European Integration and the Regionalization of World Trade and Currencies: The Economics and the Politics

Abstract

In the 1990s the possible breakup of the world economy into economic blocs has become a special focus of interest — largely in response to such projects as the European Monetary System, Europe 1992, the enlargement of the European Union, the North American Free Trade Agreement that went into effect in 1994, and suspicions of a Japanese sphere of influence in Asia. The possible regionalization of the world economy raises important issues for policy. Given that worldwide free trade is difficult to attain politically, should it be pursued first within regional Free Trade Areas or in Preferential Trading Arrangements? What gets higher priority: expanding the number of countries participating in regional Preferential Trading Arrangements, reducing intraregional barriers to zero, or reducing the average level of trade barriers worldwide? Within given geographic groupings, what should be the sequencing among steps such as financial integration, currency integration, trade integration, and labor market integration? The list of important research topics is quite long. These questions are perhaps more salient in Europe than anywhere else. Regional arrangements have seen a steady expansion in scope since World War II. The succession of labels tells the story of extension in purview, from production and trade matters in a few economic sectors to a contemplation of all-encompassing economic and political integration: The European Coal and Steel Community, the Common Market, the European Economic Community, the European Community, and finally the European Union.