After the Second World War, Robert Schumann proposed a plan to unite Europe; however, he realized that it could not be done at once. He proposed that it could be built through its achievements. The union began by the establishment of three European Communities; Coal and Steel Community, Atomic Energy Community and the Economic Community (Harrop 24).
The treaty which established the Economic Community is a Rome treaty which was a framework treaty that led to the attainment a Customs Union. The treaty also set out objectives that led to the development of guidelines for policies in economic activities. The treaties that established European communities created institutions that were in charge of activities of each community (Nugent 216).
In mid-eighties, the building blocks for the European Community changed with the establishment of a single European Act. An internal market was established in 1992, and during this year, the Maastricht Treaty led to the formalization of the European Union; this defines a community that has common policies in different areas (Harrop 43).
In 1999, a Monetary Union was established together with a common citizenship, foreign as well as security policies. The union started operating on three pillars: Common Foreign and security, the European Community, cooperation in police and judicial criminal matters.
Political structure in the European Union
“The European Union consists of European countries that are democratic; they are committed to working for peace and prosperity” (Tatham, 2009). This union has five institutions, with each institution playing its specific role. These institutions include the European Parliament, Court of auditors, Court of justice, European Commission and the European Union council.
Apart from these five institutions, there are other important bodies such as the European Investment Bank, European Ombudsman, European Central Bank, Committee of the regions and the European Social and Economic Committee.
The European Union has a rule of law, which is fundamental to the union where all its procedures and decisions are based on the union treaties and are agreed upon by all the member countries (Hix and Hoyland, 209). The Union is unique on its own in that it is not a federal government and it is also not just a union of a countries; its political system was established on a chain of treaties and has been evolving over the past years.
The treaties represent both the national interests and collective interests. The treaties have primary legislation, and it is from the primary legislation that secondary legislation is derived; it is through the secondary legislation that the union impacts the lives of its citizens (Nugent 186). The legislation consists of directives, regulations and recommendations and these laws are according to the policies of the European Union.
The decisions about the laws are made by the European Parliament, the European Commission and the European Union Council. The position of the Council is presided over by each member country after very six month, and each council meeting is attended by each member country’s minister, and the decision on which minister to attend the meeting is made basing on the topic on the gender.
The European Parliament is a body that is elected to represent the Member states citizens, this body also participates in the process of legislation with the election of its members scheduled to take place after five years.
The Council and the European Parliament share legislative power and have an equal responsibility during the adoption of the European Union budget; they debate of the budget proposed by the European Commission, and they can pass the budget or reject it (Hix and Hoyland 323).
Through the budgetary powers, the parliament is able to influence policy making in the European Union. The body exercises democratic control; it has the mandate of dismissing the Commission through the adoption of censure motion; the parliament also ensures that the policies of the union are managed and implemented correctly.
The European commission is an institution which does its activities with political independence, and makes shore that the interests of the union are protected. It also ensures that the regulations and directives of the union are adopted by the Parliament and the Council, and if not the offending party is taken to the Court of Justice by the Commission (Hix and Hoyland 212).
The commission also proposes new EU legislation; therefore, it is mandated to take action to help the Council and Parliament to agree. On the other hand, the commission is under the Parliament; therefore, it is answerable to the Parliament.
The Single European Act
The Single European Act is an act that was signed in The Hague and Luxembourg, and started functioning in 1987. The act represents the European Communities first treaties’ modification.
Among other modifications, this modification gave the European Council a formal recognition with the creation of a court and an introduction of new procedures for legislation (Nugent 48). The parliament was given veto powers on the accession of new members and agreement conclusion with associated member states.
The force behind the adoption of this act was in Article 8A; this article sets the single objective of the market. In 1985, the programme of the Single market objective proposal implied that the approval of many directives sought to eliminate obstacle that had been recognized.
The act also had a significant policy on industrial relations and employment; the Social Action Programme of the commission in 1989 brought to light the concern of working time.
This issue could have concentrated on the effects of working time on completion in the local market; it could have allowed for the approval by majority voting, however, the issue could have raised a question of whether to exclude the proposal from the majority voting regime considering paragraph 2 in Article 100A (Nugent 167).
During this event, there was an argument by the commission on whether the regulatory practices on diversity regarding working time flexibility threatened health and well-being of workers; this argument was meant to push for a way out to Article 118A. The challenge by the United Kingdom to the choice of the Commission regarding working time directives was adopted by the council, but it did not succeed.
The Establishment of the Euro
Euro is a currency used by the members of the European Union; it is also used in Kosovo, Andorra and Montenegro. This currency is as a result of monetary reform during the Roman Empire in Europe. The creation of this currency perfected the single market in Europe; it is through the euro that Europe achieved political integration.
The idea of the euro was in Europe for decade; this is according to the Rome’s treaty in 1957, however, the currency formally started circulating in 2002 (Eliassen 78). In 1979, there was an introduction of the European Monetary System together with locked exchange rates within the participating countries; this set basics for the single currency creation.
After seven years, the euro was created after the participating member countries created exchange rates between their currencies; this created a monetary union (Hill et al 57). The transition took 3 years with the use of euro as electric money, and later, the euro notes and coins took over; up to now, the member states use Euro as a single currency and they have a common central bank as well as a common interest rate.
Enlargement of the European Union
Currently, the European Union has an ambitious plan of enlarging its integration; the enlargement is aimed at reuniting the Europe as a continent. The union believes that the move will consolidate democracy and peace in Europe and make the European people to share the benefits which have been accrued through the progress of the European Union together with the welfare generated by the integration (Bradley et al 205).
More countries have applied to be members of the European integration. The members and the union are still negotiating about the circumstances of their integration with the union (Weiler 39). Each country is unique, therefore, members are negotiating with the unions at their own pace and this depends on the situation in each country.
The European Union gives rules for members who want to become members; for a country to be a member of European Union, it should have a stable democracy, which would ensure that there is a rule of law, protection from minority groups and human right protection (Nugent 146). The country’s market economy must be functioning well and its public administration should be in a position to apply as well as manage EU laws.
Works Cited
Bradley, John et al. Integration, growth and cohesion in an enlarged European Union. Chicago: Springer, 2005. Print.
Eliassen, Kjell. Foreign and security policy in the European Union. New York: SAGE, 1998. Print.
Harrop, Jeffrey. The political economy of integration in the European Union. Camberley: Edward Elgar Publishing, 2000. Print.
Hill, Charles et al. Global Business Today. Whitby: McGraw-Hill Ryerson, Limited, 2006. Print.
Hix, Simon & Hoyland, Bjorn. The Political System of the European Union. Sydney: Palgrave Macmillan, 2011. Print.
Nugent, Neill. The government and politics of the European Union. Durham: Duke University Press, 2006. Print.
Tatham, Allan. Enlargement of the European Union. Cambridge: Kluwer Law International, 2009. Print.
Weiler, Joseph et al. Integration in an expanding European Union: reassessing the fundamentals. Hoboken: Wiley-Blackwell, 2003. Print.
The economic development of Ireland is closely tied to the country’s membership in the European Union. This paper is aimed at discussing the effects of the EU policies on various businesses in this country. In particular, one should examine their positive and negative implications. This issue is of great importance nowadays because at present Ireland faces considerable challenges such as unemployment which was 14.8 percent in 2012 (Dufy and Casey 38).
Furthermore, the growth of Ireland’s GDP has slowed down in comparison with previous years. Economists forecast that the GDP will grow only by 2.1 (Dufy and Casey 38). In contrast, before 2007, this rate was more than 7 percent. Moreover, the policies of the European Union are criticized by many political activists and entrepreneurs. This is why it is important to examine the influence of the European Union on the work of various businesses in Ireland.
On the whole, it is possible to argue that at a certain point, the membership in the EU did contribute to the growth of Ireland’s economy. For instance, local businesses benefited from foreign direct investment (FDI), improved infrastructure, and the ability to enter new markets in other countries.
This is why one can speak about the beneficial impacts of the European Union. Nevertheless, one should not forget about negative effects such as increased inflation and growing competition from the countries which joined the EU at the beginning of the twenty-first century. Apart from that, it is vital to mention that Irish bankers emulated some of the risky practices that were widely adopted in other parts of the EU as well as the United States.
Finally, the crisis of the Euro decreased the availability of credit of many entrepreneurs who could not start new business projects. These are the main questions that should be examined more closely. On the whole, the in-depth understanding of these questions is important for developing the policies that can help Ireland cope with the effects of the global recession.
The positive effects of the membership in the European Union
It should be mentioned that Ireland can be described as a knowledge economy which means that this company working in this country offer innovative products that are based the use on modern technologies (Gunnigle, Heraty, and Morley 653). Moreover, the competitiveness of such organizations strongly depends on the knowledge and expertise of their employees. This is one of the distinctions that should be taken into consideration.
The products offered by these organizations enjoy significant demand in many countries (Gunnigle, Heraty, and Morley 653). For a long time, it was believed that Irish companies had been well integrated into the global market. Additionally, Ireland has one of the lowest corporate taxes in Europe (Gunnigle, Heraty, and Morley, 664).
This is one of the reasons why the country achieved a significant degree of growth during the Celtic Tiger Era that lasted from 1995 to 2008. These are some of the factors that should be considered to explain the growth of many Irish businesses and the difficulties that they currently face. More importantly, they are important for finding solutions to the economic problems which manifested themselves after 2007.
One should note that the impact of the European Union has not been only negative. Such an assumption can hardly be called accurate. For instance, one should take into account that the membership in the European Union gave local businesses access to many new markets.
While analyzing the development of the Irish economy, researchers note that before joining the EU in 1973, approximately 70 percent of Irish exports went to the United Kingdom (Fitz Gerald 1354). In other words, Irish businesses were strongly dependent on the economic and trade policies of a single foreign country. To a great extent, their position was very vulnerable.
Nevertheless, EU membership changed the situation dramatically. For instance, at the beginning of 2001, the exports to the UK constituted only 20 percent of total Irish exports (Fitz Gerald 1354). This is one of the main changes that can be singled out. The membership in the European Union enabled Irish businesses to find more customers. This is one of the factors that contributed to the profitability of these organizations. This period of growth has been described as Celtic Tiger Era or the period of rapid economic growth.
Additionally, it is vital to remember that the membership in the European Union has increased the flow of foreign direct investment into the country. This capital boosted the growth of various industries related to manufacturing (Gunnigle, Heraty, and Morley 657). For example, one can mention the production of electronics, chemicals, and other products that involve the use of advanced technologies. This is another positive impact that should not be overlooked.
