Economic Integration

The extent and strength of real-sector and financial-sector linkages among national economies.

There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets and economic and monetary unions. The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse. An epitome is the European Monetary Union (EMU), where the high economic integration between member countries is forcing countries that are doing well, such as Germany, to bail out countries that are not doing so well, such as Greece because the economic outcome of Greece affects all of the EMU.