978-1473758438 Chapter 8

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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

consideration is where it is likely

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).