Apart from that, local companies were able to achieve growth because they could use the technologies that were previously not available to them. One should keep in mind that the European Union-facilitated the flow of labor, capital, and technologies across various member states. To some degree, this flow created many opportunities for various enterprises, including Irish businesses. This is one of the reasons why Ireland is often described as a knowledge economy.
It is possible to argue that the increased flow of FDI can also be explained by the policies of the government. In particular, they lowered corporate taxes, and many financial organizations chose to invest in Irish businesses. This is why many of the local companies became more competitive. This is one of the main aspects that should be considered while examining the impacts of the European Union.
Apart from that, the investment, which was derived from the European Cohesion Funds (EFC), was used to redevelop the infrastructure of the country (Gunnigle, Heraty, and Morley 660). In particular, one should speak about ports, railroads, airports, and so forth. These improvements created new opportunities for entrepreneurs.
For instance, they could ensure the effective transportation of their goods across the country. This issue should not be disregarded because businesses can function more effectively if they do not have to cope with problems related to infrastructure. Again, these improvements can mostly be attributed to the membership in the European Union.
Moreover, these construction projects involved a great number of small and medium-sized businesses that benefited from working as the suppliers of the government. They could increase the volume of their output and strengthen their position in the market. This is another aspect that is often discussed by economists who support Ireland’s membership in the European Union.
This is why one should not suppose that the participation in this economic and political alliance did not bring any improvements. Such a view can hardly be substantiated. Certainly, these improvements cannot be attributed only to the European Union. One should not suppose that Ireland implemented many changes in the legislation which contributed to the growth of many businesses.
For instance, one should speak about the reduction of the corporate tax rate that was much lower in comparison with countries that represented the EU. This policy is not directly related to the country’s membership in the EU. More importantly, it helped many businesses to attain substantial growth. These are the main factors that contributed to the boom of the Irish economy.
Furthermore, this growth can be partly explained by the fact that the Irish workforce and managers had sufficient skills to launch and maintain high-tech companies. This is another factor that could have played a vital role. However, the period, which is called the Celtic Tiger Era, is closely connected with the decision of the Irish government to join this economic and political alliance. These are some of the positive impacts that were brought by the EU. It created various opportunities for Irish entrepreneurs who could start new businesses.
The negative associated with the European Union
Nevertheless, one should remember that the policies of the European Union have also produced some adverse effects on the economy of Ireland. One of the main problems that researchers pay attention to is the inefficiency of monetary laws that are imposed on Ireland (Fitz Gerald 1363). Economists believe that at the beginning of the nineties, the countries representing the EU were deprived of the ability to conduct independent monetary policies (Fitz Gerald 1363).
However, this approach lacks flexibility because it does not take into account the peculiarities of different countries. This problem was identified long before the crisis of 2007. So, it is possible to speak about the inefficiencies of supranational government which cannot always take timely measures to avoid possible pitfalls.
Moreover, this monetary policy significantly contributed to the inflation of wages. It should be mentioned that the inflation rate in Ireland was higher than in such countries as Germany or France (Fitz Gerald 1363). The purchasing power of many Irish customers began to decline while local businesses found it difficult to sell their products and services. This is one of the main impacts that should be taken into consideration.
Moreover, both businesses and clients became more dependent on the availability of credit. Therefore, the role of the financial industry increased, and the executives of many banks began to conduct many risk operations (O’Connor 21). This is one of the main points that should be kept in mind. It is vital for understanding the financial crisis that affected the Irish economy and the representatives of various industries. This is one of the key factors that should be taken into account.
Additionally, one should note that the expansion of the European Union because this trend weakened the competitive positions of Irish companies. For instance, the inclusion of such states as Poland, Romania, Estonia or Latvia diverted a significant part of foreign direct investment that could previously be brought to Ireland. Additionally, some companies that previously worked in Ireland chose to work in these states.
It should be noted that such a corporation as Dell and Microsoft preferred to cooperate with Irish IT companies. However, some of these international corporations chose to end their cooperation with Irish firms because they decided to outsource their business tasks to companies from Estonia, Latvia, and other states which had joined the EU in the twenty-first century. Researchers argue that the rapid economic growth of Ireland can be attributed to low taxes (Gunnigle, Heraty, and Morley 664).
This is why this country looked very attractive to foreign investors. However, new members of the European Union imitated this strategy and tried to attract foreign investors by emphasizing the fact that their labor force was less expensive. This is why the position of many Irish businesses was threatened.
Therefore, this internal competition within the EU contributed to the decline of the Irish economy, which could no longer distinguish itself among others. Before, the crisis, many economists noted that approximately one-third of Irish industrial workforce were employed in companies that were dependent on foreign direct investment.
Similarly, these organizations produced more 55 percent of the total industrial output (Gunnigle, Heraty, and Morley 658). In turn, the lack of investment decreased the profitability of local firms and made a great number of workers redundant. The growth which was observed during the Celtic Tiger Era began to slow down. This is one of the details that should be considered.
Additionally, researchers often focus on the effects produced by the neoliberal policies that were developed after Ireland joined the European Union. It should be mentioned that the role of trade unions began to decline significantly during the Celtic Tiger Era. One of the dominant views was that these organizations only hindered the growth of companies (O’Connor 21). On the one hand, this tendency contributed to the increased profitability of various businesses.
However, at the same time, the bargaining power of workers began to decline (O’Connor 21). It is also vital to remember the policy of wage moderation, which means that wages of employees grew at a very slow pace (O’Connor 21). Overall, this strategy was supposed to increase the competitive strength of local firms. The main issue is that the purchasing of local customers declined and Irish companies became too dependent on exports, while the role of domestic market diminished.
So, in the long-term, many Irish companies became less sustainable. This impact is important for analyzing the origins of the crisis. To some degree, this policy was adopted in other countries of the EU, and in Ireland, this tendency was very prominent. However, in the long term, it produced negative effects on various markets in Ireland. This is one of the main details that are important for describing the decline of the Irish economy.
One should take into account that the membership in the European Union adversely affected several areas of the Irish economy. In this case, one should pay attention to those firms that were specializing in agricultural production.
Researchers pay much attention to such fields as milk production, food processing, poultry, or livestock (Barry 75). These businesses had to face strong competition from firms that were bused in Poland, the Czech Republic, Hungary, and other states from Eastern Europe. This is one of the risks that economists spoke about before the crisis.
To a great extent, the membership in the European Union underlined those sectors of the Irish economy, which were less competitive. One can say that this effect is the inevitable outcome of establishing the policies of free trade. Certainly, at the time, when the Irish economy passed a period of very rapid growth, this result was not perceived as something very negative.
Policy-Makers overlooked the notion that thousands of people, especially farmers, were displaced because the country opened its markets for foreign agricultural businesses that gain competitive advantage because of their less expensive labor costs. This is one of the aspects that should not be overlooked.
It is not closely discussed by the supporters of free trade and neoliberal policies established in many countries. As a rule, they prefer not to speak about those industries that were adversely impacted by Ireland’s membership in the European Union. Therefore, it is possible to argue that participation in the open market also leads to some negative effects.
Additionally, the Irish economy became exposed to one of the trends that were popular in many European countries. For instance, one can mention the increased investment in the property market (O’Connor 22). As a result, many Irish companies brought capital in this sector of the economy and diverted cash-flow other businesses that could have created more value. It is vital to remember that the housing bubble was not directly caused by the policies of the European Union administration.
However, this outcome originated from the desire of Irish investors to emulate the practices adopted in the countries EU and the United States. This impact should not be overlooked because it suggests that many Irish entrepreneurs were affected by the trends that emerged in other parts of the European Union.
Nevertheless, it was not the direct result of policies imposed on Irish financial institutions. More likely, this outcome can be explained by the lack of risk management strategies that could have helped these organizations avoid many pitfalls. This is one of the main arguments that can be put forward.
When speaking about Irish businesses, one should focus on the work of financial organizations. The membership in the European Union enabled these organizations to reduce their interest rates (O’Connor 22). These factors contributed to the irresponsible lending practices and their increasing exposure to the housing market, which was booming in Ireland. Additionally, consumers began to rely on credit, and household debt in Ireland increased.
As a result, these organizations exposed to various risks such as the decline of prices on housing. Certainly, it is not possible to say that this problem is the result of the policies imposed on Irish banks. One can say that this outcome can be attributed to the irresponsibility of managers or lack of risk management strategies. However, the policies emerged when Irish banks were fully integrated into the financial sector of the European Union.
Moreover, the financial crisis led to the increased economic insecurity of many people and an increasing national debt of Ireland. Apart from that, it was more difficult for small companies to receive a credit that could help them increase the volume of production. Therefore, financial crisis hindered the growth of Irish companies. This is another impact that should not be disregarded. To some degree, various negative factors produced a cumulative effect on the economy of Ireland. Moreover, this effect proved to be almost devastating.
Discussion
This analysis suggests that the membership in the European Union brought significant changes in the economic life of Ireland. First of all, it greatly contributed to the development of high-tech companies in this country. These organizations greatly benefited from the increased FDI and ability to share technologies and resources with foreign firms (Gunnigle, Heraty, and Morley 653). They also derived many opportunities from the ability to enter new markets.
They became less dependent on the customers from the United Kingdom (Fitz Gerald 1354). These factors contributed to the growth of many industries. To some degree, neoliberal policies and the membership in the EU enabled entrepreneurs to start new businesses or increase the volume of their output. Nevertheless, the expansion of the EU undermined the competitive strength of many Irish businesses since they had to face the rivalry of firms located in Eastern Europe.
Irish economy could no longer attract FDI only by establishing low corporate tax. This is one of the most important obstacles that limited the growth of Irish companies. Additionally, many businesses, especially those that were working in agriculture, could not withstand the competition of foreign companies. This is why their role declined. It is also vital to mention some indirect results of membership in the EU.
For instance, financial institutions of the country became less sustainable because they relied on the housing market of the country. Moreover, investors were also willing to bring capital mostly into the property market while overlooking other sectors of the economy. Therefore, the functioning of the economy became less effective (O’Connor, 21). Nevertheless, despite these problems, one cannot argue that membership in the EU did not facilitate the growth of Irish businesses. Such an assumption can hardly be called accurate.
Certainly, it has to be admitted Ireland was among the first countries in the EU that asked for financial assistance. At present, the government intends to develop strategies that can help local businesses recover from the effects of the economic crisis. However, one cannot say accurately when these problems can be overcome. It is vital to remember that the development of the economy is cyclical, and economic crises are inevitable in many cases.
Thus, it is possible that Irish businesses will be able to cope with the effects of rec the session. For instance, economists note that there has been some increase in the flow of foreign direct investment into the country (Dufy and Casey 38). Nevertheless, the process of economic recovery will be very time-consuming. This is one of the main arguments that can be made.
