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C ZECH  R EPUBLIC Author Davide Tarasconi (S081N0057) [email protected] Course Current European Issues (IREL­361) Spring 2008 University of Nicosia Licence This paper is released under a Creative Commons Attribution­ 1

NonCommercial­NoDerivativeWorks 3.0 Licence .

I NTRODUCTION The Czech Republic was among the last­entering Member States in the  biggest and historical European Union enlargement of 2004: the former  Czechoslovakia  widened   the   European   Union   roster   along   with   its  peacefully­split neighbor Slovakia and Lithuania, Estonia, Latvia, Poland,  Malta, Cyprus and Hungary. This   landlocked   country   presented   itself   as   one   of   the   richest   post­ communist   countries   and   as   one   of   the   most   promising   in   terms   of  integration and economical performances. 1

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The   willingness   of   being   the   most   important   addition   to   the   European  Union   has   led   and   is   leading   Czech   Republic   toward   better   and   better  performances   on   both   economical   and   policies’   implementations   sides.  Anyway the difficulties for the integration of this former Soviet country are  solid and real: great efforts must be taken to overcome management and  organizational problems as well as social and policies issues. During the next paragraphs I will present a sort of comprehensive profile of  the country: economical  and social  profiles  as well as issues regarding  integration problems facing European Union’s enlargement.

E CONOMY , P OLITY   AND  S OCIETY

Economical profile Czech Republic is one of the most promising East­European country in  terms   of   economic   growth   and   “catching­up”   abilities:   low   inflation   and  interest rates fostered a GDP growth from 2% up to 6% from 2002 to 2005,  pushing the growth levels of this post­soviet country far beyond other East  an West­European countries. 

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Figure 1 ­ Long Term Interest Rates, percentage, 2006. Source: OECD Factbook 2008: Economic,   Environmental and Social Statistics ­ ISBN 92­64­04054­4 ­ © OECD 2008.

Just after the inclusion in the European Union, an important recognition for  Czech  Republic’s  great  effort   toward   economic   and   social   development  came from the World Bank, which entitled Czech Republic, in 2006, as an  official “developed country.” 2

In the words of Markéta Šichtařová , a leading Czech economist, Czech  Republic “[…]is   not   a   transformation   country   anymore.   Its   financial   market   is   very   developed,   it   left   Communist   Czechoslovakia   behind almost 20 years ago, it is a member of the European   Union, our interest rates are lower than in the Euro zone. In no   regard does it fulfill a general image of a transformation country   2

 “Study ranks Czech Republic first among transforming countries” – (see “Other web references”)

anymore.” Czech   Republic   is   by   far   the   most   heavy   industrialized   East­European  country:   its   main   exports   and   imports’   fields   are   machine­building,  production of iron and steel, metalworking and in general heavy industries  fields along with chemical production. In particular the industrial machine­ building  sector   and   the   chemical   production   performed   a  good   growing  performance due to exports and imports to the European Union, especially  with an industrial giant like Germany. Being part of the EU’s common market increased Czech Republic trades  with other European countries, finding new markets for its products and  offering itself as new market for foreign products: due to its growing and  stable   growth   Czech   Republic   quickly   became   an   interesting   region   for  foreign investors. Manufacturing

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Services

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Figure   2  ­  Employment   in   manufacturing   and   services   in   affiliates   under   foreign   control,   as   a  

percentage   of   total   employment   (2005   or   latest   available   year)   Source:   OECD   Factbook   2008:   Economic, Environmental and Social Statistics ­ ISBN 92­64­04054­4 ­ © OECD 2008.

Apart   from   the   industrial   and   agricultural   sectors   (mainly   hops,   wheat,  potatoes, fodder roots and sugar beets), Czech Republic, and mostly its  capital Prague, is a well­known attraction for European tourists: the low­ cost nightlife of the capital and the beautiful hiking and skiing landscapes  ignite the tourism sector, which accounts for 5,5% of the Gross National  Product and employs 110000 people – over 1% of the population.

