Fritz Breuss

Aus okonomischer Sicht werden hier 100 Jahre Osterreich beleuchtet und Schlussfolgerungen fur die Zukunft gezogen. Die Republik Osterreich besteht nicht durchgehend seit 100 Jahren; sie ging zwischen 1938 und 1945 unter. Im Gegensatz zur Sicht eines Historikers, der chronologisch und sehr detailliert die Ereignisse von 100 Jahren Osterreich in der Ersten und Zweiten Republik beschreibt, mochte ich als Okonom nur gewisse Muster herausarbeiten. Zum einen werde ich die Charakteristika der Wirtschaftsentwicklung nach den beiden Weltkriegen (Inflation, Arbeitslosigkeit, Staatshaushalt, Geldpolitik und die Auswirkungen auf das Wirtschaftswachstum) aufzeigen. Zum anderen werden die Auswirkungen der verschiedenen Regimewechsel auf die wirtschaftliche Souveranitat und damit auf die Wirtschaftsentwicklung des Staates Osterreich behandelt. In der Ersten Republik und am Beginn der Zweiten Republik gab es eher eine zwangsweise Abgabe an Souveranitat (Volkerbunddiktat, Anschluss, Besatzung). Dann...

Gravity equations have been used repeatedly to predict the East-West trade potential since the opening-up of Eastern Europe in 1989. Most of the research in the field was done by means of cross-section data. While earlier studies indicated huge unexhausted bilateral trading potentials for the East and for the West, more recent studies have demonstrated that most of the East-West

Austria has been a member of the EU for 15 years. An economic reassessment of the integration effects is carried out against the background of the change in Europe's integration history since the "opening " of Eastern Europe in 1989. Since that time, EU integration has become deeper, with the creation of the Inter-nal Market and the subsequent introduction (albeit not yet in all member countries) of a common cur-rency. In 2004 and 2007, a big step of enlargement was taken. 15 years of EU membership have been to Austria's economic benefit. Real GDP growth has thereby been raised by 0.6 percentage points per year. All integration steps since 1989 taken together (opening of Eastern Europe, EU accession, EMU member-ship, EU enlargement), the integration bonus amounts to additional 0.9 percentage points of real GDP growth and 20,000 jobs per year.

Recently, studies with different methods (computable general equilibrium models, dynamic stochastic general equilibrium models, structural gravity equations) evaluated the European Union’s Single Market. The problem with all these studies is that they use complex models with datasets that are not always replicable. This paper demonstrates that even a simple model of the European Union can capture the most important effects of European economic integration: the European Union’s Single Market, the introduction of the Euro, and the following European Union enlargements. A simple European Union model, built with the publicly available program, EViews, serves this purpose. The dataset is also freely available from the European Commission. This makes the model results replicable. Evaluation of Austrian membership in the European Union is in the foreground of the analysis with the simple European Union model, followed by the next steps of integration, such as the introduction of the Euro a...

In order to cushion the impact of the financial and economic crisis on the real economy, the Austrian government adopted fiscal stabilisation packages. Relative to GDP, these are among the largest in an international comparison, amounting to 4.2 percent of 2008 GDP in cumulative terms and including similar measures taken by the Lander (federal states). Simulations with the WIFO macro-economic model suggest that these measures, together with those taken by Austria's major trading partners, contribute substantially towards limiting the repercussions of the crisis, reducing the fall in GDP in 2010 by 2.1 percentage points. With a share of less than 30 percent of the total amount spent, investment geared towards raising potential growth in the future receives less emphasis than in a sample of 11 OECD countries with an average share of almost 40 percent.

The tax reform 2004-05 includes tax cuts within income taxation (€ –2.2 billion) and corporate taxation (€ –1.1 billion) as well as increases of several excise taxes (€ +232 million). The changes in the income tax rate scale taking effect in 2005 will increase tax progression and revenue elasticity vis-a-vis 2003; "cold" progression will be compensated only partially. Simulations done with the WIFO macromodel show a positive effect of the tax reform on GDP and employment. The degree of self-financing through growth-induced additional tax revenues is limited.