Conclusion
These examples indicate that membership in the European Union has produced different effects on the work of Irish businesses. One can even say that this influence varied significantly with time passing. In previous decades, these companies passed a period of rapid growth, which was caused by the elimination of barriers to free trade.
Nevertheless, the expansion of the European Union undermined the competitive position of Irish businesses that found it more difficult to attract investors and businesses partners. Additionally, the inability to control monetary policies increased the financial instability of the country. It should be noted that the development of the economy is cyclical, and it includes periods of growth and decline. Therefore, one should not suppose that there is a single cause or factor that can explain the development of an economy.
Works Cited
Barry, Frank. “Competitiveness Implications for Ireland of EU Enlargement.” Journal of the Statistical and Social Inquiry Society of Ireland 32. 3(2003): 70-.97. Print.
Dufy, David, Joseph Durkan, and Eddie Casey. “General Assessment Of The Irish Economy.” Quarterly Economic Commentary (2012): 38-43. Print.
Fitz Gerald, John. “Managing An Economy Under EMU: The Case Of Ireland.” World Economy 24.10 (2001): 1353-1371. Print.
Gunnigle, Patrick, Noreen Heraty, and Michael Morley. “Doing Business in the Republic of Ireland.” Thunderbird International Business Review 44.5 (2002): 649-74. Print.
O’Connor, John. “Slaying The Celtic Tiger.” Against The Current 26.1 (2011): 21-22. Print.
This article is mainly concerned with uniting the European countries in terms of a common market whereby the countries in the European Union are prioritized and exempted from some harsh policies that hinder the smooth running of their businesses. Some of the main goals of the European Union were operating their businesses among the European Union countries free of tax; giving goods manufactured in these countries the priority before considering goods from outside the union among others.
European Union
The European Union had become a threat to the United States in the 1950s and the 1960s whereby the US felt that the EU would soon become the strongest economies in the world if they adhered to their policies. Hence the US established itself within the EU to be part of the privileges. Apart from the US, many other nations realized the benefit of joining the EU. By 2004, many other nations had joined the EU, comparable to the six nations that found the Union. Due to the extensive membership of the EU, regional sub- unions were formed within the union some of which tended to outgrow the EU. For instance, countries from North America formed the NAFTA whose goal was mainly inclined towards MNCs, and also there was the formation of APEC and ASEAN.
I agree with the author’s main idea which is based upon the goals and objectives of the formation of the European Union. The establishment of the UE was an eye-opener to many nations on the means of creating a common market that would facilitate a free and fair trade with reasonable tariffs and taxes. It also led to the idea of MNCs by the American countries. However, some of the ideas like adopting a common currency were not positively welcomed by every nation.
Sovereignty
This article is mainly inclined towards the power of sovereign nations and shows clearly that the opinion of a sovereign nation is closely equitable to law. However, globalization and technological changes have come in making it very difficult for sovereignty to continue persisting and though it may not completely disappear, the influence of sovereign nations across their borders is becoming lessening each day.
Several ideas concerning sovereignty have been discussed in this article. Firstly, there is the controversial idea that a sovereign state is about dead. Sovereign nations have had a great voice both within and across their borders whereas the weaker nations may not have the power to even tackle issues within their borders. Several nations like Israel and Palestine are good evidence of those who are fighting to gain sovereignty.
Again, decisions made by the sovereign nations are found to carry the same weight as the law. The sovereign nations have recently been putting more emphasis on human rights rather than considering the minority as it was the case in the past. The author also insists that globalization does not undermine state control but the influences how states are controlled by relating states all over the world. NGO’s are found to have less sovereign power in states when compared to MNCs.
Conclusion
I agree with the ideas the author has put across in this article concerning the impact of sovereignty in the world we are living in today. For instance, through the influence of technology and globalization, currencies from the sovereign nations carry a lot of weight. Starting with sovereign nations, people can attain citizenship in several countries contrary to what was the norm in former days. MNCs are having more sovereign power than NGO’s due to their impact on the economy. In most of the nations that are fighting for power, the notion of sovereignty has made it even harder to come up with concrete solutions.
The European economy has been in recession since 1930s. Financial crisis in Europe began in 2007. This was without precedent in post war economic history (Eichngreen & O’ Rourke 2009). After this, there was the lengthy premia with insignificant risk, a sharp rise in credit growth and development of the real estate industry as well as easy availability of liquidity.
Financial institutions became extremely vulnerable to asset market corrections. This led to a downturn on the financial systems. This actually toppled the whole structure. This however was not a new thing as it had initially happened to other countries before, for example Nordic countries and Asian crisis among others. Just as the 1930s depression was a worldwide phenomenon, there is no difference with the present economic crisis.
How did it begin?
In the late 2009, investors had fears of a sovereign debt crisis concerning government debt levels that were rising worldwide (Eichngreen & O’ Rourke 2009). Fears were also caused by the downgrading of the government debt in various European states. This made it impossible for Greece, Portugal, and Ireland to refinance their debts in early 2010 as the situation intensified (Eichngreen & O’ Rourke 2009).
The Europe finance ministers had to approve a rescue package and eurozone leaders had to come in also by agreeing to another package of money to prevent the collapse of the European economy. The European leaders in addition suggested a creation of a common fiscal union. This union was to be across the eurozone which had to be with very strict rules that were enforceable by the EU treaties. Nevertheless the European currency managed to retain its stability. Greece, Portugal and Ireland were the three most affected countries.
This European crisis was caused by a combination of factors that were complex. These factors included things like globalization of finance, imbalances in international trade, bursting of real estate bubbles, slow economic growth rate, easy credit conditions which encouraged high risk borrowing and lending practices, fiscal related choices in relation to government expenses and revenues, and lastly approaches used to bail out troubled banking industry by nations.
A narrative description of the beginning of the European crisis is that it began with a great increase in savings. These savings were available for investment for the period between year 2000 and 2009 (Wachman 2010). It is argued that during this time, globally the pool for fixed income securities increased greatly.
This enormous pool of money was caused by an increase in savings. These savings were from the high growth countries that entered the global capital market. Investors looked for alternative higher yields in treasury bonds than those offered in the U.S. globally. The readily available savings created a temptation and this overwhelmed regulatory and policy in different countries, as global fixed investors generated bubbles across the world.
These bubbles eventually burst causing prices of assets (for example, commercial property and housing) to decline. The bubbles also caused liabilities to global investors to stay at full prices. This brought about questions on solvency of governments and matters regarding their banking systems (di Magliano n.d.).
Different countries in Europe got into this crisis in different ways. For example, in Ireland, its banks lent money to property developers and this led to a bubble in property (Wachman 2010). When finally the economic bubble burst in Ireland, there was a general takeover of the role of private investors by both the government and the economy’s taxpayers.
In Greece, there was an increase in commitments to its public workers by the government. This was in form of very generous pensions and pay. Some politicians blame bailing out of institutions by public funds to be a cause of the crisis in Greece (Eichngreen & O’ Rourke 2009). Some financial institutions benefited from the debt situation in Greece in the short run.
The banking system in Ireland grew greatly and this in return created global investors. The global investors, who are actually an ‘external debt’, were several times larger than the country’s GDP. Interconnection in financial systems globally means that when a one nation goes into recession or defaults its sovereign debts, this puts external private debt at very great risk. Losses are faced by the banking systems of the creditor country.
Creation of interconnection is based on the concept of debt protection. A credit default swap (CDS) contract is entered by the financial institutions which does the payment incase defaults occurs. The amount on money changing hands most of the times is higher than the debt amount itself due to purchase of the same security by the CDS. There is uncertainty as it is not clear as to which exposures are done by each country’s system in banking in relation to the CDS (di Magliano n.d.).
Impact of EU Crisis on the European countries
The three greatly affected countries were Greece, Portugal and Ireland as mentioned earlier. Definitely the European crisis has not had a positive impact on the European countries. There has been an economic collapse in most of the European countries. Very few countries tried to evade this economic collapse and these countries include Poland, Bulgaria and Romania. The rate at which the UK is recovering is very slow (Khor 2011).
In Japan however, the tsunami effect caused the economy not to grow better as expected. The vehicle industry was particularly affected by this disaster. Austerity measures in British government are slow which have reduced public spending to almost zero and adversely affects the economy. There is a high rate of inflation, very small salary rises, and an increase in unemployment. These result in losing of hope of consumers’ in the future and there has been an increase in demonstrations by these consumers protesting over their frustrations.
In Greece, the Greeks have totally lost their confidence in any economic recovery in the near future (Wachman 2010). Public spending in Greece is on the rise and this puts the International Monetary Fund (IMF) and EU to come in and help Greece overcome the crisis. Unemployment rate in Greece is high, with more than one in every ten persons in Greece being jobless. There is a fall in contribution to the national budget.
Spending rates are very high. Implementation of measures such as privatization and liberalization of the economy and reduction in civil servants are very low and they are not done quickly by the Greek government. State authorities and public enterprises that are surplus in regard to their requirements have not been cut or closed. Greeks are currently not making any essential purchases and this brings about an economy that is not strong.
The bad economy is attributed by the current unemployment rates that are high and the increase in consumption of taxes and contributions. In Greece there is a low productivity level and a very high deficit in combined capital and current account. With the help of the International Monetary Fund and the EU, it is assumed that with time Greece will slowly recover (Wachman 2010).
In Bulgaria, contrary to the drop in economic growth in other countries, it has seen an increase in its economic growth (Wachman 2010). This growth has been attributed by the export activities. In addition, the tourism industry has contributed to this growth by creating employment opportunities.
Bulgaria has been able to reduce its government deficits. This has resulted in stabilized economy. However, it is argued that the financial crisis and the European debt impact will eventually have a negative effect on the Bulgaria economy. The Greek bailout so far by the Bulgarian country is seen to have some slightly negative impact in the recent times (Eichngreen & O’ Rourke 2009).
A fall in income expectation is another negative impact experienced by the European countries due to this crisis. Consumers in Italy are aware that there is a threat of national bankruptcy. They are actually preparing themselves on hoe to tackle this problem. Sacrifices are being made by the consumers to salvage the situation at hand. Italians are however very unwilling to pay higher taxes like in any other country.
However, they are preparing themselves by suffering cutbacks in income. Those getting high salaries are ready to pay up more taxes. This is perceived to reduce the government debt to a lower level. These cuts are a concern to the social services and they contribute to a low economic growth. Italy has the highest levels of unemployment than any other country in Europe. Income expectation has also fallen down. There is little hope by the Italians in the recovery of their economy in the near future (Szekely 2009).