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Figure 3  ­ Arrivals of non­resident tourist staying in hotels and similar establishments,  Average   annual growth in percentage, 1996­2006 or latest available period. Source: OECD Factbook 2008:   Economic, Environmental and Social Statistics ­ ISBN 92­64­04054­4 ­ © OECD 2008.

The heritage from the communist era is still a burden for Czech Republic’s  industry:   the   country   is   still   undergoing   a   long   process   that   includes  restructuring   obsolete   industrial   sectors,   increasing   transparency   in  businesses, fighting a high rate of corruption (which is among the highest, 

even   if   in   a   decreasing   trend,   in   the   EU),   as   well   as   continuing   the  privatization process in banking and health care system.  Even with such a good performance Czech Republic’s economy will face  some difficulties in the near future: an inflation’s spike is expected during  2008 as a result of new taxations rules, aimed to enforce a more strict  fiscal policy required by EU’s standard.  The positive trend of Czech Republic’s economy is expected to continue  as the country is approachin the last stage remaining for the switching to  the Euro currency in 2010.

Policy priorities The process of Czech Republic’s integration began in 1999: that was a  particular   difficult   time   for   the   country   that   was   facing   an   increasing   of  inflation   rate   from   1998   (the   first   serious   economic   crisis   since   ’89  revolution),   followed   by   a   rising   of   the   unemployment   rate   that   almost  jeopardized the speed of the integration processes. After   ’98­’99   crisis   Czech   government   worked   hard   to   follow   EU’s  regulations   and   to   implement   policies   to   reduce   unemployment   and 

inflation rate: in 1999, the unemployment rate rose up to 8.7% ­ from 6.5%  in 1998. It fell in 2000, 2001 and 2002, and was down to 7.3% in 2002



(Figure   2   show   a   stark   contrast   with   the   employment   situation   in  neighboring Slovakia). 20

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Figure   4  ­   Unemployment   rates,  As   a   percentage   of   civilian   labour   force,   average   1996­2006.   Source:   OECD   Factbook   2008:   Economic,   Environmental   and   Social   Statistics   ­   ISBN   92­64­ 04054­4 ­ © OECD 2008.

There’s   no   need   to   say   that   political   life   in   Czech   Republic   in   the   last  decade has been animated by support for the integration of the European  Union’s common policies’ body, also known as Community Acquis. ECONOMICAL REFORMS On the side of economic reforms, Czech government had to establish a  set of short­term policy priorities, dealing with EU’s guidelines, aimed to  reach   a  balance   between  country’s internal  markets and  EU’s common  3

 “Czech Republic: Adoption of the Community Acquis” (see “Other web references”)

market.  Moreover, the renewal of some strategic sectors, like heavy­industries and  banking, was highlighted as crucial by the EU to allow Czech Republic’s  main industrials’ drivers to compete against the most developed industries  and sectors in the common market. Even if Czech Republic is not in a  hurry in joining the Eurozone, a lot of policies and control measures has  been taken in order to stabilize and to benchmark the national currency  performance inside the common exchange market. ORGANIZATIONAL AND INSTITUTIONAL REFORMS Apart from strictly economical aspects, a lot of decisions have been taken  regarding   institutional   and   organizational   reforms:   being   part   of   the  European Union required Czech Republic to undergo a deep revision of its  institutions’   organization,   both   at   the   local   and   national   levels.   Czech  institutions require, in general, more efficient supervision abilities, in order  to reduce corruption problems and to increase transparency.

TRADE AND MARKETS REFORMS One of the keyword regarding policies implementation is “standardization”,  in   other   words   the   ability   to   align   national   laws   and   regulation   with 

