Uih Ran Lee

The Political Economy of EU Trade Policy: Energy and Agricultural Trade with Russia

Trade policy has been largely independent from other policies of the European Union (EU) since it remains its exclusive competence, as opposed to a shared competence between the EU and its member states. The EU has, however, recently observed an unprecedented degree of discord amongst the member states over trade policy in the energy and agricultural sectors, in both of which Russia takes a key role in accelerating the division within the EU. EU’s persistently high dependence on imports of Russian energy has increasingly promoted the division of the EU into core and periphery. Furthermore, non-random spatial distribution of economic costs across the member states due to the mutual sanctions between the EU and Russia in the wake of the 2014 Russia-Ukraine conflict has become a substantial threat for deeper integration of the EU.

Theoretical Foundations and Policy Responses of Contemporary Economic Crises

This chapter explores how developments in macroeconomics following the breakdown of the post-war Keynesian era led to the introduction of fiscal and monetary policymaking based on neoclassical assumptions that ultimately have been largely detrimental. Hence, as a consequence of addressing the problems generated by the global financial crisis and subsequent Great Recession many European economies have now entered a new phase of economic difficultly, a process magnified for a number of eurozone countries engulfed by the sovereign debt crisis. Although the aggressive use of expansionary monetary policy by central banks to push short-term nominal interest rates to historically low levels was the textbook response expected from central banks, it has led to the situation of a liquidity trap as they reach the zero lower bound.

Changing Tides: Geopolitics and Global Trade Blocs

This chapter examines the European core and periphery through a global trade lens. In doing so, we first provide some reflections on the historical context regarding the international trading environment. Inevitably, this focuses on the role of the United Kingdom (UK) and United States (US) in the post–World War II period. This is in sharp contrast to the current position of the European Union (EU) negotiating bloc. This bloc system has spread to the international stage with the emergence of the mega-regionals. Therefore, we briefly outline the issues around the network of mega-regionals and the Belt and Road Initiative as well as discussing the role of Europe within this new framework. Most recently these large blocs have been compared to the increasingly separatist tendencies, particularly obvious in the case of the Brexit referendum result. Finally, we discuss the role of the European core and periphery in this rapidly evolving geopolitical environment.

Theoretical Foundations of European Economic Integration

This chapter discusses the economic theories underpinning the applied areas examined in further chapters. In particular, it reviews economic thinking in terms of the key aspects of international trade, such as customs union theory and the development of a single internal market regarding the free movement of factors of production, that have driven the post–World War II agenda of regional trade agreements across Europe. Additionally, to complete the move from ‘shallow’ to ‘deep’ regional economic integration, the European Union (EU) has moved to a monetary union, bringing to the fore the theory of optimum currency areas. However, the emphasis of this chapter is on how these paths of economic integration have come under pressure so that it is increasingly evident that not all members of either trade arrangements or the eurozone benefit equally, or indeed at all.

Alternative UK Trade Relationships Post-Brexit

This chapter discusses several key issues for the United Kingdom (UK) in relation to Brexit. Firstly, it looks at how new directions could be initiated to fund infrastructure aimed at boosting the UK’s future growth potential and/or promote reindustrialisation by nurturing strategic industries through the early and unknowable stages of their development until they achieve their own international competitive advantage. Secondly, we contest the belief that globalisation has created a new environment that erodes the efficiency of traditional policy instruments and with it the relevance of individual nation states. Finally, in this context we conclude by arguing that Brexit offers a unique opportunity to negotiate a new trade relationship with the European Union (EU), together with the rest of the world, to both replace previous trade deals concluded by the EU and establish a new set of relationships with a wider set of potential trade partners.

The Relationship Between Current Account and Budget Deficits: Evidence from the Eurozone

This chapter aims to provide a thorough exposition of the twin-deficit hypothesis and present existing evidence from the eurozone south periphery. A case study focusing on a small group of highly indebted economies of the eurozone south periphery (i.e. Greece, Spain and Portugal) sheds light on the statistical association between government and current account balances and investigates the extent to which investment is highly associated with external deficits in this group of countries. New empirical evidence suggests that fiscal austerity currently employed in the eurozone periphery could be a plausible remedy for current account imbalances (under specific conditions) and that investment has heavily deteriorated the current account in Greece, Portugal and Spain, indicating that the way that investment is financed should be of primary policy consideration.

Segmentation Across Europe

This book seeks to explore the current economic developments across Europe in relation to its apparent segmentation as disparities widen between core and periphery countries. However, in contrast to previous literature the scope of analysis is extended to Europe as a continent, rather than confining it to solely the European Union (EU). We believe this is crucial since a key aspect of the global financial crisis and Great Recession was to highlight the often pre-existing, and sometimes hidden, economic fault lines across the European continent, whether between north-south eurozone economies (e.g. Germany in relation to Greece, Spain, Portugal, Italy) or in relation to those on its geographical boundaries possessing a complex relationship (e.g. Ukraine, Russia).

The Relationship Between the Real Exchange Rate and Current Account Imbalances in the Eurozone

The purpose of this chapter is to examine the current account–real exchange rate nexus for the three eurozone south periphery economies of Greece, Portugal and Spain and reach interesting conclusions on whether economic policies targeting the real exchange rate could be beneficial for improving current account balances in these economies. Evidence suggests that a real depreciation in the periphery (as typified by Greece, Portugal and Spain) can lead to an improvement of these economies’ current account balances.

The Eurozone Crisis: Current Account Imbalances, Budget Deficits and National Debt

In order to understand the deeper causes of the ongoing eurozone crisis it is essential to identify a number of factors that collectively impacted the eurozone’s design and undermined the path towards its anticipated success. These factors reflect both economic and structural differences between core and periphery blocks of countries that could be interpreted as internal or intra-zone factors as well as external factors that hugely affected the eurozone’s economic performance. It is therefore important to analyse the eurozone’s policy framework and initially identify how the eurozone performed until 2007 when the global financial crisis hit and how the system subsequently reacted to this external shock. This will reveal the internal flaws of the system that left the eurozone vulnerable to the global economic and financial upheaval and identify possible solutions in order to rescue the eurozone project.

International Monetary Systems in Historical Perspective

Following the critical review of microeconomic aspects of economic integration in the form of customs unions, the creation of a single internal market, together with the macroeconomic issue of monetary union, this chapter explores lessons that could be applied in today’s environment from examining how seemingly successful fixed-rate regimes (e.g. the classical Gold Standard and Bretton Woods) each helped to establish an international economic environment that facilitated decades of economic expansion before a combination of political and economic factors forced their ultimate termination. Indeed, a badly constructed fixed exchange rate system, such as the 1920s return to the Gold Standard on pre–First World War parities or Exchange Rate Mechanism membership at too high a parity, has been associated with economic recession, bankruptcies, house price collapses and mass unemployment. Consequently, while a properly constructed system can be a benefit to participating countries, a badly designed regime can cause untold damage to its members.