In Poland, however, the economic status is good. The employment levels too have been rising. This does not mean that the unemployment rate is okay, it is simply improving with time. Uncertainties are also created by the general elections in Poland (Wachman 2010). Political developments in Poland usually generate uneasiness among consumers. Income expectation is greatly affected by these conflicting factors, it actually becomes lower.
Another impact of the European crisis in the European countries is lowering the willingness to buy by the consumers (Wachman 2010). Consumers hesitate whether to buy or make major purchases now or to delay the spending. This is very common in Portugal. In Romania, the situation is changeable currently. Consumers spend their income on non-alcoholic drinks and food. This shows how their spending is limited to necessities only (Szekely 2009).
In Portugal, there is a battle against the crisis by trying to implement the cost-cutting programs (Wachman 2010). These programs are set by the European Union. Austerity measures are putting pressure on citizens by an increase in taxation. There has been no salary increase. Consumers only buy what is necessary since they cannot afford to spend more than what they can afford.
In Spain, inflation has somehow been kept at bay. Currently it is the lowest in European countries (Wachman 2010). This is due to reduced prices in fuels. Despite this, there is no hope in Spain since the economic recovery and the willingness to purchase is still low. Consumers are also affected by the uncertainty on the development of the debt crisis in European Union. Consumers are very cautious on their daily expenditure.
Greek Debt Problems and Risk of Contagion to other Countries
The debt problem facing the Greece is a tragedy which is glaring Europe as political turmoil is also accompanying it. It is postulated that dwarfing of the Greek tragedy may come in case there is spread of the problem to its significant neighbors through contagion. According to Khor (2011), bailing out Greece is likely to see the crisis reach countries like Italy thus leading to a severer crisis in Europe since Italy is a large economy.
This is because Italy’s economy is already in debt and thus it would be forced to get new loans at the price of increased interest. Given the Greece problems remains unsolved, one can only expect the European crisis to stay and spread. With Greece facing both solvency and liquidity problems, working out the debt problem by for instance creditors receiving a portion of the remaining loans to Greece would scare banks from major European economies which have kept the Greece loans.
This is among the major reasons why there is a call for bailout, though bailout, such as that done by the IMF and Europe in 2010, did not solve the problem in entirety. It is foreseeable that the probability of Greece getting new loans will reduce given that the default being experienced by the market will discourage lending to Greece.
Contagion is predicted to spread to as far as Spain and Italy since European has not been able to act as a unit on the Greece problem. This has consequently had an impact on confidence in the eurozone. Overall, it is expected therefore that global economy will worsen since no major world economic player (Europe, Japan or the U.S.) currently stands in a position to salvage the global economy.
In the event that Greece defaults on its debt (which is almost inevitable), contagion is almost inevitable in economies such as Portugal and Ireland which are already doing poorly. This risk is also likely to spread to other larger economies like Spain and Italy, but this is less likely given the diversity of these economies.
The likelihood of these wealthier economies experiencing contagion due to Greek’s tragedy is further reduced by the fact that other wealthier European economies are likely to respond fast to avert such a situation since it would affect the entire European region adversely (Vanguard 2011).
A number of measures have been put in place in trying to solve the European crisis. EU emergency measures have been put in place. These include measures like the European Financial Stability Facility (EFSF). The EFSF is a legal instrument that has an aim in preserving financial stability in all European countries (REF). It provides assistance financially to the eurozone states in times of difficulties.
It can issue debt instruments like bonds on the market to raise funds needed in giving loans to the eurozone countries which are in need of financial support. The German debt management office offers support to the EFSF in these debt instrument offerings. These bonds are usually backed up by guarantees that are given by the member states of the euro.
These guarantees are in relation to the share in paid up capital in the European central bank. Members of the states finance ministers expanded the EFSF by creating certificates capable of guaranteeing up to thirty percent. The EFSF raises funds after the government has made a requisition (European Commission 2011).
The European financial stabilization mechanism (EFSM) is a funding program that offers funds on emergencies. These funds are raised on the financial markets (European Commission 2011). The European commission guarantees the EFSM. It uses the European Union budget as collateral.
Its aim is to preserve financial stability in the European countries by providing funds to them during their economic hardships. The funds are backed by the 27 European members. EFSM is supervised by the European commission. Both the EFSM and the EFSF will eventually be replaced by a more permanent programme called ESM.
The Brussels agreement is an agreement made by the Eurozone countries in the Brussels. They agreed to write off fifty percent of Greek sovereign debts. The bailout was held under European finance stability funds. They also agreed to increase up to 9% level on bank capitalism and a set of commitments to make measures in reducing the national debt (European Commission 2011).
The European central bank has also intervened in solving the European Union crisis. There are various measures that it has taken to offer solutions to the crisis. The first one is the open market operations in buying private debt and government securities. This will prevent inflation.
Secondly the central bank offers one six-month and two three-month full allotments in long term refinancing operations. Thirdly, the central bank reactivated all the dollar swap lines. Government debts were subsequently bought by the member banks. These member banks belonged to the European system of central bank. ECB has its policies regarding the credit ratings on loans changed (Costello et al 2009).
Concerted actions from several central banks aided in creating a solution to the crisis. The ECB, the Federal Reserve in the US, the Swiss national bank and Canada’s, Japan’s and Britain’s central bank offer global financial help to the European countries (European Commission 2011).
Proposed Long-term Solutions to the Crisis
European fiscal union is the first solution. A fiscal union is a long term stable solution as compared to the portfolios that are implemented towards investments (Eichengreen & O’Rourke 2010). A stability and growth pact reform was formed aimed at straightening rules in case of deficit or debt rule breaches. Germany is pressuring other member states into adopting a balanced budget law. This law will help in achieving a clear cap on matters relating to new debts.
There is also a need for a very strict budgetary discipline. There is implementation of debt breaks of the eurozone countries and this implies a tighter fiscal discipline. By the end of 2011, the eurozone countries will have created a fiscal union with strict enforceable rules. There will also be automatic penalties. The eurozone countries agreed to put strict caps on the way their governments are spending and borrowing money. Penalties are put in place for those who violate the stipulated limits (Costello et al 2009).
Another long term solution is the Eurobond. It was suggested that Eurobonds be issued jointly by the euro nations. However this plan was to work properly with the use of tight fiscal surveillance. Economic policy coordination is also vital for the Eurobonds to work effectively. The Eurobonds actually would raise any country’s liabilities in debt crisis (di Magliano n.d.). This would however be best in solving debt crisis.
European stability mechanism is also another long term solution. This is a permanent rescue funding programme (Mission & Watzka 2011). It allows for permanent bailout. This kind of a mechanism offers financial firewall services. It comes in handy in cases where one country defaults in the interconnected financial systems and it ensures protection of downstream nations. It enables management of the single default and limits financial obligation.
Addressing current account imbalances can act as a long term solution. There is need to regulate cross border capital flow in the euro area. This avoids any current account imbalances. A country which imports more than what it exports is a net importer of capital; this means that the country decreases its savings reserves. It also implies that these kinds of countries drive their capital into other countries which have trade deficits (Szekely 2009).
This eventually creates asset bubbles and lowers interest rates. If a country has a large surplus, its currency value appreciates. This in return reduces imbalances since price of its exports increases. Domestic savings can greatly reduce trade imbalances. This can be encouraged by restricting capital flow across the border or raising interest rates. This is however going to increase government interest rates and to offset a slowing down to the economy.
Lastly European monetary fund (EMF) can be seen as a long-term solution to the crisis. There are suggestions that EFSF to be transformed to EMF. EMF provides governments with fixed interest rates on Eurobonds (Borthwick 2011).The rates are usually slightly below the nominal terms.
This renders the bonds untradeable and therefore they can only be kept or held by investors. It can be liquidated by the EMF anytime. The EMF would also ensure fiscal discipline and provide funds to countries meeting the agreed fiscal criteria. This ensures that a government has sound financial policies otherwise they would have to rely on government bonds which have market rates that are unfavorable (Borthwick 2011).
European Commission, 2011. European Financial Stabilisation Mechanism (EFSM). European Commission, Economic and Financial Affairs. Web.
Khor, M. 2011. Rich economies enmeshed in crises. Third World Network. Web.
Mission, S. & Watzka, S., 2011. Financial contagion and the European debt crisis. Ludwig-Maximilians-Universität München, Seminar for Macroeconomics. Web.
Some of the major events characterizing the formation and development of the EU include the 1957 Rome Treaty that created the European Economic Community or EEC. This Treaty was established in order to foster economic unity between member states. It would be much later before the latter goal was established but at that point, it was focusing on customs union development. The second major event occurred in 1973 when three very influential nations joined the body and they were the United Kingdom, Denmark, and Ireland. At that point, the European Union had a total of nine members after this expansion. This was largely described as the first enlargement.
The Single European Act is the third major event that occurred in 1987 (Bainbridge, 2002). It was signed in order to facilitate trade through a single market. The fourth major event occurred in 1993 through the Maastricht Treaty which was created in order to facilitate the four freedoms of people, goods, services, and money. This Treaty enabled the creation of the European Union as we know it.
The Union now had three pillars identified as Police and judicial cooperation, foreign and security policy (which aimed at dealing with political issues), and the original European Community, Euratom, and ECSC. Many changes occurred in between but the year 2004 was definitely noteworthy owing to one of the largest enlargements in the EU. In that year, ten new members joined the EU in what is now known as the fourth enlargement. These were Balkan nations that caused EU membership to rise to 25 (The EC, 2010).
There are a number of reasons why the European Union was formed. At first, it was an attempt at forging peace in Europe especially after the horrors of the Second World War. However, member states were soon motivated by economic reasons. The European Community of the 1950s and early 60s was established in order to facilitate these goals (Mc Cormick, 2000). The establishment of a common market came to be an important motivating factor such that people, services, capital, and goods could flow freely within the Union.
This was especially because European based firms were performing poorly in the international arena. Furthermore, Europe could no longer rely on the world superpower at that time owing to a deteriorating relationship with it. Additionally, the monetary aims of creating a single currency also motivated the integration of European states. This has currently been achieved through the Euro. Lastly, the European Union was created in order to harmonize international relations such that the EU would act as one body internationally.
Effect of the rapid enlargement of the EU and the effect of future enlargement
The rapid enlargement of the EU that started in 2003 has brought on many benefits to affected countries. The new members experienced economic growth that they had not witnessed before. Most of them grew by an average of 1.75 percent annually between 2003 and 2008 (European Commission, 2009). This was made possible by the continual investment of older member states in these countries and also by the technology that entered those countries (Oakley & Atkins, 2009).