European Union’s ones: strong efforts toward standardization have been  undertaken   to   regulate   the   internal   market,   especially   in   the   fields   of  intellectual   property   rights   and   anti­trust   laws.   In   particular,   these   last  regulations aim to eradicate legal and illegal monopolies that can be easily  present   in   the   “organizational   culture”   of   a   post­communist   country   like  Czech Republic. Since   the   accession   process   began,   Czech   Republic,   like   any   other  accession country, received  a  huge amount  of financial  aid: in order  to  successfully organize the funds, a complete new set of institutions have  been created following EU’s guidelines to ensure the highest level possible  of transparency. The same transparency regulations for standardization are applied to the  free movement of goods, capital and services in order to strengthen the  ties between Czech internal market and EU common market. Needless to say that transforming a communist economy into an almost  fully integrated common market in less that 15 years should make both  European Union and Czech governments very proud of the work done. Entering the EU and receiving aid scheduled by the Common Agricultural  Policy forced Czech Republic to reform some of its agricultural institutions  to achieve higher standards on hygiene and public health issues, as well 

as modernizing milk and meat production industries. SOCIAL REFORMS European   Union’s   well­known   social   stability   comes   from   a   strong,  commonly­shared policy that enhance employment and social security: for  this reason Czech government is required to apply policies to protect low­ income   workers,   for   example   by   reducing   high   tax   wedge   to   reduce  incentives for subcontracting with self­employed workers. 2000

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Figure 5 ­ Ratio of the inactive elderly population aged 65 and over to the labour force, percentage.   Source:   OECD   Factbook   2008:   Economic,   Environmental   and   Social   Statistics   ­   ISBN   92­64­ 04054­4 ­ © OECD 2008.

Like the vast majority of other EU countries, Czech Republic has to face a  serious social issue coming from an ageing population: discussions about  reforming the pension system are one of the main political topics as the  country entered the EU.

Being   part   of   a   common   market   has   advantages   but   also   some  drawbacks: new skills are required by information technology and tertiary  sectors and Czech educational systems should be able to change at a  higher   pace   in   order   to   offer   potential   employees   with   up­to­date  knowledge and to improve knowledge of the existing workforce through  training programs.

Society European   Union   multi­cultural     and   multi­ethnic   society   is   one   of   its  remarkable   features:   nonetheless   keeping   different   cultures   and  populations   together   it’s   a   difficult   task,   especially   regarding   top­down  policies that all Member States have to follow. There can be problems of  communication   and   understanding   that   can   affect   how   a   population  perceive   European   Union,   and   especially   how   a   population   see   itself  compared to the other EU’s populations. Czechs seem to have a perception of their social reality that is, generally  speaking,   quite   positive   if   compared   with   other   long­time   EU   Member  States’   populations.   Moreover   they   seem   aware   about   EU’s   regional  policies  and in particular the percentage of Czechs that are aware that  their country is benefiting from EU aid is pretty high (73% against EU27 

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average of 70%) . Some   controversies   are   shown   by   recent   surveys:   although   every  economical   indicator   shows   consistent   improvement,   especially   on  inflation and unemployment rate, Czechs complain about a general feeling  of lack of social security regarding jobs and rising prices. Because of their fresh communist past Czech population seem to have a  general lack of faith in national government and institutions: the picture is  about a population that holds more faith in EU initiatives than from its own  government.   Only   34%   of   Czechs   trust   their   government   and   just   21%  trust the Parliament while the 58% of the trust the EU (EU27 average is  5

48%) . The huge change of the economical environment in the last fifteen years  put   Czech   Republic   in   a   delicate,   “in­between”   situation   where   people  understand the opportunities coming from the opening markets while they  can also perceive that working conditions in some sectors are not going to  improve, especially regarding career prospects.

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 “Citizens’ perception of EU Regional Policy” – Eurobarometer (see “Statistical References”)  Standard Eurobarometer 68, October­November 2008 (see “Statistical References”)

I SSUES   FACING  E UROPEAN  U NION   INTEGRATION Eurozone As we saw before, the brilliant economic performance of Czech Republic  6

is leading the country to be part of the Eurozone : Czech government has  no rush in forcing the currency change, no date for this objective has been  set yet.  Even if its economy is working well, Czech Republic’s figures about price  levels   and   hourly   labour   costs   are   quite   lower   compared   to   EU   and  7

Eurozone   averages .   However   before   switching   to   the   Euro   currency  Member States have to enter a kind of two­years­long “transition program”  8

called ERM II : unlike other new Member States, Czech Republic didn’t  enter this program yet and it’s probably switching the currency not before 

6

 “The latest figures suggest the Czech Republic could easily meet the debt and deficit criteria to 

adopt the single European currency, the euro. The Maastricht criteria set a 3.0 percent of GDP  ceiling for the public deficit and 60 percent guideline for debt.” – “Czech official data says 2007  public deficit fell to 1.58 per cent” (see “Other web references”)

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 “In 2005, the Czech price level was roughly 56% of the euro area average and 58% of the EU 

average. Hourly labour costs were about 27% of the euro area average and 31% of the EU average.  The process of real convergence and the growth in the relative price and wage levels are likely to  continue.”

