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Instructor Manual
Chapter 8: European Integration
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Explain the origins and the evolution of the EU
2. Explain how and why the institutional framework created by the EU is pivotal for business
3. Discuss the merits and drawbacks of the euro as a common currency
4. Participate in debates over the political institution of the EU
5. Draw Implications for Action
General Teaching Suggestions
Businesses stepping outside their national borders within Europe are almost invariably
engaged in business in the European Union. Chapter 1 gave some data: even for the UK,
almost half of its exports are to other EU countries. Therefore, this chapter is central for an
International Business course in a European context.
We are primarily interested in how the development of the EU shapes businesses. Hence, our
main focus is on the institutions created by the EU that set the rules for businesses. In other
words, section 2 is the key to this chapter, and themes introduced here are relevant to
institutional discussions later in the book.
Sections 1 provides the historical introduction that is needed to understand why the
institutions are the way they are, section 3 (which was greatly expanded in the 2nd edition)
discusses the challenges of the Eurozone, while sections 4 explains the political dimensions
of the EU influencing businesses indirectly because they determine why the EU institutions
may or may not change. This chapter differs from other introductions to the EU that typically
focus on politics (our section 4) and mention the institutions for business (our section 2) only
in passing.
The chapter has a lot of factual information and data, and very little in theory. Students may
thus welcome the change after a strong theory-focus in the preceding chapters 5 to 7.
To initiate a debate, an instructor may ask students what experiences they have with the EU.
Most will start with travel experiences, but others will point out possibilities for taking a job
elsewhere, buying products elsewhere and last-not-least studying abroad. In Focus 8.2 on the
Bologna process provides an alternative starting point (though note that, strictly speaking,
Bologna is not an EU initiative). After having generated a few suggestions, you may ask
whether their parents and grandparents had the same opportunities – and why not?
The discrepancy between the opportunities open to today’s 20-somethings and what their
parents faced should suffice to make everyone realize the importance of the EU.
Opening Case Discussion Guide
For this opening case, I have asked an executive (who prefers to remain anonymous) to
record his activities on a typical working day. The words used in the opening case are largely
his.
The purpose of this case is twofold: Firstly, I wanted students to get a real world impression
of what international managers do on a daily basis – rather than the highlights of big
decisions that they like to talk about. Secondly, I wanted to provide a first-hand account how
doing business has changed over the past decade as a consequence of EU enlargement.
You can initiate a discussion by asking, how is doing business in Poland different than doing
business in Germany? What barriers does Marcus have to overcome to be able to do business
in Poland? (He didn’t think it necessary to mention that his native tongue is German, so
when negotiating in English he too is using a foreign language). Then, you should ask, how is
today’s business between Germany and Poland different than 15 years ago – before Poland
joined the EU? Or 30 ago, when Poland still was under communism?
Chapter Outline, Section by Section
Section 1: Introduction
Key Ideas
This section introduces key concepts related to forms of regional integration, which are
important to set the EU in a theoretical context. These concepts are also the basis for
discussing which form of integration the EU might develop with countries outside the EU,
such as Turkey (a Customs Union), Canada (a Free Trade Agreement) or the UK (as of date
of writing still unclear). Table 8.1 provides the most condensed overview that I could come
up with.
When teaching this subject, you may want to display this table somewhere in the classroom
as a continuous point of reference while you discuss specific points and issues using whatever
techniques you usually use (say, PowerPoint).
Students also have to learn the name of the countries. It is rather embarrassing if certain
politicians can’t place certain countries on a map of Europe – I hope that won’t happen to
your students! Table 8.2 and the two maps (Figure 8.2 and 8.3) provide you with the tools to
create ad hoc quizzes.
Key Concepts
European Union
The political and economic organization of 27 countries in Europe
free trade area
A group of countries that remove trade barriers among themselves
customs union
One step beyond a free trade area, a customs union imposes common external policies on non-
participating countries
common market
Combining everything that a customs union has, a common market permits free movement of goods
and people
economic union
In addition to all features of a common market, members of an economic union coordinate and
harmonize economic policies
monetary union
Countries sharing a common currency and monetary policy
euro
The currency of the European Monetary Union
political union
The integration of political and economic affairs of a region
Section 2: Overcoming Divisions
Key Ideas
This section provides a brief historical introduction of the EU, and introduces key institutions
and agreements that have been developed over the past decades, and that shape the
institutional framework for politics and economics in Europe.