Ten years ago, the global financial crisis started to unwind in the USA and triggered the greatest recession since World War II. Although the crisis of 2007-08 was caused in the USA, their economy was not hit so hard in the Great Recession of 2009 as in Europe, and in particular in the Euro area. The USA also recovered more rapidly and sustained from the crisis than the Euro area. Additionally, the specific Euro (debt) crisis of 2010 led to a double-dip recession in the Euro area, not joined by the USA. This divergent post-crisis development since then accumulated to a considerable growth gap between the USA and the Euro area. What are the factors behind this different performance? Would a more aggressive fiscal and/or monetary policy in the Euro area have closed the growth gap? As our simulation exercises show: the answer is no. However, the unconventional monetary policy by the ECB since 2014-15 contributed to the most recent recovery in the Euro area. We identify the pivotal reas...

The Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada is the most ambitious (new generation) free trade agreement the EU has ever negotiated. It is a "mixed" agreement with EU and member countries competences. Most elements of the agreement for which the EU has "exclusive competence", including the chapter on tariffs and non-tariff barriers (the dismantling of all barriers to trade in goods and services and market access to foreign direct investment) can – after the European Parliament gave its consent on 15 February 2017 – be applied provisionally in spring 2017. With a specifically constructed macroeconomic trade and growth model for Austria, we simulate the impact of CETA on Austria. CETA will add 0.3 percent to Austria's real GDP in the medium run and will stimulate bilateral trade and FDI. Our model is a small prototype model and can easily be applied to other foreign trade agreements the EU is planning. A comparison...

Osterreich ist – zusammen mit Finnland und Schweden – vor 25 Jahren der EU beigetreten. Als Mitglied der Europaischen Freihandelsassoziation (European Free Trade Association, EFTA) hat sich Osterreich uber das Freihandelsabkommen mit der Europaischen Wirtschaftsgemein¬schaft (EWG) 1973 und durch die Teilnahme am Europaischen Wirtschaftsraum (EWR) 1994 handelspolitisch der EU bereits zuvor stark angenahert. Osterreich hat mit dem Beitritt zur EU 1995 an allen darauffolgenden vertiefenden Schritten der EU-Integration (Wirtschafts-und Wahrungsunion, WWU mit der Einfuhrung des Euro; Schengener Abkommen) und an der EU-Erweiterung teilgenommen. Politisch ist Osterreich durch die EU-Mitgliedschaft europaischer und moderner geworden und auch okonomisch hat es von allen Stufen der Integration profitiert. Die Teilnahme am EU-Binnenmarkt, an der WWU mit dem Euro und an den EU-Erweiterungen hat zu einem jahrlichen Anstieg des realen BIP von 0,8 Prozentpunkten beigetragen. Die grosten wirtschaft...

Mit einem umfassenden und in der Offentlichkeit hochst umstrittenen Handels- und Investitionsabkommen (TTIP) wollen die EU und die USA die groste Freihandelszone der Welt errichten und damit Wachstum und Beschaftigung stimulieren. Zwar prognostizieren alle bisherigen TTIP-Studien positive Handels-, Wohlfahrts- und Beschaftigungseffekte fur beide Vertragsparteien (allerdings in ungleichem Ausmas), doch treten diese nicht sofort ein, sondern erst sehr langfristig. Die TTIP ist daher zur Uberwindung der gegenwartigen Krise nicht geeignet. Die geschatzten Liberalisierungseffekte divergieren erheblich je nach Methode: Wahrend allgemeine Gleichgewichtsmodelle (CGE-Modelle) sehr geringe Wohlfahrtseffekte ermitteln (½% bis 1% des BIP), versprechen Schatzungen mit Gravitationsmodellen auserordentlich hohe Gewinne (Steigerung der Realeinkommen in der EU um 5% und in den USA um 13,4%). Allerdings durfte es zu starken (und politisch brisanten) Verlusten an Handel und Wohlfahrt in Drittstaaten (...

The "Single Market", the core element of European integration, commemorates its 20th anniversary this year. Since its accession to the EU in 1995, Austria has taken part in all steps of deeper integration. Not only from a political perspective has Austria become more modern and European through EU membership, it has also benefited economically at each stage of integration: opening-up of Eastern Europe (additional GDP growth of 0.2 percentage point per year), EU membership (participation in the EU Single Market +0.6 percentage point), participation in EMU (+0.4 percentage point) and EU enlargement (+0.4 percentage point). Overall, the integration effects from participation in all stages have boosted Austria's GDP growth by between 1⁄2 and 1 percentage point per year, as derived from model simulations. The plausibility of these results is confirmed by a comparison of Austria's economic performance with that of other EU or third countries. Thus Austria's growth ad...