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 ERM II (exchange rate mechanism) is the last procedure a country must follow before switching to 

euro: it consist in a two­year period during which the national currency is locked with an “almost  fixed” ratio to the euro.

2010. An interesting result from  an  Eurobarometer  survey is that public  opinion perception about the switching is set in reality on 2012.

Environment Czech Republic’s industries are heavily reliant on coal­based power: the  country is one of the major greenhouse gases producer of the European  9

Union . On this particular issue there are a lot of controversies involving  other   post­Soviet   countries   that   see   themselves   heavily   disadvantaged  from EU pollution restrictions.  Czech Republic heavily depends upon external supplies of gas (especially  from Russia) and the conversion of its coal­based industries will make the  country even more dependant on external energy sources.

Strategies for integration of the Roma As  many post­Soviet  countries,  Czech  Republic   had   to   face   with   many  social integration problems, especially regarding Roma people. The Roma  were officially recognized and politically represented during the communist 

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  “Three­fifths   of   current   Czech   electricity   production   comes   from   coal­fired   plants,   which   are 

amongst   the   biggest   producers   of   greenhouse   gases   and   would   be   penalised   heavily   by   the  allowances purchase plan” – “Czechs urge slow phase in for carbon emissions market” (see “Other  web references”)

era, but they lost their “privileges” back in 1989, although they weren’t a  political factor, politically speaking, and their only privileges were housing  and (compulsory) employment: efforts to re­integrate the Roma population  in Czech Republic’s social, political and economical life began again in  1997. For   Czech   Republic   it’s   extremely   important   to   recognize   and   to  demonstrate to the EU that the country can overcome the traditional forms  of exclusion that historically hit the Roma population in every European  Union countries. On the other hand, some of the Roma communities, especially at a local  level, are organizing themselves, working with NGOs and the state in order  to achieve some kind of political identity. Discrimination and isolation of the Roma are highlighted by high rates of  unemployment: in 1999 the average unemployment rate for Czech people  was around 10%, rising up to a dramatic 70% among Roma community. The Roma were classified as a “social problem” left to local authorities  until the end of 1997, when a report about the Roma conditions was issued  by and for the Czech government. During the communist era Roma people  were involved with “informal networks” to overcome the difficulties coming  from exclusion, very often in illegal ways.

The biggest integration problem is coming from the European Union and  it’s a sort of “missing actor” in the strategic efforts Czech Republic is taking  at local levels: EU’s policies regarding employments and social aid rules  are totally unsuitable for the resolution of the Roma issue. These policies  define in a very strict way what is a wanted recruit for the labour market  (and Roma people are not) and what is an unwanted migrant. 10

There are two main alternatives for the Roma in Czech Republic : one  can be called “exit option” and it’s about finding personal, individual and  informal   (often   illegal)   ways   to   organize   the   communities,   as   well   as  migrating from the country in an endless research for a better place. On the other hand, the “voice option” is a more collaborative and civil one,  but   needs   to   be   supported   by   Czech   government   and   requires   local  policies that must be understood and supported also by an almost absent  European Union. The   Roma   situation   in   Czech   Republic   must   be   used   as   a   positive  example,   a   benchmark   programs   meeting   local   willingness   to   integrate  minorities as well as an important role for a European Union finally able to  understand local policies regarding minorities.