Council of Europe
A loose association in which essentially all European countries are member
European Convention on Human Rights
A charter defining human rights in Europe
European Court of Human Rights
An international court assessing human rights cases in Europe
Treaties of Rome
The first treaties establishing European integration, which eventually led to the EU
Copenhagen Criteria
Criteria the new members have to fulfil to be admitted as members of the EU
Central and Eastern Europe
The common name used for the countries east of the former iron curtain
Comecon
The pre-1990 trading bloc of the socialist countries
economic transition
The process of changing from central plan to a market economy
Single European Act (SEA)
The agreement that established the basis for the single European market
single market
The EU’s term of its common market
Maastricht Treaty
A major treaty deepening integration in Europe
European Constitution
An ambitious project to create a new legal foundation for the EU, which failed
Section 3: The EU as Institutional Framework for Business
Key Ideas
This section introduces key institutional arrangements that are relevant for business. The
main focus is on the arrangement created with the common market programme of 1992. In
teaching these materials, it is important to clarify up-front three theoretical ideas that are the
foundation for EU market structures: mutual recognition, subsidiarity, and harmonized sector
(p. 223). Students will often be quick to find exceptions or examples where these principles
do not appear to work in practice. But understanding these concepts is essential for a
meaningful debate over the EU market institutions.
Many of the practical implications can be discuss with reference to the students’ own
experiences, including student exchange programs in Europe (In Focus 8.2)
The new In Focus illustrates the meaning of single market using the example of beer. To
complement this, price differences for beer are nicely illustrated on this map on the web:
http://www.visualcapitalist.com/mapping-price-of-beer-around-world/
Key Concepts
four freedoms of the EU single market
Freedom of movement of people, goods, service and capital
mutual recognition
The principle that products recognized as legal in one country may be sold throughout the EU
subsidiarity
The he EU takes action only if it is more effective than actions taken at lower levels
harmonised sector
Sectors of industry for which the EU has created common rules.
Erasmus+ Programme
An EU programme encouraging student mobility in Europe
Bologna Process
A political process aimed at harmonizing European higher education
Schengen Agreement
The agreement that laid the basis for passport-free travel
Schengen Area
The area covered by the Schengen agreement
Schengen Visa
Visa given non-citizens access to the Schengen area
state aid
Financial support from government to firms through e.g. subsidies or tax rebates
subsidy competition
The competition between governments trying to attract investors by offering subsidies.
Section 4: The Euro as a common currency
Key Ideas
This substantially expanded section in the 3rd edition provides a basis to discuss many of the
controversies surrounding the euro. The main theoretical construct to frame such discussions
is Mundel’s “optimal currency area”.
The text provides a lot of data to examine the question whether the eurozone is an optimal
currency area. The data representations all start in 1999, the starting date of the euro, and
hence allow for a long term perspective, beyond the current issues discussed in the media. On
many trends, the impact of the financial crisis is distinctly visible as countries that
experienced the largest growth before the crisis suffered most during the crisis.
Key Concepts
eurozone
The countries that have adopted the euro a their currency
Maastricht Criteria
Criteria that countries have to fulfil to join the Eurozone
European Central Bank (ECB)
The central bank for the Eurozone
European stability Mechanism (ESM)
A fund to support member countries with difficulties raising money on the capital markets.
optimal currency area
A theory establishing criteria for the optimal size of an area sharing a common currency
Section 5: Debates and Extensions
Key Ideas
In the debates section, we address the political institutions of the EU, which are critical to
understanding change processes (or the absence of change). These topics are usually covered
in much greater depth in books focused on the EU, such as Suder’s textbook (see
recommended readings). We only introduce the basics necessary to the economic institutions
in context. Building on this the second topic, we then introduce the issue of democratic
legitimacy of EU institutions, along with an In Focus on the situation of the UK before and
after the referendum of June 2016. The Brexit theme can be developed further with two new
Integrative cases “Negotiating Brexit” and “Cars Made in Britain, Post-Brexit”.