Das Kernelement der Europaischen Integration, der „Binnenmarkt“, feiert heuer das 20-jahrige Bestehen. Osterreich hat seit dem Beitritt zur EU im Jahr 1995 an allen vertiefenden Schritten der EU-Integration teilgenommen. Nicht nur politisch ist Osterreich durch die EU-Mitgliedschaft moderner, europaischer geworden, es hat auch okonomisch auf allen Stufen der Integration profitiert: Ostoffnung (zusatzliches BIP-Wachstum +0,2 Prozentpunkte pro Jahr), EU-Mitgliedschaft (Teilnahme am EU-Binnenmarkt: +0,6 Prozentpunkte), WWU-Teilnahme (+0,4 Prozentpunkte) und EU-Erweiterung (+0,4 Prozentpunkte). Die aus Modellsimulationen abgeleiteten Integrationseffekte durch die Teilnahme an allen Integrationsstufen verstarkten das Wachstum des osterreichischen BIP insgesamt um ½ bis 1 Prozentpunkt pro Jahr. Die Plausibilitat dieser Modellergebnisse wird durch den Vergleich der Wirtschaftsentwicklung Osterreichs mit anderen EU-Landern und Drittlandern unterstrichen. So entsprach der Wachstumsvorsprung ...

The EU Single Market and the Maastricht Treaty are now aged 25. In this short history many events marked the way: the creation of EMU in 1999, the introduction of the euro in 2002, and the great EU enlargement starting in 2004. And lastly – for the first time – with the Brexit a reverse of the process of European integration takes place. The recession of 2009 and the Euro crisis in 2010 led to a setback in the economic development in the EU. A quarter of a century invites to look back about the achievements. How much trade and economic growth could be created by the Single Market plus euro plus EU enlargement? These questions are treated here with the help of a consistent integration model. Embedded into an endogenous growth model approach growth and trade effects for EU and EFTA countries are estimated. It turns out that (taking also into account GATT liberalisation) the European integration added to per-capita GDP 0.5 percentage point to EU 28 countries but only 0.2 percentage poi...

Austria's EU accession 25 years ago, alongside Finland and Sweden, was preceded by an extended period of convergence toward the EU: via the free trade agreement concluded with the EC in 1973, and the participation in the European Economic Area (EEA) in 1994. Although the COVID-19 crisis in 2020 seems to overshadow the overall positive balance of 25 years of EU membership, on average the real GDP growth dividend amounted to 0.8 percentage points per year since 1995. To check the robustness of this result, obtained with an integration macro model, a DSGE model for Austria is used here. Usually other methods are applied to estimate integration effects: trade gravity models, CGE models, macro models. Following in't Veld's (2019) approach with a DSGE model for the EU, we adapt an earlier version of the two-country DSGE model for Austria and the Euro area (Breuss and Rabitsch, 2009) to evaluate the benefits of Austria's EU membership. It turns out that grosso modo the macr...

The Euro area has been hit by two crises. The first, the global financial crisis (GFC) had external (U.S.) origin and has caused the Great Recession with large drops in GDP around the industrial world. The second, the Euro crisis was homemade. It is the result of systemic failures of EMU’s policy design. Due to the economic heterogeneity of the Euro area the shocks were felt more severely in the peripheral Member States than in the core leading to an economic and political split of the Euro zone. As a consequence the political architecture of EMU was reformed step by step in order to fight the trinity of crisis: first, the fiscal policy coordination was strengthened by reforming the Stability and Growth Pact and additional agreements (Fiscal Compact); second, the macroeconomic imbalances are now monitored by a new procedure; third, to stabilize the financial (banking) sector many surveillance institutions have been installed and finally the European Banking Union should help to moni...

A sequence of crises – the global financial crisis in 2008, the "Great Recession" in 2009 and the subsequent Euro crisis – constituted a major challenge for policy makers. After the fiscal policy had used up its powder in fighting the 2009 recession, monetary policy remained the only expansionary player in the policy arena. The ECB reacted to the crises with applying conventional (interest rate) and unconventional (qualitative easing) measures, however, with a considerable delay to the US Fed. The interest (main refinancing operation) rate was set to zero in September 2014 (the Fed already in December 2008) and the proper QE programme started not until March 2015 (the Fed shortly after the Lehman brothers crash). In evaluating the crisis management of the ECB one must state a clear failure in reaching its own medium term inflation target of 2 percent. However, it was successful in bringing down interest rates for government bonds after Draghi's famous "whatever it...