10  “Local Strategies for Civic Inclusion in a European Context: the Roma in the Czech Republic” –  (See “Other web references”)

C ONCLUSIONS THE   ENLARGEMENT   AND   THE   FUTURE   OF  C ZECH  R EPUBLIC

The 2004 enlargement “experiment” has been an economical success: all  the   new   Member   States   had   a   long  period   of  strong  economic   growth,  outperforming the “old” Member States’ economies (from ’97 to 2005 new  Member States had and average GDP growth by 3.75%, compared with  2.5% by EU15).  The incomes of the new Member States are still quite lower than the ones  of  old  members,  and  this  aspect  highlight  how  much   the   legacy  of  the  communist   era   influence   today’s   economy:   these   incomes   are   anyway  slowly rising from 44% to 50% of the EU15 average while skeptical voices  highlights that with these type of rate the new Member States will attain  the same income levels of the old Member States in more than 50 years. The overall picture of this enlargement is quite positive and all the growing  trends of economical, financial and trading sectors seem to be confirmed  also for the near future in all the new Member States: the opening of the  markets between old and new Member States increased the volume of  trades   and   the   foreign   investments   are   also   increasing,   creating   new 

opportunities for jobs and ventures.

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France

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Figure 6  ­  GDP per capita,  US dollars, current prices and PPPs, 2006 or latest available year.   Source:   OECD   Factbook   2008:   Economic,   Environmental   and   Social   Statistics   ­   ISBN   92­64­ 04054­4 ­ © OECD 2008.

Euroskeptical comments about negative factors affecting European Union  budget can be easily avoided showing that, even if the contribution of the  new Member  States to the European budget is obviously  less than old  members one, the EU15 countries contribute only with 0.1% of their GDP  to the economic aid for the new Member States: following new directives  for   new  Member   States  development,   this   ratio   is  going   to  increase   by  2013. To   overcome   organizational   problems   coming   from   municipal  fragmentation and the integration of the Roma are for sure two of the main  issues that Czech Republic’s government must face in order to achieve 

higher benchmarking abilities and improved human rights’ standards and  to become one of the best­performing new country of the new European  Union. If we think that the Velvet Revolution was just in ’89 and that at the present  days   Czech   Republic   is   outperforming   the   vast   majority   of   European  Union’s countries in most of the economical indicators we should forget  about   the   critics   for   a   while   and   rather   think   about   a   miracle:   all   the  difficulties   that  Czech   Republic   is   facing  come   from  its  recent   past   but  there are a lot of reasons to imagine that the country is able to face all the  future challenges. Since   enlargement   is   mainly   about   integration,   it   should   be   a   two­way  integration:   European   Union   showed   little   comprehension   of   local  problems, especially regarding  the  Roma while  there is a sure need of  openness toward less restrictive top­down regulations and more tolerance  and diplomatic abilities to find ways to implement local and finally effective  policies.  

S TATISTICAL  REFERENCES EUROBAROMETER Source for statistics and surveys about the European Union. http://www.ec.europa.eu/public_opinion/index_en.htm

EUROSTAT European Union statistical service. http://ec.europa.eu/eurostat/

OECD STATISTICS OECD’s statistical portal. www.oecd.org/statistics/

W IKIPEDIA  R EFERENCES “CZECH REPUBLIC” From Wikipedia Date of last revision: 8 April 2008 06:52 UTC Date retrieved: 8 April 2008 11:05 UTC http://en.wikipedia.org/w/index.php?title=Czech_Republic&oldid=204167350

“MILITARY OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 29 March 2008 20:38 UTC Date retrieved: 8 April 2008 10:50 UTC http://en.wikipedia.org/w/index.php?title=Military_of_the_Czech_Republic&oldid=20188 6121

“ECONOMY OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 30 March 2008 18:36 UTC Date retrieved: 8 April 2008 11:03 UTC http://en.wikipedia.org/w/index.php?title=Economy_of_the_Czech_Republic&oldid=202 106434

“POLITICS OF THE CZECH REPUBLIC” From Wikipedia Date of last revision: 18 March 2008 13:21 UTC Date retrieved: 8 April 2008 11:09 UTC

http://en.wikipedia.org/w/index.php?title=Politics_of_the_Czech_Republic&oldid=19907 7142

