Capital Markets and the Unification of Europe

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Abstract
The expectation that a customs union in Europe will ultimately lead to political unification is based on the so-called spillover effect. This effect operates whenever any step toward integration creates new needs and fresh demands to proceed further in the same direction. Thus a customs union may create pressures to integrate not only commodity markets but capital markets as well. An integration of capital markets in turn may necessitate currency unification for its effective functioning, and a unified currency finally may imply a pooling of sovereignties sufficiently complete to destroy the separate identities of the participating nation-states. The process could also work in the opposite direction: from an insistence on the integrity of the nation-state to an ultimate rejection of the customs union itself.

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