Europa (besonders die EU) ist als regionaler Wirtschaftsraum in die Globalisierung eingebettet. Die EU hat sich seit dem Inkrafttreten des Lissabon-Vertrages am 1. Dezember 2009 zunehmend auch von einem "politischen Zwerg" zu einem geachteten politischen "Global Player" entwickelt. Europas verliert zwar allmahlich seine Vormachtstellung im Welthandel, dennoch ist die EU nach wie vor eine "Welthandels-Supermacht". Der Euro ist seit seiner Einfuhrung 2002 zur zweitwichtigsten Weltreservewahrung geworden. Die EU unterhalt – da die Doha-Runde im Rahmen der WTO bisher noch nicht erfolgreich war – ein umfangreiches Netzwerk bilateraler Freihandelsabkommen ("Spaghetti-Schussel"). Zur Abschirmung vor den Gefahren der Globalisierung verfolgt die EU mehrere Strategien: Zum einen wird durch die standige EU-Erweiterung der Binnenmarkt immer groser, was einer impliziten Abschottung gegenuber Drittlandern gleichkommt. Verstarkt wird dieser Immunisierungseff...

Recalculating the macroeconomic effects of EU enlargement based on a global model ("Oxford Economic Forecasting") has found that this step towards integration will produce a win-win situation for both sides (CEECs and EU). In view of the difference in importance between markets (the EU sells only 5 percent of its total exports to the CEEC 10, whereas two-thirds of the total CEEC 10 exports flow into the EU), and the dimensions of the two blocks (the CEEC 10 have a GDP of just 10 percent of that of the EU 15), the gains for the CEECs will be tenfold those of the EU in general. Hungary and Poland may be able to boost their real GDP by some 8 to 9 percent within ten years of enlargement, which translates into an additional annual economic growth of 1 percent. The Czech Republic is likely to profit at a slightly lower level (5 to 6 percent in additional real GDP within ten years). The EU can raise its real GDP by about 0.5 percent within six years (2005–2010), or slightly less...

Die Studie gibt einen Uberblick uber das Funktionieren der Wirtschaftspolitik in der EU und zieht ein Resumee uber die okonomischen Auswirkungen bisheriger und kunftiger Integrationsschritte (Binnenmarkt, WWU, Lissabon-Strategie, EU-Erweiterung). Die wirtschaftspolitische Architektur der EU (insbesondere jene der WWU) ist gekennzeichnet durch eine zentrale Geldpolitik und eine dezentrale (aber aufwendig koordinierte) Fiskalpolitik. Aus dieser asymmetrischen Makropolitik ergeben sich (je nach Politikbereich unterschiedlich starke) Einschrankungen fur ein eigenstandiges nationalstaatliches wirtschaftspolitisches Handeln.

Many studies with different methods (CGE models, DSGE models, structural gravity equations) have recently evaluated EU's Single Market. The problem with all these studies is that they use complex models with data sets which are not replicable. The aim of this paper is to develop a simple EU model which uses readily accessible data, and which is replicable in EViews. First the 10 equations macro model is used to evaluate Austria's EU membership since 1995. Then the same prototype model is applied to make a comparison of the integration effects of a selected number of EU Member States. Our simple EU model covers the essential economic effects of EU integration of EU's Single Market, the introduction of the Euro, and the following EU enlargements: increase in intra-EU trade, price reduction because of more competition, the impact of the net budget position vis à vis the EU budget, and lastly that on growth. E-mail: fritz.breuss@wifo.ac.at 2021/W/0 © 2021 Österreichisches In...

Trump's trade wars hit a new dimension expanding from mini to global trade wars. They target sectors (e.g., aluminium and steel) for the protection of "national security" (according to Section 232 of the Trade Expansion Act of 1962) and countries (e.g., China) for unfair trade practices (according to Section 301 of the Trade Act of 1974). Both legal instruments give the US President the power to impose sanctions and protective measures. Since Trump came in office, he has cancelled most multilateral agreements or projects the USA were previously involved (TTIP, TPP, NAFTA, Paris Climate Agreement, JCPoA). Whereas the US trade conflict with China escalated dramatically and could ultimately – beginning with 1 September 2019 as President Trump has threatened – affect all bilateral trade flows, the tensions with the EU are currently limited to aluminium and steel. However, a trade war with respect to cars could follow if no agreement on an US-EU FTA-light is reached, beside...

