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The European Union will celebrate its 50 anniversary in 2007. Europe can be proud of half a century of peaceful economic and political cooperation. The integration process triggered in 1957 has turned out to be not without problems, but the inherent dynamics of liberalization and cooperation have brought about a prosperous and growing community with continuing liberalization in many fields and with several rounds of enlargements. Thus the specific approach of combining multilateral regional policy cooperation and the activity of a supranational policy layer – with the European Commission, the European Parliament, the European Court of Justice and the European Council as the four pillars – has worked. In addition to the traditional nation-state, there is a new political organization: a hybrid institutional setup. Major European personalities such as Jean Monnet, Paul-Henri Spaak, Walter Hallstein, Jacques Delors, Romano Prodi, Willem Duisenberg and many others have contributed to building the EU house.

The approaching 50 anniversary of the EU promises to be an ambivalent event. For it is at once an occasion for rejoicing, and for worry. For rejoicing, because the EU has not only survived for 50 years, but also grown in size and economic weight; and survival and growth, after all, represent frequently used criteria of success in economic life. Worry is also justified due to a number of dispiriting features of the EU´s recent past: • its slow economic growth, • its high unemployment, • the spread of popular fears about globalization, and • weakened support of supra-national ties.

In the 1960s the world economy had only one clear center. The US economy was the largest (in absolute terms) and richest (in per capita terms) economy and dominated the world economy. The economic world was mono-centric with a periphery. In the present context an economic center is an economically integrated region of the world, which can substantially affect others as well as the world economy.

This paper deals with potential instabilities in the Eurozone stemming from an insufficient interplay between monetary policy and reform effort on the one hand and the emergence of intra-Euro area divergences on the other hand. As a first step, we assess the effect of European Monetary Union (EMU) on structural reform and investigate this question by an examination of the relationship between fixed exchange rates and reform in two wider samples of countries. We also stress that loose monetary conditions, which prevailed until some months ago, can also manifest themselves in asset price inflation, notably in the housing market. When these bubbles burst (e.g., when housing prices stop rising) this often leads to a prolonged period of economic instability and weakness rather than consumer price inflation.

The process of economic globalisation is offering increasing opportunities to individual consumers and producers through trade in goods and services and the internationalisation of production, particularly via multinational companies. Since the Second World War we have seen increasing liberalisation of domestic financial markets (towards the open system seen during the 19 and early 20 century), a process which has generated opportunities for greater trade in financial assets and increasing integration of financial markets. This paper asks a number of questions about the latter process, often termed Financial Globalisation.

Financial markets play a vital role for the economy as a whole. They lead capital to its most efficient investment. And, of course, the financial services industry is a large sector of the economy in itself : net output and employment are high.

There is a broad belief that integration in the financial sector is lagging behind the integration of other economic sectors within the EU. That situation is seen as detrimental to economic growth. Recent research points to the fact that fully integrated financial markets would lower costs and increase EU GDP by more than one percent, which is significant. Given the ambitious Lisbon agenda, it is clear that action has to be taken to boost financial integration. But the problem was, and remains, how to decide on the political priorities for achieving optimal integration.

The sector of information and communication technology (ICT) is a major driver of the economy in the 21st century. ICT represents a rising share of investment and R&D in OECD countries and thus is of particular relevance for growth and economic competitiveness. From a EU25 perspective, it also is crucial to note that the expansion of ICT is associated with the growth of a networked society in which the flow of information and technology on the one hand is accelerating; at the same time both ICT and digital networking facilitate international outsourcing and offshoring. Offshoring involves foreign direct investment while international outsourcing occurs through trade and arm’s length market transactions.