Key Concepts
European Council
The assembly of heads of governments setting overall policy directions for the EU
President of the European Council
The person chairing the meetings of the European Council
Council of the European Union
The top decision making body of the EU, consisting of ministers from the national governments; it
decides by qualified majority voting
European Commission
The executive arm of the EU, similar to a national government
Directorate General (DG)
A department of the commission, similar to a ministry of a national government
President of the Commission
The head of the EU’s executive, similar to a national prime minister
European Parliament
The directly elected representation of European citizens
Members of the European Parliament (MEPs)
Parliamentarians directly elected by the citizens of the EU
European Court of Justice (ECJ)
The court system of the EU
Section 6: Implications for Practice
Key Ideas
The implications section stresses the need for managers to stay up to date and engage with
developments in the EU because they are setting the relevant regulatory frame form business
in Europe (even for non-international business). If businesses or individuals want to partake
in this process, they can engage in lobbying – as illustrated in the closing case.
Key Concepts
lobbying
Making your voice heard and known to decision makers with the aim to influencing political processes
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What are the five types of regional integration?
2. What was the main achievement of the Council of
Europe?
3. What were the main objectives of the establishment
of the European Economy Communities, the
predecessor of the EU, in 1957?
4. What were the main steps of European integration
since 1957?
5. Name all member countries of the EU
6. What is the ‘Single Market’?
7. How does the European Union try to overcome
trade barriers arising from differences in product
standards and regulations in different EU member
countries?
8. Why is the single market for services more difficult
to implement than the single market for goods?
9. How does the EU facilitate student mobility?
10. Why has it been so difficult to implement passport-
free travel through the Schengen agreement?
11. What are the advantages and disadvantages for a
country to join the euro-zone?
12. Why has the economic performance of Eurozone
member countries been divergent rather than
convergent since the introduction of the euro in
1999?
Page 211-212, esp. Figure 8.1
Page 212
Page 212-213
Table 8.1
Table 8.2
Page 217-218
Page 217-219
Page 219-220,
Page 221-222, In Focus 8.2
Page 222-223, Figure 8.2
Page 224-231
Page 226-230, incl Fig 8.4 to
8.9
13. In which ways did membership in the EU help or
hinder Spain’s economic prosperity since 2002?
14. What are the main political institutions governing
the European Union?
15. Why is the relationship between the UK and other
member countries often a bit tense?
In Focus 8.3
Page 233-234
In Focus 8.4
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below,
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. When should the EU issue
regulation that is binding for all
businesses in all countries, and
when should it instead leave
regulation to the nation states?
lower wages. Should the free
movement of people thus be
crisis of 2009?
1. This question builds on the single market
discussion (p. 239-40). It is important that
students build their discussion on an
understanding if the issues rose in the text and
contribute their own ideas on how to balance
between the conflicting objectives.
the political sphere, students may extend this
question to the question from what point in
debt, serious trade imbalance, and
comparatively high unemployment rate.
download data for the past decade
for a European country of your
interest. Analysing these data, how
was the economy influenced by the
decision join or not-to-join the
Eurozone?
5. Considering the different levels of
economic integration (Figure 8.1),
following the decision of UK voters
to leave the EU, which level of
integration do you consider best for
the UK?
6. Review the economic performance
of the UK in Figures 8.4 to 8.9. Do
you think EU membership and
eurozone non-membership have
been good or bad for the UK
economy? How do you expect the
UK to perform after Brexit?
create the disciplining effect expected at the
outset – see quote on page 233.
4. Here we encourage students to do comparative
analysis. Critical is that student develop their
arguments rigorously with correct usage of the
concepts and identify conflicts of value from
conflicts of self-interests.
5. Students are likely to have preconceived
opinions on this question. In answering this it
is essential that they show a clear
understanding of the concepts of economic
integration and integrate such understanding in
their reasoning.
6. The analysis of the data shows that the UK has
not been outstanding either positively or
negatively such that a Eurozone membership
assessment should include positives and
negatives. The assessment of Brexit impact
needs to consider broader issues.
