EUROPE REVISITED:

CONSEQUENCES OF INCREASED EUROPEAN INTEGRATION FOR CANADA

The Standing Committee on Foreign Affairs

Chair : The Honourable John B. Stewart

Deputy Chair: The Honourable Raynell Andreychuk

November 1998


 MEMBERSHIP

The Honourable John B. Stewart, Chair

The Honourable Raynell Andreychuk, Deputy Chair

 

 and 

 

The Honourable Senators:

Norman Atkins Consiglio Di Nino

Roch Bolduc Jerahmiel Grafstein

* Bernard Boudreau, P.C. (or Dan Hays) Derek Lewis

Pat Carney, P.C. Rose-Marie Losier-Cool

Eymard G. Corbin * John Lynch-Staunton (or Noel Kinsella)

Pierre De Bané, P.C. Peter Stollery

 

* Ex Officio Members

 

The Honourable Senators Andreychuk, Bacon, Bolduc, Bryden, Carney, P.C., Chalifoux, Cook, Corbin, De Bané, P.C., Di Nino, Doody, Ferretti Barth, Forrestall, Grafstein, Graham, P.C. (or Carstairs), Grimard, Johnstone, Kenny, Losier-Cool, Lynch-Staunton (or Kinsella), MacDonald, Milne, Oliver, Prud'homme, P.C., Robertson, Robichaud, P.C. (St-Louis-de-Kent), Roche Stewart, Stollery, and Whelan, P.C. were members of the Committee or participated in its work on this study during the First Session of the Thirty-sixth Parliament.

 

Staff from the Parliamentary Research Branch of the Library of Parliament:

Mr. Peter Berg, Research Officer

Note: Mr Serge Pelletier was Clerk of the Committee during the First Session of the Thirty-sixth Parliament until January 1999.

 

Line Gravel
Clerk of the Committee


ORDER OF REFERENCE 

Extract from the Journals of the Senate, Thursday, October 14, 1999:

The Honourable Senator Stewart moved, seconded by the Honourable Senator Adams:

That the Standing Senate Committee on Foreign Affairs be authorized to examine and report on the consequences for Canada of the emerging European Monetary Union and on other related trade and investment matters;

That the papers and evidence received and taken on the subject and the work accomplished by the Standing Senate Committee on Foreign Affairs during the First Session of the Thirty-sixth Parliament be referred to the Committee;

That the Committee submit its final report no later than December 15, 1999 and that the Committee retain all powers necessary to publicize the findings of the Committee contained in the final report until December 24, 1999; and

That the Committee be permitted, notwithstanding usual practices, to deposit its report with the Clerk of the Senate, if the Senate is not then sitting; and that the report be deemed to have been tabled in the Chamber.

The question being put on the motion, it was adopted.

 

 Paul Bélisle
Clerk of the Senate


TABLE OF CONTENTS

CHAIR'S FOREWORD

INTRODUCTION

KEY ISSUES AND CONCERNS SURROUNDING THE EMU

A. Background
B. Anticipated EMU Benefits
1. Microeconomic Gains
2. Greater Monetary and Fiscal Stability
3. The Euro’s Enhanced International Role
4. The EMU as a Springboard to European Economic Reforms

C. EMU Concerns and Challenges
1. Is the EMU an "Optimum Currency Area"?
2. The Independence of the European Central Bank
3. The ECB’s Principal Mandate
4. Potential for Greater Exchange-Rate and Trade Meddling
5. Impact on Europe’s Financial Sector
6. U.K.’s Absence

D. Implications of EMU for Canada

REFORM OF THE EU

A. EU Policy Reform
B. Reform of EU Institutions
C. EU Enlargement

FORGING STRONGER TRANSATLANTIC ECONOMIC LINKS

A. The Existing Trade and Investment Relationship
B. Improving Transatlantic Trade Ties
C. Canada-EU Fisheries Relations

CONCLUSION

LIST OF RECOMMENDATIONS

APPENDIX A: CHRONOLOGY OF CANADA-EU ECONOMIC RELATIONS

APPENDIX B: WITNESSES  


CHAIR'S FOREWORD

Throughout most of the past decade the Senate Standing Committee has spent much of its time on international economic developments. For example, in July, 1996, we presented a report entitled, "European Integration: The Implications for Canada." Then we looked westward, with the result that in December, 1998, we presented, "Crisis in Asia: Implications for the Region, Canada, and the World." In 1999 we have had two active references, one dealing with peacekeeping, the other with economic developments involving Europe. The report now before you eventuated from the second of these references. As the title reveals, it updates the work we did during 1995-1996.