The euro area has – in contrast to the USA – still not recovered from the "Great Recession" 2009 and the following euro crisis. Some fear that Europe could embark into a decade of "secular stagnation" like Japan in the recent past. The US success can be attributed to the application of the strategy of the "three arrows": a co-ordinated expansionary fiscal and monetary policy cum permanent structural reforms. In contrast, the euro area has its hands tied by a self-imposed restriction in fiscal policy (new fiscal rules). Thus, the euro area remains as a growth-stimulating strategy only an expansionary monetary policy by the ECB plus "structural reforms" at the member country level. Austria – after the expiring of the hitherto "EU growth bonus" – has also to look for new strategies to stimulate growth by its own. In simulations with a macro-growth model for Austria alternative growth scenarios are analysed: structural reforms to improve...

Durch Simulationen mit dem Makromodell und dem Input-Output-Modell des WIFO wurden die Effekte eines EU-Beitritts fur die Gesamtwirtschaft und fur einzelne Sektoren ermittelt. Demnach ware das reale Brutto-Inlandsprodukt bei einem EU-Beitritt im Jahr 2000 um 3% hoher als bei einem Verbleib im EWR als EFTA-Mitglied, die Verbraucherpreise waren um etwa 3% niedriger. Gemessen am BIP ware die Netto-Schuldenaufnahme des Staates um 0,9% groser (1995 um 1,9%). Der gesamte Brutto-Produktionswert ware im Jahr 2000 bei einem EU-Beitritt um 3,6% hoher als im EWR; Bauwesen, die Stein- und Glaserzeugung, Holzverarbeitung, Chemie und Metallverarbeitung wurden am meisten profitieren. Der positive Saldo der Beschaftigung von rund 51.000 Personen geht darauf zuruck, das in einer Reihe von Sektoren insgesamt 66.000 Arbeitsplatze geschaffen wurden und in einigen anderen (vor allem Handel, Nahrungsmittelerzeugung, Landwirtschaft) rund 16.000 Arbeitsplatze verlorengingen.

In den Industrielandern verstarkt sich 1995 die Dynamik der Wirtschaftsentwicklung. Wahrend die Hochkonjunktur in den USA langsam abklingt, gewinnt der Aufschwung in Europa an Breite. Allerdings reichen die Wachstumsraten in Europa nicht aus, um die Arbeitslosigkeit markant zu senken. Die Inflation bleibt niedrig. Das hohe Zinsniveau kann zwar nicht den Aufschwung selbst, aber dessen mittelfristigen Bestand gefahrden.

Germany and Austria, neighbours of different size and with the same language, still have close economic bonds, but the combined effect of Austria joining the EU, the eastern opening and the EU's enlargement has made Austria grow increasingly separate from Germany. Since the early 1990s, Austria's economic growth rate has been surpassing the German equivalent by ½ percentage point per year. The reasons for this are manifold, but appear to be chiefly in the burden attending German reunification. Also, the German business sector seems to have been less able than its Austrian counterpart to tap the new opportunities springing from Europe's progressing integration (internal market and currency union) and the EU's enlargement. Already the eastern opening opened up a new "window of opportunity" for Austria which the economy made full use of. In part, the asymmetric architecture of EMU's macropolicy (excessive real interest rates, fiscal rules of the stability and growth pact) appears to pose greater problems for Germany than for Austria. Lastly, the negative structural effects of globalisation (outsourcing, etc.) may have been a reason for Germany's weak growth. However, since the globalisation effect also applies to Austria, the growth gap between the two countries cannot be explained by this hypothesis.

In February 2000, the Austrian Federal Government set itself the target of achieving a balanced budget by 2002. A domestic stability pact was agreed that specified the budget performance to be achieved by the central, regional and local authorities. To this end, a comprehensive consolidation package was adopted that provided for savings in expenditures as well as additional revenues. On the expenditure side, measures envisaged cuts in terms of personnel and old-age pensions. The government aimed to prune 15,000 jobs by 2003, of which 4,000 were to be shed by divestments. This goal was more or less met. With regard to pensions, expenditure was reduced by more than € 800 million, which similarly reflected the targets of the government programme.

