires democratic government for membership, which a liberal focus on
economics wouldnt necessarily predict.11
The economic crisis following the financial collapse in 2008 has also tested the limits of
economic cooperation. In one view, cooperation has worked to some extent. The EU and the
International Monetary Fund provided billions of dollars worth of bailouts to prop up economies
like Greece and Ireland.12 Additionally, nations did not turn to protectionism as they did during
the Great Depression, as free trade has remained strong in Europe and around the world.
However, the crisis has provided strong evidence to counter the notion that nations economic
interests are always harmonious. The policy responses to Europes economic troubles have faced
serious issues: the initial bailout to Greece was severely inadequate, and EU-imposed austerity
measures across the continent have caused double-dip recessions and persistently high
unemployment.13 Many of these problems can be attributed to a failure in cooperation. Since
8

Stiles, 260
Stiles 261-262
10
Stiles, 264
11
Stiles 270
12
Stiles 297
13
Drezner, Daniel. The Irony of Global Economic Governance. Essential Readings in World Politics. Ed. Karen
Mingst and Jack Snyder. New York: W.W. Norton and Company, 2014. 574
9

European countries have wildly varying macroeconomic conditions, with Germany doing quite
well and Greece mired in a severe depression, the fact that they share a common currency makes
it difficult for monetary policy to serve the interests of each country.14 In countries with their
own currencies, such as the United States, fiscal transfers from the federal government alleviates
these differences, but in Europe these transfers are politically fraught, as Germany is reluctant to
bail out Greece and friends. In practice, Germany has wielded excessive influence over monetary
policy, pressuring the ECB into fighting inflation at the expense of economic growth, with the
net result being that monetary policy has treated Germany fairly well but has been far less
expansionary than what would be best for the Eurozone as a whole.15 Thus, Europes response to
its economic crisis has reflected elements of zero-sum economic competition stemming from
both political disagreements and differences in economic interests.
Europes experience with integration has shown the benefits as well as the limits of
economic cooperation. Economic relations have substantially strengthened in Europe since
WWII, producing substantial benefits. However, the liberal notion that the economic interests of
nations are well-aligned has been far from confirmed, and the influence of politics and
nationalism is quite clear. The success of the European project, and whether Europe moves
towards greater cooperation in the future, will provide further evidence for or against the liberal
view.

14
15

Krugman, Paul. The Money Trap. The New York Times. November 14, 2013.
Ibid.