Two of the topics deal with herein are: the European Union's experience with monetary union, and the prospects for a general trade agreement between Canada and the Union.

The Committee appreciates greatly the cooperation we received both during our hearings in Ottawa and during our interviews in Europe. Their views and analyses served to deepen our understanding of the importance to Canadians of what is happening in the European Union.

Our work in Europe would have been impossible without the assistance of Canada's ambassador, together with the dedicated, obliging, and knowledgeable staff, in each of the countries we visited.

By reason of the work done for us when, in 1995-96, we were working on our earlier study of the implications for Canada of developments in the European Union, we had come to expect highly reliable support from the Research Branch of the Library of Parliament. In 1998-1999 Mr. Peter Berg, by his competence and diligence, justified that confidence fully. Ms. Line Gravel, our clerk, was a model of efficiency as she managed our administrative, budgetary, and logistic operations. Together with her colleague, Mr. Till Heyde, she expedited our labours greatly. To all these we express our gratitude.

John B. Stewart
Chair


INTRODUCTION

This Committee has had a long history of examining developments in Europe. In 1973, it produced a report entitled, Canadian Relations With The European Community. In 1996, the Committee published a comprehensive report on the state of integration in Europe, and on its implications for Canadians. Regrettably, the passing of time has not dealt effectively with many of the issues identified in these reports, issues such as Europe’s controversial Common Agricultural Policy (CAP).

With Europe now moving ahead with both its Economic and Monetary Union (EMU) and its Agenda 2000, we decided that it would be worthwhile to re-examine the subject of European integration. After the completion of hearings in Canada, the Committee undertook a fact-finding mission to explore European economic issues, in conjunction with its review of Canada’s role in NATO. In June of this year, the Committee travelled to London, Paris, Bonn, and Brussels to obtain first-hand information on Europe’s recent shifts in direction and their consequences for both Europe and Canada.

The evidence received left the Committee with a number of important overriding impressions. First, the EMU is essentially a grand experiment for greater political integration, an experiment for which the necessary economic groundwork has not yet been completed. One can only conclude that the architects of the EMU envisaged that in the long run, adoption of a single currency would be a move towards the creation of a political union. The economic benefits of the undertaking were viewed as over and above the main achievement. We note the expected benefits and concerns surrounding the monetary union and, in so doing, question whether it will be successful as an economic plan.

Second, the need for economic reforms in Europe was stressed over and over again. Will these reforms take place, with or without the EMU? The report comments on the utility of such reforms.

Third, during the hearings it became clear that the EMU is not an "optimum currency area." Member countries occupy different levels of economic development, displaying various economic structures, and are not all at the same point in the business cycle. As a result they may require rather different monetary policies, not the "one-size-fits-all" approach currently in place. Other key missing ingredients in the monetary union include labour market flexibility, labour mobility, and a central fiscal authority with the ability to assist regions hard hit by adverse economic shocks. Finally, fiscal assistance provided by individual governments to those individuals and regions affected by such shocks are limited by the Stability and Growth Pact, which continues to guide EMU members’ fiscal policy.

Fourth, monetary developments in Europe have already sparked a debate in Canada on the possibility of new monetary arrangements for North America. While this is perhaps the most important spin-off effect from the EMU for Canada, we concluded that the European and the North American situations are different enough that the EMU would not be a reliable model, although some lessons could be learned. These lessons are discussed in this report.

Fifth, the European Union (EU) is engaged in a process of reforming both its institutions and policies. These reforms are required to enable EU expansion to occur, to give European citizens greater confidence in these institutions, to render EU policy-making more democratic, and, most importantly from a Canadian perspective, to satisfy the international community’s appetite for change (e.g., the desire for a reduction of subsidies under the CAP). Many witnesses before the Committee stressed the importance of the EU reform effort.

Sixth, it appears that Canada’s trade focus is continuing to shift away from Europe, and towards the U.S.A., Mexico, and other parts of the Western Hemisphere. This report assesses the need to reverse this change in focus and to revitalize the Transatlantic economic link.

As a final point, it bears stressing that Europe’s moves forward on its economic and political agendas should be undertaken in a way that takes into consideration the economic aspirations of non-European countries. Clearly, a "Fortress Europe" mentality is not in anyone’s best interests.


Top of document