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “The Eco-Design
Directive: Nokia goes to Brussels” and focuses on “lobbying activities of the mobile phone
industry in the process of new EU regulation being developed.
This case draws heavily on the research by P. Kautto of the Finnish Environment Institute,
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. How can companies get into the
2. What are the merits of using the
1. The case outlines four alternative
2. Several lines of argument are
reasonable here. A critical
national governments, (2) industry
associations, (3) ad hoc coalitions, and (4)
direct approach to the Commission?
3. What are the merits of using a cooperative
approach to working with the
Commission (or a national government)?
to find others with the same
interests.
3. On the one hand it is expensive to
maintain a regular lobbying
operation, on the other hand, it
provides early access to
information and informal (legal!)
ways of influencing decision
makers before they have formed
their opinion.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
1. The Integrative Case “Negotiating Brexit” provides basic data on the UK international
trade along with the key parameters of different (hypothetical) trade regimes that the UK
might have developed with the EU after Brexit. Analysis of this information challenges
students to integrate what they have learned on international trade (Chapter 5) with the
institutions of the EU (Chapter 8) and the WTO (Chapter 9). The case thus helps
consolidating understanding of both international trade theories and concepts related to
supra-national trade institutions.
2. The Integrative Case “Cars Made in Britain, Post-Brexit” has been designed to help
student understand the consequences of the Brexit process and of different options to
design future international trade regime for companies that have to make major
investment decisions. It thus integrates key theoretical ideas on international trade
(Chapter 5) with institutional knowledge of the EU (Chapter 8) and of multilateral
institutions such as the WTO (Chapter 9). While the preceding case (Negotiating Brexit)
is taking a national policy perspective, this case brings the issues down to the corporate
level. The case can also be discussed to analyse the role of subsidiaries and unit HQ
within a multinational organization (Chapter 15) and the role of pan-European supply
chains and sourcing operations (Chapter 17).
3. The Integrative Case “Canada and the EU Negotiate CETA” has been designed to
discuss bilateral trade and investment agreements, and their implications for policy and
businesses. It is best introduced after the foundations of international economics (Chapter
5 to 7), the basic structure of the EU (Chapter 8) and the pros and cons of multilateral and
bilateral trade agreements (Chapter 9) have been introduced.
4. The Integrative Case “ESET: From Living Room to Global Player in Anti-virus
Software” focuses on entrepreneurial growth in the internet age, with a focus on the early
stages (Chapter 11). It thus in particular allows to explore to what extend traditional
barriers to internationalization still apply, and to discuss of the internationalization
process model is still suitable to explain business growth in the 21st century. It also
facilitates discussion of the specific challenges faced by entrepreneurs in Central and
Eastern Europe, and how they are impacted by EU membership (Chapter 8).
5. I intend to place the Excel file used to create Figures 8.4 to 8.9 on the instructors’
website. This will enable instructors to modify the graphs by adding countries that their
students may be particularly interested in.
6. The following YouTube video runs through 500 years of European history in five minutes
and might serve as a refresher to European history and its ever changing boundaries:
http://www.youtube.com/watch?v=oxrXiO0zcVw. (if 5 minutes is too long for your
purposes, start the video half way through), (stop the video shortly before the end to
discuss contemporary countries in Europe).
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
D. Dinan, 2014, Europe Recast: A History of European Union, 2nd ed.. Palgrave-Macmillan – A detailed
historical account of the EU.
J. Fernández-Villaverde, L. Garicano & T. Santos, 2013, Political credit cycles: The case of the eurozone,
JEP, 3: 145-166 – a good analysis on why some eurozone economies struggled after 2010 that adds
additional insights to the interpretation of Figures 8.4 to 8.8.
J. Pelkmans, 2006, European Integration: Methods and Economic Analysis London: Prentice Hall – An
economics perspective on how the EU works.
G. Suder, 201, Business in Europe, 2nd ed., Los Angeles: Sage – A textbook covering the institutional context
of the EU and business practice in the EU.
H. Wallace, W. Wallace, M. Pollack, 2015. Policy-Making in the European Union, 7th ed., Oxford: Oxford
University Press – A collection of articles describing and analyzing political processes in the EU
