Charting course to a new Europe

European Economies since the Second World War War. First Edition - European Economic Integration. Third Edition - International Business Economics - Western Europe - The European Union - European Monetary Integration - European Union Economics. Forth Edition
May 28, 1999

Several difficulties confront authors of textbooks on the economics of European integration. One is how to relate their material to the historical developments of both the European Union and its member states. Another is how to present a balanced picture of issues that cause great controversy partly, but not wholly, as a consequence of differences of economic analysis or judgement. And third, there is the issue of what attitude to take to the presentation of economic theory itself.

At one extreme, some books pretend to explain by fashionable economic theory events that are better explained in other ways. Really they are theory books, hoping to seem relevant to integration. At the other extreme are books that really seek to explain the issues, but consequently need a wide range of economic tools - sometimes elementary ones, sometimes advanced ones. These run the danger of being of little use to students of economics but failing to interest students of politics because the issues themselves are not those of primary concern to political science.

The compromise approach is to devote a chapter to each of the common policies or other major areas of economic integration, perhaps with additional chapters briefly treating the history and institutions of the European Union, and to move as far as possible towards accessible presentations of the more difficult theory. Ali El-Agraa's The European Union manages in almost every area to find the economic analysis appropriate to the issue and to use it to address the questions of economic integration, sometimes with fairly advanced techniques. So, for example, when thinking of the effects of the Common Agricultural Policy in general equilibrium, El-Agraa conveys the point of the analysis and results without demanding technical expertise from the reader.

The fourth edition of Theo Hitiris's European Union Economics is similar in structure, but much lighter on economic theory, with perhaps a little more historical detail of the development of policy in each area. Similarly, the third edition of Frank McDonald and Stephen Dearden's European Economic Integration is expanded from the previous edition, and becomes an even more valuable teaching resource and undergraduate text. It has no theoretical pretensions, but presents the theory that I suspect most non-specialist professional economists have in mind when discussing the issues. It also manages to avoid being narrowly neoclassical, which brings an extra dimension to most textbook discussions of European economic integration.

Judith Piggott and Mark Cook's International Business Economics: A European Perspective is much less of a textbook of European integration and most of the chapters have little if any specific relevance to European economics, and some of those that do are not the strongest in the book. Nor is the discussion of economic theory always clear. So, for example, the discussion of protectionism manages to misdefine the optimal tariff, suggests that it is an invention of the 1980s, and places Paul Krugman on both sides of the trade policy debate: none of which is helpful.

Away from economic theory, and more at the business end, as it were, of the subject, the book seems to offer much. There are many interesting and pertinent industrial case studies that are, no doubt of more interest to the business economics clientele than a more rigorous treatment of economic theory would be. The same applies to discussion of the European competition policy and the internal market, which really gets to grips with the intent and effect of the policy.

The most difficult area for books like these is monetary union. It has all the awkward characteristics of being a political matter, inviting economic analysis at almost any level, and being to an important extent the outcome of deep historical processes. Textbooks should at least map the area and provide a coherent account of different schools of thought, along with a discussion of the different judgements made as to the relative importance of various factors. The objective would be to allow students, of whatever degree of sophistication in their theoretical knowledge, to understand why there are different views; to comment intelligently on what leads people to those views; and ideally to make worthwhile contributions to discussion.

So Hitiris's implication that "asymmetric demand shocks" are the extent of possible problems with Emu is disappointing. Piggott and Cook also fail to offer much of a path through the issues. There is a discussion of the costs and benefits of the euro where the impossibility of exchange-rate changes first appears as a benefit, then the loss of national interest rate control as a cost, without, apparently, there being any link between the two. Later there is a separate discussion of the idea of optimum currency areas. And El-Agraa's treatment falls well short of the standards of the rest of his book. Amazingly it contains hardly a reference to any anti-Emu argument published since 1980! This leads him to assert flatly that the case against Emu is based on a false belief in the Phillips curve. Such a view may be prevalent in the press and politics, so it was a major objective of my argument in my book Both Sides of the Coin to give an accessible account of alternative anti-Emu thinking. One would have expected a textbook to show more awareness, particularly when reaching a conclusion on a controversial issue.

I doubt whether a reader depending on these books for the arguments would be able to comprehend the intensity of debate over the euro in Britain, let alone comment on it intelligently, or take part. They do not provide any viable and coherent reason for thinking monetary union damaging and so force the student to presume opponents are either not themselves informed, even to the level of an undergraduate textbook, or ill motivated, or perhaps not concerned with economic issues.

In contrast, Nigel Healey's chapter in McDonald and Dearden provides an elementary but coherent account of both sides - costs and benefits of the euro - along with some comments on the judgements required to reach a view, so that readers feel they can find their way around the debate. Among books that are generally so similar, this is a striking differentiating characteristic.

The book that comes closest to providing a full treatment of the economics of monetary integration is the second edition of Daniel Gros and Niels Thygesen's European Monetary Integration . This is updated from the first edition of 1992 and contains some new material on the assessment of Emu. The scope of its theoretical analysis is certainly impressive and as a treatise on technical economics, the book has much to offer. A huge range of material is covered and theoretical discussions have a remarkably consistent clarity. But in addition to wondering whether this is really a textbook, I feel that technical skill can have a tendency to deflect attention from important aspects of reality. For example, in considering the much-debated issue of whether the operation of the EMS was "asymmetric", the authors set out what they feel would be the best indicators, discussing each in turn.

None of these books, however, addresses the concerns of the French government about German dominance, quoted later in the book without comment on what, the reader must feel, is a considerable incongruity.

Two books that do provide a detailed consideration of historical developments in the member countries of the EU are European Economies since the Second World War by Bernard Foley and Western Europe: Economic and Social Change since 1945 , edited by Max-Stephan Schulze - both excellent volumes.

Neither is addressed specifically to the issue of European integration, but rather to the economics of the more Western European states. The first treats the countries, or groups of smaller countries, chapter by chapter with an accessible, orderly and balanced treatment of the development of each. The central theme is to explain growth rates, and there is fairly heavy reliance on the idea of total-factor productivity; acquaintance with the economic terminology of undergraduate courses is certainly necessary for a full appreciation.

The second book also contains chapters on the major Western European economies in addition to thematic chapters on economic and social issues across Western Europe, along with some wonderful, apposite and even touching photographs. The country chapters share the balance of Foley's book, but Schulze's presentation offers more reflection on historical and political developments. Bearing in mind how much of the postwar period now seems like ancient history to students, a book like this, which conveys the cultural importance of so many of the economic developments of the period, will be invaluable.

James Forder is a fellow, Balliol College, Oxford.

European Economies since the Second World War War. First Edition

Editor - Bernard J. Foley
ISBN - 0 333 65324 6 and 0 333 65325 4
Publisher - Macmillan
Price - £47.50 and £15.99
Pages - 222

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