It is not just the new member states that benefitted; the older members also witnessed greater economic growth prior to the global recession. This was attributed to the expanded export market for these traditional EU members. Furthermore, both types of members benefited from cross border transfers of workers and efficient production through relocation of certain plants. On the other hand, this rapid expansion did lead to some problems. The first was seen after the global crisis when the economies of a number of countries started doing badly. The PIIGS problem was characterized by high unemployment as well as slow economic growth among the latter countries.
Monetary stability within the EU is under threat because of the economic conditions in the PIIGS (O’Leary, 2010). Consequently, some older member states are objecting to the issue of bailing out these so-called irresponsible nations because they feel as though they are paying the price for their lack of economic discipline. However, even before the global crisis, there were still certain problems imposed such as the prevalence of certain restrictions in member states concerning the establishment of businesses. Furthermore, these very member states have not harmonized the EU regulations as required (Hoskyns & Newman, 2000).
Future enlargement in the EU is likely to be unabated because this is already a step that the Union has chosen and it is unlikely to be eliminated. The acronym PIIGS has been used very negatively yet other traditional EU member countries may not be as far off from the latter economic states as they may imagine. Credit markets often operate through the domino effect because the loss of confidence in one bank will affect other banks in other countries and hence fuel the crisis.
The debt levels in the PIIGS are not that different from the situation in the United Kingdom. Greece (which is to receive a bailout from members of the Eurozone) had a gross debt of 125% of its GDP and an unemployment rate of 9.7% as of 2010. Ireland has a gross debt of 82.9% of its GDP and an unemployment rate of 13.3%. The UK which does not fall in this category has an unemployment rate of 7.8% and a gross debt of 80.3% in 2010.
This is a figure that is quite close to Ireland’s performance and it does not lag too far behind from Greece. Consequently, the PIIGS problem is not just exclusive to these countries; it could affect many more EU member states. Therefore unless the fundamentals that led to the economic problem in the Eurozone are addressed then further enlargement will only lead to the same pattern being witnessed currently.
STEEPLE Analysis of France and how a food retailer might adapt to business practices in France
A STEEPLE analysis of France illustrates that socially, French people generally do not take a keen interest in punctuality as they may arrive late for business functions. Culturally, the French are very refined in terms of the cuisine as well as their taste for clothes. However, it is expected that one should dress very conservatively in business (Priest, 2010). In terms of conversation, the French can appear to interrupt one’s conversation but this is often seen as a method of debate. This country is made up of a combination of cultures from various nations so it is quite ethnically rich. The birth rate in France has been ranked amongst the highest in (Western Europe Bureau of European and Eurasian Affairs, 2010).
Technologically speaking, many French citizens utilize information technology in their businesses. However, when compared to fellow EU countries, France appears to be lagging behind most European nations. Its people have not embraced the use of e-commerce as much as other individuals in the same arena. In fact, France is ranked ten amongst its peers with just twelve percent who use e-commerce. The French economy was affected by the global financial crisis because as of 2009 it recorded a percentage growth of negative two point five percent (CIA, 2010).
However, this was not as bad as in other European countries. The economy is composed of manufacturing-based companies that produce vehicle parts and other products, cosmetics, iron products, and wine. This was actually the reason why the economic effects of the global recession were not as intense in this country. France comes second only after Germany in terms of trade in goods within Western Europe. An environmental analysis demonstrates that the government has made many initiatives in order to ensure that the French businessmen and industries play by the environmental rules preset in the country’s laws.
In terms of the political environment, France is a democratic nation currently headed by a center-right leader President Sarkozy who was elected because of his promise to instate market reforms (Daniels et al., 2009). The government has made a lot of interventions in social security through its laws. The legal environment is conducive for business, however, one must possess local know-how in order to invest wisely here. Certain businesses are controlled tightly by the government so they possess additional restrictions. Lastly, the French are very strict about ethics in business, and issues concerning bribes are not that common.
A food retailer would have to speak and write the French language very well because most transactions, legal work, and the like are written in this language. The culture of the place would have to be taken into consideration since the French are very particular about their food so the retailer should familiarise himself with these requirements (Euromonitor International, 2005). He could focus on foods that attract the younger population since France has more of these.
If one comes from a non-EU country then one should make sure that one possesses a work permit (Kashkin, 2003). When carrying out business, French authorities tend to require registration amongst a number of parties so one must try and work with this bureaucracy. In terms of employing people, the French are very particular about the termination of employment so it would be difficult to let someone go in this respective country once he or she is hired.
A German citizen and the Greek economy
Many German citizens feel as though bailing out the Greeks is causing them an undue burden for the mistakes that the Greeks committed on their own. They believe that if a bailout is done then this would lead to great inflation within the EU thus harming every member state including the Germans (Willis, 2010). However, what these citizens have not considered is that the situation is already bad throughout Europe. There are high unemployment rates even in initially strong economies like the United Kingdom. Furthermore, production has substantially reduced amongst many nations and consumer purchasing power has really dwindled.
All these problems would have been reduced if the Greek problem would have been dealt with early. If I were a German national, I would stop worrying about inflation in the Eurozone and give a go-ahead to the bailing out of Greece. The risk of inflation is far less significant compared to the problems that would emanate if overall demand in the EU goes to extreme lows. Germany currently depends on its export sector for economic growth, especially its industrial sector.
If overall demand goes down in the EU then there would be no market for most of Germany’s export products and this would eventually lead to the transference of problems prevalent in the PIIGS to other countries of Europe like Germany itself. Therefore, it is in the interest of the Germans to bail out this ailing European nation called Greece. Furthermore, most people in Germany are resisting this rescue package because most of them are thinking of themselves as this rich relative that is helping a poor one (Auerback, 2010). However, this need not be the case. Nowadays, markets require individuals to demonstrate that they have the capacity to service loans.
In this case, Greece can be given room to grow and this will put in a better position to repay the richer nations for their help during the tough economic times that they are currently going through. Germany needs to look at the bailout as the small sacrifice that they will pay in order to facilitate a high economic growth rate in Greece and this could possibly lead to better economic performance that would eventually spread throughout the European Union. However, for this to be achieved then the excessive and tough bureaucratic rules tied to the rescue package need to be relaxed so that economic growth can be encouraged.
References
Hoskyns, C. & Newman, M. (2000). Democratizing the EU: Issues for the twenty-first century. Manchester: Manchester University press.
Oakley, D. & Atkins, R. (2009). Eurozone shows its strength in a crisis. Financial Times.
Willis, A. (2010). Eurozone leaders agree on Franco-German bail out the mechanism, EU Observer.
Kashkin, S. (2003). EU: Global studies encyclopedia, Raduga publishers.
European Commission. (2009). Five years of enlarged EU: Economic achievements and challenges. IMF press release.
Auerback, M. (2010). The PIIGS problem: Maginot line economics. Political economy.
O’Leary, N. (2010). PIIGS is unwelcome in the EU parlor. Cafe babel magazine.
Euromonitor International (2005). Changing the face of eating habits. Web.
Bureau of European and Eurasian Affairs (2010). France. Web.
CIA. (2010). France. Web.
Priest, M. (2010). France. Web.
Daniels, J., Radebaugh, L. & Sullivan, D. (2009). International business environments and operations. NJ: Prentice hall.
Bainbridge, T. (2002). The penguin companion to the EU. London: Penguin.
Mc Cormick, J. (2000). Understanding the EU. London: Palgrave.
The EU (2010). The creation of the European Community. Web.
The European Union was created with the aim of contributing economic growth and development of European countries through establishing a common currency and a single market. According to economics, breaking down existing barriers will cause the escalation of positive economic effects through efficiency and redirection of resources to cost-effective investments.
However, equal distribution of profits among the members in freely competing markets is not possible. Newly entering member states having different conditions received different end results from the integration. This uneven distribution within the integration may be hindered by cohesion thus a need for regional policy.
The European Union regional policy covers all European regions and consists of three objectives: employment and regional competitiveness, convergence as well as territorial cooperation (Cini, 2003). The regional policy environment has however become very complex and regional policy makers at the national and EU levels are facing the key challenge of globalization.
The increasing internalization of economy, the removal of trade barriers within the EU, technological change and the shift towards knowledge-based economy has been actively restructuring the competitive advantage of regions and countries (Boldrin & Canova, 2001).
Arguments for EU regional Policy
The main argument for the EU regional policy is the presence of large income disparities within the EU. In the Treaty of Rome signed in 1957, the goal of the EU regional policy was aimed at strengthening the economic units of the community as well as ensuring their harmonic development according to Steinen (1991).
In any economic unit, there will always be stronger and weaker territorial units in terms of dynamism and economic performance. It has been seen that regions in relative ascendancy and decline can be found in all member states.
These disparities are not temporary aberrations but have persisted over long periods. National policies have been under heavy pressure from the effects of globalizations and have mainly focused on increasing competitiveness in areas where different countries can afford and handle.
In the EU, uneven economic performance can be limited through a top-down approach in which the EU policy takes responsibility (Krugman & Venables, 1999). Justification of a common EU policy has been provided on the grounds of solidarity. EU regional policy seeks to find spatial balance in economic development so as to ensure that all economies achieve their full potential.
The EU regional policy also presses for cohesion within the member states and in the community as a whole. Cities such as London and Paris can be able to deal with any problems of deprivation in their worst affected territories while others such as Portugal and Greece have for a long time been unable to deal with regional disparities. Argument for a common EU policy can thus be made on an institutional capacity as well as in a political capacity.
Some member states have been unable to institute internal cohesion policy or to develop proper priorities for such a policy. The EU on the other hand has developed a cohesion policy that relies on two basic measures: unemployment rates which is social cohesion and GDP per head that is economic cohesion (Midelfart-Knarvik & Overman, 2002). Policy development and spending in the EU is based on a well researched model that seeks to improve weak areas so as they conform to the whole EU requirements.
Regional policy at the national level has also been unable to adapt sufficiently to the ever changing economic environment. International competitive pressures have been slowly increasing with some countries unable to keep up.
In many EU member states, the past few years have been described by rising numbers of unemployment, public expenditure constraints, structural change and productivity as well as concerns on international competitiveness (Wallace & Wallace, 2000). Antagonism towards movement intervention has supported a market-led approach to economic development.
Internalization of the economic environment has resulted in countries being unable to make sustainable long term planning and has rendered more regions susceptible to the rapid changes resulting from global market shifts. The EU structural funds have mainly concentrated on solving most of these issues according to Ehlermann (1995). Traditional policy instruments have been overhauled and a new direction has been developed.
