The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

The European integration project was running out of steam in the mid 1980s, and Mitterand’s government now transferred its energies to reviving it. Three important impediments to a unified European market were a plethora of rules and regulations that differed across countries, impediments to the movement of firms and labour across countries, and currency fluctuation. In a series of negotiated agreements, starting with the Single European Act in 1986, the Maastricht Treaty in 1991, and the Treaty of Amsterdam in 1997, much of Europe agreed to merge into a Union which would implement the four freedoms – the freedom of movement of goods, services, people, and capital across the borders of the signatories. They agreed to a common European citizenship, over and above national citizenship. In addition, a subset of the countries decided to adopt a common currency, the euro. The hope was that as barriers came down between countries, new sources of growth would emerge that would relieve the politicians of hard decisions. Moreover, as cross- border competition picked up, countries would reform, but they hoped in a more gentle way.

European integration project