Member States can initiate economic integration processes to take advantage of a larger territory: economies of scale, cost reduction, greater efficiency in projects and financial and economic stability.
From a theoretical point of view, there are six stages or levels of integration, depending on the economic convergence achieved:
- Preferential trade area
Reduction in customs tariffs between the countries participating in the project.
- Free trade area
Elimination of the tariffs applicable to all or a part of the goods that circulate between the participating countries.
- Customs union
Establishment of common tariffs in relation to third countries and a common trade policy.
- Common market
Creation of regulations applied to the majority of goods and services, allowing for the free circulation of goods, capital, workers and services.
- Economic union
Harmonisation of certain national economic policies: monetary, financial, tax, industrial, agricultural, etc. Monetary policy can result in the creation of a common central bank and the adoption of a common currency, which would lead to a monetary union.
- Economic integration
This is an economic space governed by common economic policies which also needs an institutional organisation with effective powers.
The European Union has already achieved the four initial levels of integration and is currently in the process of obtaining economic union. Great progress has been made towards monetary union, with the introduction of a common currency, the euro, and the application of a single monetary policy in a significant number of countries.