The focus on large-scale business aid and infrastructural aid has been abandoned in favor of softer policy measures. Financial aid has however proven to be a more durable policy instrument capable of bringing policy makers and developing industries together in a positive policy environment.
Another main problem is that spatial problems have become more complex and localized. Regions of urban decline described by social exclusion dominate parts of many cities in the member states. Focus on interpersonal and interregional disparities in prosperity is not always straight forward.
At a spatial level, national policies have proven ineffective and EU regional policy instruments have proven to be better equipped in dealing with this issue (Cini, 2003). Regional policy objectives were created in terms of minimizing spatial disparities in economic growth, infrastructural provision and employment issues.
Over the past 20 years, regional policy goals have been increasingly directed towards optimizing the contribution of regional resources to the establishment of economic growth through promoting entrepreneurship and competitiveness. Spatial problems have been seen to be best solved through education, welfare and social measures. The EU policy focus is on wealth creation at the local level through Small Market Enterprises (SME) formation, skills formation, employment and innovation (Wilson, 2002).
National regional problems have always been an obstacle to the cohesion of the community. There are wide disparities between the individual members of the community each having its own set of policies.
In order to enable cohesion and reduce disparities, the Structural Funds were put in place and designed in a manner that those different classes of regions and member states were treated appropriately. Most of the money in the fund is targeted at low GDP regions matching the convergence objective. Fewer fiscal resources are available domestically for the low GDP countries in the region (Cini, 2003).
These regions also have lesser institutional capacity and while it can be assumed that low GDP member states can profit from rapid growth while they strive to catch-up with the other richer states, this process has resulted in regional inequalities in GDP per head. Although the cohesion policy was created to ensure that economic development is balanced within the member states, there is a need for an EU regional policy that curbs the widening disparities (Ehlermann, 1995).
The total Hungarian or Polish growth that attains the optimum catch-up path may be best supported by concentration of activity in the more developed parts of those countries with trickle down being expected to influence the other parts of the country. Such an approach however, may result in an enduring special imbalance that is evident in Italy (Wilson, 2000).
The growing interest in decentralization of government is changing attitudes to regional disparities and problems. National policies have been unable to keep up with the pressures of devolution and deconcentration in many member countries. These pressures resulted from a mix of social political, economic and cultural factors, and from reshaping the structure of governance (Cini, 2003).
Due to the EU, there has been a significant shift of powers to lower government levels. However, this shift often takes place without the corresponding allocation of additional resources and devolution of revenue-raising powers.
Intervention was required in economic development both in respect to the instruments required to address regional problems as well as the broader issues related to fiscal transfer systems. The EU policy debates have been dominated by changes in modes of governance (Boldrin & Canova, 2001).
The EU policy has been able to foster balance and ensure equity in economic development. In the UK, Italy and France, recent decisions reveal a more decentralized approach to regional policy making. A more coordinated approach to the EU policy both within the regions and centrally can be witnessed.
The growing concern with political and economic consequences of regional inequality is also an issue that necessitates an EU regional policy. Due to the community, some countries feel that national political stability is under threat. In the 1990s, most countries sidelined questions about regional development (Krugman & Venables, 1999). The relationship between sectoral and regional issues has not been fully established resulting in several problems.
Member countries face pressures from major problems, such as dynamics of growth, external economic relations, macro-economic stability, and balance of payment. In most member states, concerns of regional differences and the marginalization of certain territories are still considered minor problems.
The EU competition policy has however introduced a new powerful shift between EU regional policies and national policies. The original treaty documents developed provisions for control of the state aid policies of member countries under the competition policies. The EU began to have an impact on the use of state aids as instruments of the regional policy in the early 60s, as soon as the treaty was developed (Steinen, 1991).
Many scholars have argued that an effective cohesion policy can only result from a strict control of state aid. The EU competition policy has thus not only created a means to prevent the growth of regional inequality but has helped in shaping the coverage of other policies especially those under the realm of the structural funds.
The EU community has been plagued by political squabbles and bureaucracy problems (Cini, 2003). A driver for change from reliance of national policies to EU regional policy has been the bureaucracy associated with Structural Fund implementation.
It has been generally accepted that the implementation of funds carries with it a heavy administrative burden and substantial investment in institutional capacities at different levels. The negotiation of the Structural Funds regulation has made it clear the power of precedent in the European Community regional policymaking.
According to different objectives, the EU regional policy has been able to quell differences in Structural Funds allocation and cut down on the bureaucracy involved in the process (Midelfart-Knarvik & Overman, 2002). The EU policy has also influenced the allocation of EU funding within the national policy delivery system in most member countries.
Some countries such as Spain, Germany and Austria have effectively included EU structural funding within their own national funding mechanisms while others such as UK and Sweden have set up different delivery systems for administering the funds and delivering programmes. Despite the mode of delivery, considerable policy transfers from the EU to the national regional policies can be seen.
Conclusion
The EU is an integration initiative that has proven to be very effective and structured. There are however many different national policies that can affect the overall effectiveness of the EU cohesion objectives. It can be seen that national territorial policies can hinder the effectiveness of the EU regional policy.
The thrust to achieve cohesion can lead to internal disparities as countries neglect some areas in order to succeed in others. The EU regional policy is concerned with overall development, reduction of poverty and increase in the GDP of member countries. Some urban policies in member states can steer resources to favored regions neglecting other areas.
Another problem is the employment measures taken by member states that fail to contribute to the regional convergence of the community. The EU strives for the promotion of entrepreneurship and creation of SME’s within the member states in order to improve international competitiveness and economic stability.
Apart from this, national policies have been unable to deal with the decentralization of power required for the EU to prosper and the promotion of convergence.
National policies have been unable to meet the main objectives set out during the formation of the EU. The main problem however has been that national policies hinder cohesion within the EU. There is a greater need for a comprehensive policy that understands and conforms to the needs of the EU and fosters convergences of the member states without fostering regional disparities.
References
Boldrin, M. & Canova, F. 2001. Inequality and convergence in Europe’s regions: Reconsidering European regional policies. Economic Policy, 32, 207-245.
Cini, M. 2003. European Union Politics. London: Oxford University Press.
Ehlermann, C. 1995. State Aid Control in the European Union: Success or Failure? Fordham International Law Journal 184, 1212-1229.
Krugman, P.R., & Venables, A. 1999. The Spatial Economy: Cities. Regions and International Trade. Cambridge MA: MIT Press.
Midelfart-Knarvik, K. & Overman, H. G. 2002. Delocation and European Integration: is Structural Spending Justified? Economic Policy, 35(10):323-359.
Steinen, M. 1991. State Aid, Regional Policy and Locational Competition in the European Union. European Urban and Regional Studies, 41(1):19-31.
Wallace, H. & Wallace, W. 2000. Policy Making in the European Union. London: Oxford University Press.
Wilson, T. 2000. Obstacles to European Union regional policy in the Northern Ireland borderlands. Human Organization, 122, 33-38.
Most countries have found it difficult to do business isolation without being in an economic bloc. The difficulties experienced have escalated the need to form economic group. Economic integration occurs when countries experience pressure to join forces and operate under a common market with a controlled business environment.
Such pressures have resulted into several economic integrations such as European Union, Common Wealth, OPEC, and African Economic Community among others.
All these integrations have had many positive impacts on the member countries. As member countries, trade freely amongst themselves or under certain tariffs agreements, they accrue benefits. This essay strives to illustrate how the European Economic Community has affected European businesspersons.
Impact of European Custom Union
A customs union is a kind trade bloc where member states operate in a free market while they form uniform external tariffs. The European Union is a custom union that allows members to operate freely amongst themselves. Chalmers (11) asserts that the European Union treaty required all tariffs to be abolished among the member countries.
This treaty obliges members to operate freely or to form a free market zone. In addition, the treaty advocates free movement of goods, services, capital and labor within the member states.
There was also an agreement to harmonize trade laws where differences existed (Chalmers 12). Further agreements ensured that private competition barriers did not transcend national barriers. Similarly, countries fiscal regimes were not to discriminate imports.
The inclusion of the above agreements in the treaty affects business both positively and negatively. Any business that conducts its affairs within the market enjoys an increased market size. Due to the free market agreements, European organizations can freely sell products across Europe without any restrictions.
On the same note, in case a firm wishes to import raw material from another member country, it can do so cheaply since all import levies are withheld. The same applies to labor and capital market operations. The free market makes it easier to outsource them at local cost.
On the other hand, the custom union has exposed many businesses to stiff competition from firms from other countries within the union, which are also keen or willing to take advantage of the lucrative local market.
The intensification of competition drives local market prices down while firms are forced to produce quality products to avoid losing market. All this means an increase in production cost that reduces the profit margins of the organization. Thus, as the market conditions become tight and tighter, only the best in the market will survive; the rest of the organizations will be compelled to close down.
Right of Establishment
The European Economic Community has also elaborated vividly on the requirements of establishing a new business entity. The treaty provides that any business firm has the freedom of establish or open branches in any member country (Alberto 44). He further says that business organizations have the rights similar to those of natural persons within the Community.
However, the “golden share” provision curtails the freedom of establishment (Alberto 45). The “golden share” allows the member to deny formation of any organization that infringes the health, public policy or national security. Apart from the above excuse clause, the rest of the treaty reinforces the argument against any discrimination against establishment of the organizations.
Moreover, a firm is only required to attain all the requirements of establishing organization in the host country just as local firms do when they apply. Once these conditions are met, the organization is to be allowed to run freely in its entire lifespan.
The freedom of establishment provides opportunity for the firm to set up operations in the host country. The freedom of establishment reduces the strenuous processes that limit ease at which organization are set up.
Without this treaty, foreign firms would be subjected to many rigorous bureaucratic formalities that ought to be met. Once these restrictions are abolished it becomes easier for a firm to relocate and establish in some other country speedily. Hence, any businessperson from the EU has the liberty to open an organization, merge or acquire a new firm without any restrictions anywhere within the EU.
It is worth noting that the freedom of establishment attracts potential business to ventures in any worthwhile market. For instance, when a firm in Germany wants to expand to serve its customer in France, it can easily do so without engaging in many formalities.
On the other hand, many aspiring business will establish their branches in any area that offers a comparative advantage. For instance, if France is rich in iron ore, firms dealing with iron apparatus in Portugal will open branches in France to acquire competitive edge.
On the same note, mobility of capital would imply that there would be stiff competition that will only allow well-established firms to survive while the weak organizations will be absorbed or crippled down.
The other issue that will affect business operations is technological mobility. Stable organization will invest on modern technology in order to increase production.
