ECON2322 reading summaries

ECON2322 reading summaries - The main ingredients toward...

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The main ingredients toward European Union and integration are economics with the underlying driver as politics. The more the European Union grew in size, by adding new countries to it, the more it pinned its faith on an export led growth process. But an area as big as the EU, which by itself is a big chunk of the world economy, cannot depend upon net exports to generate growth in incomes and employment. However, given the present size of the European Union and also of the Euro zone, external growth can do very little to take the largest economic area in the world out of stagnation, and of the ensuing social decline, Politically and historically the formation of the Common Market, which later became the EEC and transformed itself into the European Union is explained as a policy aimed at avoiding conflicts and wars in Europe, In plain language this means avoiding a new war between Germany and France. There is a strong element of truth in this if we think that the wars between Germany and France were determined by the conflicting imperialisms of their respective capitalisms. [Halevi, Kriesler] During the 1950s, before the formation of the Common Market, European integration, stimulated by reconstruction programs which then turned into a long boom (Milward 1992), proceeded at a high pace with Germany acting as the major exporter and as the factor revamping the whole interindustry matrix of the Continent (Halevi 1995) European Payments Union (EPU), formed in Europe in 1949 by the United States in order to receive the counterpart funds of the Marshall Plan. Transactions, the countries in surplus—usually Germany—would deposit their surpluses in the EPU, which would then quickly recycle them into commercial credits. Fixed exchange rates, closed capital accounts, no convertibility and the fact that national money interest rates were not much above the rate of inflation, meant that the sure way to make profits was to lend and invest for productive purposes. The process involved the whole of Europe. The EPU allowed the smoothing out of the balance of payments constraint of the European countries. EPU would not have been sustainable without crucial support from the U.S. Congress Thus when the outbreak of the Korean War, by causing a steep rise in raw materials prices, threatened Germany's balance of payments, the U.S. government quickly injected half a billion dollars into EPU. The Korean War expenditure then became an important factor in the revitalization of Germany's capital goods industry that sustained the process of Europe's industrial renewal. In other words, without the United States injecting money into the EPU Germany would not have been able to surmount the balance of payments difficulties caused by the rise in raw materials prices and the Korean War would not have become such a strong stimulus for German production of capital goods.
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This note was uploaded on 03/25/2012 for the course ECON 2322 taught by Professor Kevin during the Three '12 term at University of New South Wales.

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ECON2322 reading summaries - The main ingredients toward...

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