“VELVET REVOLUTION” From Wikipedia Date of last revision: 6 April 2008 17:36 UTC Date retrieved: 8 April 2008 11:07 UTC http://en.wikipedia.org/w/index.php?title=Special:Cite&page=Velvet_Revolution&id=20 3789170

OTHER WEB REFERENCES “WORLD BANK MARKS CZECH REPUBLIC'S GRADUATION TO 'DEVELOPED' STATUS” Article from Radio Praha by Jan Velinger Date of publishing: 28 February 2006 http://www.radio.cz/en/article/76314

“CZECH REPUBLIC TO JOIN SCHENGEN” Article form Prague Post by Jeffrey White Date of publishing: 16 December 2006 http://www.praguepost.com/articles/2006/12/13/czech-republic-to-join-schengen.php

“CZECH REPUBLIC: INFLATION SPIKE” Article from OECD Observer OECD Observer No. 264/265, December 2007­January 2008 http://www.oecdobserver.org/news/fullstory.php/aid/2372/Czech_Republic:_Inflation_spi ke.html

“COURT RULES AGAINST SPECIAL SCHOOLS FOR ROMA” Article from Euractiv Date published: 15 November 2007 http://euractiv.com/en/socialeurope/court-rules-special-schools-roma/article-168424

“EQUAL OPPORTUNITIES” Dossier from Euractiv Date of publishing: 17 January 2007 Date of last revision: 13 July 2007 http://euractiv.com/en/socialeurope/equal-opportunities/article-160979

“INTERVIEW: CZECHS TO PUSH FOR 'EUROPE WITHOUT BARRIERS' AT EU HELM” Interview from Euractiv Date of publishing: 21 February 2008 http://euractiv.com/en/opinion/interview-czechs-push-europe-barriers-eu-helm/article170428

“CZECH OFFICIAL DATA SAYS 2007 PUBLIC DEFICIT FELL TO 1.58 PER CENT” Article from EUbusiness http://www.eubusiness.com/news-eu/1207068791.03/

“CZECHS URGE SLOW PHASE IN FOR CARBON EMISSIONS MARKET” Article from EUbusiness http://www.eubusiness.com/news-eu/1204740124.29/

“STUDY RANKS CZECH REPUBLIC FIRST AMONG TRANSFORMING COUNTRIES” Article from Radio Praha by Jan Velinger Date of publishing: 19 February 2008 http://www.radio.cz/en/article/101027

“THE CZECH REPUBLIC’S UPDATED EURO­AREA ACCESSION STRATEGY” Ministry of Finance of Czech Republic, 2007 http://www.mfcr.cz/cps/rde/xchg/mfcr/hs.xsl/eu_acc_stra_33780.html

“LOCAL STRATEGIES FOR CIVIC INCLUSION IN A EUROPEAN CONTEXT: THE ROMA IN THE  CZECH REPUBLIC” Essay from “One Europe or Several?” by M. Castle­Kanerova and B.  Jordan http://one-europe.ac.uk/pdf/w34kanerova.pdf

“EXCHANGE RATE MECHANISM (ERM II) BETWEEN THE EURO AND PARTICIPATING NATIONAL  CURRENCIES” Institutional and economic framework of the Euro, from EU’s website. http://europa.eu/scadplus/leg/en/lvb/l25082.htm

“ENLARGEMENT, TWO YEARS AFTER­ AN ECONOMICAL SUCCESS” Economical and monetary affairs: Enlargement, from EU’s website. http://europa.eu/scadplus/leg/en/lvb/e50026.htm

“CZECH REPUBLIC ­ ADOPTION OF THE COMMUNITY ACQUIS” Summary from EU’s website. http://europa.eu/scadplus/leg/en/lvb/e02107.htm

“PARTNERSHIP FOR THE ACCESSION OF THE CZECH REPUBLIC” From EU’s website. http://europa.eu/scadplus/leg/en/lvb/e40107.htm

OTHER REFERENCES “EUROPEAN UNION POLITICS” Michelle Cini Oxford University Press Second Edition, 2007 “CURRENT EUROPEAN ISSUES” Slides from the course’s material.

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