The augmented production will earn the firm economies of scale enabling the firm to sell its products at lower prices i.e. to assume low price leadership. Hence, local firms will find it difficult to retain their share of the market unless they develop better production mechanisms to offer substantial competitive impetus.
History, Law and Taxation
European Union has a long history that cuts back to the 1950s. Throughout this period, the union has been restructuring itself to improve trade status as well as amending law and taxation policy that govern its operations. All the changes have been effected to improve business transactions and eliminate trade barriers. In 1972, the EEC opted to amend taxation law because Italy was imposing tax on the exports of art treasuries.
This was contrary to the EEC treaty and it was felt that amendment was inevitable to evade such instances in the future. The countries were therefore compelled to abolish completely any customs that existed amongst themselves (Moens and Trone 383). Kiekebeld (65) points out much controversy played out due to countries imposing taxes that contravened the EEC treaty.
It was agreed that no independent country was entitled to enforce any tax on exports without consulting with other members to determine whether such a move was indistinguishable with the agreed provision of the treaty.
The historical amendments to the EEC law and taxation policy have enabled improvement in free movement of labor, capital, goods and services. The changes effected overtime have only increased mobility of factor components.
Therefore, all business managers and investors ought to seize the opportunity presented to increase their market dominance. However, failure to realign operations and business processes would mean that the organization faces imminent danger of being brought down due to stiff competition.
Conclusion
The formation of the European Economic Community has presented numerous business opportunities to business managers to diversify organizational operations. The reality of the custom union not only provides unexploited potential but it also facilitates realization of cheap outsourced resources.
Similarly, the right of establishment reduces the bureaucratic rigidities that obscured easier establishment of firms in other countries. However, all these opportunities present untold challenges to dismally performing firms since they cannot withstand stiff competition associated with it.
To avoid being wound up due to intensified competition, managers and entrepreneurs need to invest in best practices i.e. better and effective production methods.
Works Cited
Chalmes, Damian. European Union Law: Text and Materials. Edinbough: Cambridge University Press, 2006.
Kiekebeld, Ben, J. Harmful Tax Competition in the European Union. Alphen: Kluwer International, 2004.
Alberto, Maria. European Economic Law. 2nd Ed. Alphen: Kluwer Law International, 2009.
Moens, Gabriel and Trone, John. Commercial Law of the European Union. Heidelberg: Springer, 2010.
The European Union was established in 1957 shortly after the Second World War. It was formed with an objective of bringing together the European countries since the European leaders did not want to suffer a war such as the World War II ever again.
The past decade has been an extraordinary period of success in numerous ways. The European Union has accepted twelve new states; this happened as a result of the amendment of the structures of leaderships and procedures of voting provided by the Lisbon treaty which eased the decision making process between the member states.
The original number of members who began the European Union was only six. Nowadays, the union has expanded to 27 members. The new Europe’s common currency was widely accepted and relatively stable in its initial decade. However, 2010 came in with numerous challenges.
Financial contagion concerns and accumulated public debt in Greece, Italy, Spain and Portugal created a great debate over how better the fiscal policy of member states should be coordinated. Normally, proposals opposing national budgetary policy infringement against the government of French and favoring unified enforcement standards under the growth and stability pact flooded the government of British.
Simultaneously, critics were afraid that the programs of fiscal austerity in Germany and Britain would bring about the policies of beggar-thy-neighbor. By this time, the European Union had plans to merge with other member countries to form an economic union.
These particular steps lead to various economic concerns. financial crisis and unfathomable political concerns were behind these apprehensions. Some argued that this step of amalgamation would lead to the rejection of the European Union with basis of being un-democratic. The others stated that the European Union was enlarging far beyond its formal capacity to establish the economic union.
The defense secretary, Michael Portillo, mentioned that he was not ready to see the defense policy being controlled by Brussels. In actual fact, the same reasons that initially led to the formation of the European Union were the same ones that spearheaded the formation of the economic union.
Current solution to Greece Financial Crisis
The Greece crisis arose shortly after the European Union had resolved its constitution crisis. The problems appeared when the crisis in U.S. sub-prime mortgage triggered a cascade of financial disruptions. This occurrence rose the question of the endurance and strength of Europe. By the year 2010, everyone watched Greece, the 2009 deficit of Greece increased from 10% to almost 14% of GDP.
The Greek sovereign debt was lowered by the standards and poor’s to a (BB+) junk bond status, the two year yields on Greek sovereign debt hit the mark of 10%, rendering the Greek to approach the IMF to receive a financial bailout.
Currently, the leaders of the European Union have summoned a consensus to use both the international monetary fund and funds from Europe to assist unstable financial situation in Greece. The major crisis in Greece was brought up by numerous years of spending without restrain, failure to establish financial reforms and unrealistic contemptible lending.
These mistakes exposed Greece in a bad way during the global economic downturn. Greece has a national debt of $ 413.6 billion which is far much bigger than the country’s state budget. Today, Greece is viewed by foreign investors as a financial “black hole”.
These debts have led to the scrapping of pre-election promises and induced unrealistic and harsh spending cuts. Currently, Greece is in a major euro zone breach on deficit management rules; this is actually a bad show for the euro.
The Greek government has embarked on cutting on spending and is already implementing austerity measures with an objective of slashing the deficit by 10 billion Euros which is equivalent to $13.7 billion.
Slovakia’s role in the crisis
The major setback for the advancement is Slovakia, this is the last country in the block to rectify the consensus and assist in making the deal to bailout Greece from the financial quagmire. Today, the greatest concern is whether the politicians in Slovakia will vote positively on the agreement to stabilize the European fund in helping Greece.
Future of the EURO, threats and Mistakes made by EU
The crisis in Greece has raised many questions concerning the future of the euro. According to case study, it is clear that the EU and the euro zone are having a real trouble. The existing economic structures of nowadays are definitely flawed and will not withstand the forces and pressure they are heading to anyway. For Greece, several things are to be put in place to improve the current situation.
First, the banking systems need to be fixed: many banks in Europe are highly undercapitalized, fatally over-leveraged, and exposed to numerous debts. The most important and vital steps that the government should take to rescue the euro is to carry out careful stress test accompanied by capital injections.
In simple terms, the European government must take a bold step of putting the risk back to its own place. It means that the European economy should be given back to the bondholders. The Greece crisis is a major blow to the European Union, but the euro will be in a position to withstand the tide if there are well-calculated strategies.
While there is an abundance of studies that focus on Brexit, most of the focus on the United Kingdom (UK) rather than discussing the European Union (EU), the EU is an international organization, which is considered a unified trade and monetary body of 28 countries, including the UK, which aims at making the members of the union more competitive in the global arena. While the EU is one of the primary actors of Brexit since it participates in the negotiations as one of the parties, it can be considered as the primary reason for the start of the process. Due to an increase in powers of the EU government, the UK experienced considerable economic, social, and political complications. Additionally, the EU’s technocratic and neoliberal approach to policy-making produced disinterested, elite-led EU institutions. The EU reacted to the matter by acknowledging its priorities by assessing the needs of its member-states. The paper argues that the EU needs to design and implement reformed policies to maintain stability in the region.
Introduction
In 2016, the world was shocked by the result of the public vote held in the United Kingdom (UK), which favored leaving the European Union (EU). After the referendum, the UK initiated a process of exiting the EU that is commonly known as “Brexit.” Even though there are those who support the matter and those who hate it, not a single person in Europe remained untouched by the matter. Is this for real? Is it even possible to leave the EU? Will other countries follow? These are only a few of the questions that have been around since the referendum day. However, the complexity of the procedure and negotiations making these questions linger.
Even though the process started three years ago, it is still underway due to the complexity of the matter and failure to find an agreement on the crucial points of the deal. The event had considerable implications for the UK, the EU, and the rest of the world. While there is an abundance of studies concerning Brexit, most of them focus on the UK, and there is hardly any discussion about what are the implications of the matter for the EU. The present paper offers an analysis of the EU’s role and reaction to the event. First, it offers background information defining Brexit and the EU. Second, the report discusses the EU’s role in Brexit, viewing the EU as a cause and as an actor. Third, the paper describes the economic, political, and social reactions to the event. The report concludes that the EU needs to change its policies in order to maintain stability in the region.
Background Information
Brexit
Brexit is a word used to identify the process initiated by the UK to withdraw from the EU. The word “Brexit” is a blend of two words, “British” and “exit,” which is widely used by the press. The process officially started in 2016, when the referendum made it clear that a small minority of 51.9 percent voted for leaving the EU (Hobolt, 2016). The referendum split the nation almost in half, where the majority felt that the EU threatened the autonomy of the UK and obstructed its long-term economic development (Ramiro Troitiño, Kerikmäe, & Chochia, 2018). Even though the long-term results of the process remain unclear, the short-term outcomes were almost immediate. According to Hobolt (2016), the market reacted to the event quickly, with the British pound falling against the US dollar to a 31-year minimum, while “over 2 trillion dollars were wiped off shares globally” (p. 1259). Moreover, British Prime Minister David Cameron resigned almost immediately, and Scotland signaled that in the case of Brexit, Scotland was ready to leave the UK (Hobolt, 2016). The initial reaction to the event was immediate; however, everything slowed down.
Even though the process started in 2016, it is still in progress since it was extended several times. According to Ramiro Troitiño et al. (2018), the original deadline was on March 29, 2019; however, the UK and the EU failed to reach an agreement on vital points. In particular, there is no certainty about the border with the Republic of Ireland, which led to several revisions of the initial Brexit Deal proposed by Theresa May (Ramiro Troitiño et al., 2018). After May’s resignation, Boris Johnson, the new Prime Minister of the UK, offered a new deal that was to be approved on October 17, 2019 (Ramiro Troitiño et al., 2018). The final agreement proposed that the UK should leave the customs union, while Northern Ireland will remain an entry point into the EU’s customs zone. The agreement also described the rights of the UK and the EU citizens and the fee the UK was to pay to the EU (Ramiro Troitiño et al., 2018). Before moving to the discussion of the event, it is also beneficial to learn about the European Union.
European Union
The EU is an international organization, which is considered a unified trade and monetary body of 28 countries, including the UK. The purpose of the organization is to make its members more competitive in the global economic arena (Dinan, 2017). The EU allows the free flow of people and goods between the countries with random checks. While members of the EU retain a certain degree of autonomy, they are to oblige to the regulations promoted by the centralized government. Three bodies govern the EU, including the EU Council, the European Parliament, and the European Commission. The EU council proposes new legislation; the European Parliament discusses the suggested laws and decides if they should be approved, and the European Commission is responsible for executing the policies (Dinan, 2017). The EU also uses a unified currency, the Euro, which all the members pledged to adopt. However, nine of the countries, including the UK, have failed to do so. In order to appreciate the long-term relationships between the UK and the EU, it is beneficial to consider the history of the organization.