Die Steuerreform 2000 bringt – zusammen mit dem "Familienpaket" – fur private Haushalte und Unternehmen mittelfristig eine Entlastung im Ausmas von 32,5 Mrd. S. 17 Mrd. S resultieren aus dem Ausfall an Lohn- und Einkommensteuereinnahmen durch die Reform des Einkommensteuertarifs, 12 Mrd. S aus zusatzlichen Transfers an die Familien ("Familienpaket") und 3,5 Mrd. S aus sonstigen Masnahmen zur Forderung von Wirtschaftsstandort und Beschaftigung. Gemessen am Bruttoinlandsprodukt ist diese Steuerreform umfangreicher als jene von 1988 und 1994. Ihre Hauptimpulse gehen vom privaten Konsum aus. Insgesamt resultiert die Reform in einem mittelfristigen Anstieg des realen BIP von 0,4% kumuliert bis 2005.

The self-sustaining upswing of the world economy continued into the spring of 1989. Its backbone has been private investment. The investment climate has improved due to favourable sales expectations (especially in the export sector) and an increase in capacity utilization and therefore revenues, and also because entrepreneurs in Europe have engaged in strategic investment to prepare for the completion of the internal market in the EC. With the economy in danger of overheating, monetary policy was pursued a restrictive course to prevent an acceleration of inflation. The forecasts until 1990 presume a "soft landing" of the economy, i. e., a slight slowdown in economic growth in the OECD countries from 3.3 percent in 1988 to 2.5 percent in 1990.

Mit einem Wirtschaftswachstum von rund 2½% bleibt die Konjunkturerholung in Europa deutlich hinter jener der Weltwirtschaft (+4½%) zuruck. Einem Boom in den USA steht ein verhaltender Aufschwung in Japan und Europa gegenuber. Die Aufschwungshoffnungen in Europa stutzen sich vor allem auf die privaten Investitionen und den Export. Die Arbeitslosigkeit bleibt in Europa hoch, wahrend sie in den USA auf einen neuen Tiefstwert sinkt. Der Preisauftrieb wird sich nur geringfugig beschleunigen. Die EU steht im Banne der Vorbereitungen fur die Wirtschafts- und Wahrungsunion. Die entsprechenden Masnahmen (Budgetkonsolidierung) brachten eine erstaunliche Konvergenz von Inflation, Zinsen und Budgetsalden.

Demand and output in the industrialized countries slowed towards the end of 1989. Tighter monetary policy helped to contain inflation and to put the economies on a more sustainalbe growth track. Demand restriction was most pronounced in the United States, the United Kingdom and Sweden. Investment is the most powerful cyclical force in Europe, in view of the establishment of the EC internal market by 1992. The formation of a monetary and economic union between the two German states will boost aggregate demand in the Federal Republic. For the whole OECD area growth is forecast to decelerate from 3½percent in 1989 to 2½percent this year. The downward trend in unemployment has levelled off.

As in other areas, theoretical and empirical analysis stimulate each other also concerning issues of economic integration. With integration becoming "deeper", tasks are getting more complicated not only for institutions governing and administrating the newly established integration areas, but also for economic theory which is to identify and explain its manifold effects. Shortly after World War II, the theory of the customs union marked the beginning of explanatory approaches towards regional integration agreements (customs unions, free trade zones). Over the years, the theory has been elaborated and is mainly concerned at present with the issue of why free trade blocks are being established in the face of world-wide trade liberalization efforts undertaken by GATT/WTO, as well as with the effects of an integration area's enlargement on particular countries within the area, on the one hand, and on the new members, on the other (issues of enlargement). A second stream of integration theory has been developed since the early 1980s, designed to cope with the complex effects of the EU Single Market and taking into account the findings of the "new" theory of foreign trade (imperfect competition and monopolization, economies of scale, product diversification). The evolution of the EU from a customs union over the Single Market to the Economic and Monetary Union calls for further theoretical foundation. Thus, the theory of "optimal currency areas" is supposed to clarify the issue of which countries may qualify for accession to a monetary union. The very progress of integration within the EU brings new questions to the forefront. Will the completion of Monetary Union and the eastern enlargement give rise to a multi-speed Europe? Tentative answers may be provided by new approaches of the "geography and trade" theory which themselves are based on recent findings of foreign trade theory applied to "regional" aspects under the circumstances of the Single Market. Trade liberalization, both within Europe and world-wide within the framework of GATT/WTO, is a necessary precondition for the globalization of economic activities. This poses new challenges for economic theory. Promising approaches may again be offered in part by the new "geography and trade" theory. The article tries to give an overview of the history of integration theory in the light of the new challenges posed by ever closer European integration. Wherever possible, reference is made to empirical evidence in discussing the different empirical concepts.