The EU has a long history of successful economic and political cooperation with its member-states. The concept of the EU was initially introduced in 1950 when the concept of a European trade area was formulated (Dinan, 2017). The prototype of the EU, the European Coal and Steel Community, had six founding members, including Belgium, France, Germany, Italy, Luxembourg, and the Netherlands (Dinan, 2017). Since then, many treaties have increased the number of members and the sphere of influence of the organization. One of the most recent agreements, the Treaty of Lisbon, has considerably increased the power of the European government by expanding its jurisdiction on border control, immigration, and judicial cooperation in civil and criminal matters (Dinan, 2017). The growing centralization of power and economic stagnation made many UK citizens concerned since it threatened the sovereignty and prosperity of the nation (Dinan, 2017). Therefore, the country started considering leaving the union to remain financially and politically empowered.
EU’s Role in Brexit
EU as a Cause
As stated above, the EU’s excessive interventions into political and economic matters of its members were the primary reason for mistrust and fear of the UK citizens. The cornerstone of the matter became the EU’s migration laws, which required the members to admit immigrants from various non-European countries for ethical reasons (Ramiro Troitiño, 2018). Such policies became harmful for most of the countries in many aspects. For instance, before the vote, UK citizens suffered from financial problems caused by permissive immigration laws (Tilford, 2015). In fact, the real wages of UK citizens, especially those on low wages, fell sharply since immigrants take the majority of low-paid jobs (Tilford, 2015). Moreover, the UK’s lagging in housing has increased the prices of real estate since more people were arriving from other countries to compete for new homes (Tilford, 2015). Finally, increased immigration pressured the National Healthcare System and the education services (Tilford, 2015). Even though all the reasons listed above may be the result of the UK’s government being slow to react to a rapidly changing environment, the public blamed the immigrants, and consequently the EU, for these problems.
So, why is immigration is such a crucial matter for citizens of the UK? Empirical research by Matti and Zhou (2016) aimed at analyzing different sets of characteristics elaborated on an alternative view on the reasons for Brexit. According to their study, the primary reason for the vote being slightly favoring exiting the union was the aging population of the country (Matti & Zhou, 2016). The scholars argue that “an aging UK population seeking isolation from the national, racial and religious diversity associated with globalization” (Matti & Zhou, 2016, p. 1134). Even the findings are not consistent with the ideas of other experts; it gives further insight into the EU’s role in the matter. Since centralized governments are unable to meet all the diverse needs of the population, they are prone to being bias and favor one group of stakeholders. According to Ramiro Troitiño et al. (2018), Germany enjoyed most of the economic and social benefits of the EU’s policies, while citizens of other countries felt underserved. However, the EU’s role in Brexit is not limited by being a cause of the matter.
EU as an Actor
Apart from being the reason for the matter, the EU is also one of the primary actors of Brexit. The organization represented one of the competing sides during the negotiations about the terms of the treaty. The aim of the EU in the negotiations is to serve the citizens of its member-states by creating job openings and securing economic stability and development (Ott & Ghauri, 2018). Therefore, the organization had to consider the public opinion of all its members to identify its strategy during the negotiations. According to Stockemer (2018), 80% of European society wanted to maintain close economic cooperation with the UK. At the same time, the majority of the European countries believed it was necessary to maintain control of the country’s borders. However, the UK’s objective was different from that of the EU’s, and a deal had to be found. The EU is an actor in the situation since it is actively searching for a consensus through repetitive negotiations.
Even though the final agreement about Brexit was achieved in October 2019, after the referendum, it was unclear whether the UK would leave the union. Since the long-term effects of the matter were unclear and the short-term implications were disastrous, the EU did its best to stagnate the dialogue between the parties. Stockemer (2018) argues that due to the complexity of the situation and lags in the negotiations, Brexit may not happen. Even though the EU’s attitude about Brexit is uncertain, the press suggests that the organization does not want the country to leave the union (Ott & Ghauri, 2018). Therefore, the stagnation in Brexit’s progression may be due to the EU’s silent opposition to the matter. In other words, the organization acts to support its interest by inaction and obstructing the development of the deal. Will that be effective? Unfortunately, no one knows, but the EU was quick to react to the event.
EU’s Reaction to Brexit
Political Reaction
The reaction to Brexit around the globe hardly differed since it came as a shock to the international society. The EU was not an exception, and the majority of officials were confused in their first assessments of the event (Hobolt, 2016). Soon, the confusion was changed by alarm about the future of the organization. The reason the UK is leaving the union was a rise of neo-nationalistic moods and populism of the politicians (Corbett & Walker, 2018). Has Europe not learned the lessons of fascism and World War II? Such tendencies in society were considered to be evidence of the poor social policies of the organization. Research conducted by Corbett and Walker (2018) suggests that the reason for social disturbance is the EU’s technocratic and neoliberal approach to policy-making. Therefore, the de-politicization of European integration and limitation of liberal democracy have produced disinterested, elite-led EU institutions (Corbett & Walker, 2018). The organization acknowledged its need to change the imperatives to social justice and democracy. In short, Brexit has made the EU realize that reformation of the approach is needed to avoid further complications and loss of other member-states.
As a result, many programs have emerged aimed at stabilizing the situation in the EU. According to Galbraith (2016), the hope for the organization lies in the Democracy in Europe Movement 2025. The purpose of the movement is to create a pan-European democratic and social-democratic alliance, which will establish a popular democracy on the European level (Galbraith, 2016). If no adequate reform follows, the implication for the political influence of the organization may fade away. That will create geopolitical space for new parties to increase their impact on the region, including the US, China, and Russia (Galbraith, 2016). The refugees will continue to create immigration problems since there are conflicts in Ukraine, Syria, Iraq, Iran, Libya, Yemen, and Afghanistan. Since the EU understands that, it began to change its priorities to address the political problems demonstrated by Brexit.
Economic Reaction
The EU’s economic sector was also quick to react to Brexit. The UK is one of the world’s largest economies, and the loss of such a member is sure to destabilize both parties. Therefore, the EU’s reaction was to quickly establish the priorities in economic relationships between the two parties. At the same time, the EU estimated the possible implications of the event and made the UK pay the so-called “diverse bill” of £39bn (Ramiro Troitiño, 2018). Even though this money will not compensate for all the possible losses associated with Brexit, it may be used to elaborate and execute new policies to stabilize the economy inside the EU.
Will Euro survive? The experts say that under current circumstances, it will not (Galbraith, 2016). One of the possible ways of rebuilding the Eurozone is to make Euro prevalent in the North while letting weaker economies have their own currencies (Galbraith, 2016). Even though there are opinions that Euro will collapse altogether, it is favored by a minority of experts and is hardly believable. At the same time, there surely will be small changes that will have extensive consequences.
The EU had to make minor arrangements to ensure the efficient operation of the economy. Moreover, the EU has prepared to move the European banks from the UK since Brexit will end the free movement of persons to other European nations (Galbraith, 2016). The absence of free movement of people will limit the access to banks of EU citizens since they will not be able to go to the UK without a visa. Moreover, neither the goods nor the money will be able to travel without additional fees. The decision about where the banks will move will rebalance the economy inside the EU. According to Galbraith (2016), the primary beneficent of the matter is expected to be Italy, since it “has done the most, if quietly and so far without great effect, to bend the fiscal rules to try to staunch the ongoing decline of its economy” (p. 165). At the same time, France and Greece are likely to suffer from considerable economic implications of the rebalance (Galbraith, 2016). The EU will make changes in the balance of powers to ensure long-term financial stability. However, economic implications are minor compared to social reactions.
Social Reaction
After the start of Brexit, the EU has faced many challenges and issues in various spheres apart from the economy. The article by Mazzilli and King (2019) reveals the problems of migrants from the EU living in the UK. According to the article, the majority of the Europeans living in Britain became angry and felt betrayed by the Brexit vote because it was clear that UK citizens voted not against the EU but against the immigrants (Mazzilli & King, 2019). The EU had to recognize and address the problem in order to maintain stability in the region.
The EU members were concerned about the future of scientific collaborations among British and European scientists. Vousden (2019) argues that the majority of success in research is due to close relationships between the nations of the EU. Therefore, the EU has emphasized the importance and expressed a desire to keep working together with the UK when it comes to science (Vousden, 2019). In other words, the EU reacted to Brexit by quickly setting new priorities for preventing social issues and the problem with collaboration in science.
Conclusion
Brexit has enormous implications for the UK, the EU, and the rest of the world. The EU can be viewed both as a cause and an actor in regard to the matter. Brexit demonstrates how neo-nationalistic slogans, populism, and anti-globalization moods can lead to disastrous social, economic, and political consequences. The event revealed the inadequacy of the EU’s neoliberal and technocratic policies. The EU needs to develop a plan for sustaining the growing tension in the region to prevent other member states from leaving the union since many Europeans feel betrayed and angry about the event. The primary strategy for addressing the matter is by creating an alliance that will establish a popular democracy on the European level. Additionally, the EU needs to restructure its relationships with the UK in order to preserve close relationships in the scientific and economic spheres.
References
Corbett, S., & Walker, A. (2018). Introduction: European social policy and society after Brexit: Neoliberalism, populism, and social quality. Social Policy and Society, 18(1), 87–91. Web.
Galbraith, J. (2016). Europe and the world after Brexit. Globalizations, 14(1), 164–167. Web.
Dinan, Desmond. (2017). Europe recast: History of the European Union (2nd ed.). London, UK: Red Globe Press.
Hobolt, S. B. (2016). The Brexit vote: A divided nation, a divided continent. Journal of European Public Policy, 23(9), 1259–1277. Web.
Matti, J., & Zhou, Y. (2016). The political economy of Brexit: explaining the vote. Applied Economics Letters, 24(16), 1131–1134. Web.
Mazzilli, C., & King, R. (2019). “What have I done to deserve this?” Young Italian migrants in Britain narrate their reaction to Brexit and plans to the future. Rivista Geografica Italiana, 125(4), 507-523.
Ott, U., & Ghauri, P. (2018). Brexit negotiations: From negotiation space to agreement zones. Journal of International Business Studies, 50(1), 137-149. Web.
Ramiro Troitiño, D., Kerikmäe, T., & Chochia, A. (2018). Brexit. Cham, Switzerland: Springer.
Stockemer, D. (2018). The Brexit negotiations: If anywhere, where are we heading? “It is complicated.” European Political Science, 18(1), 112-116. Web.
Tilford, S. (2015). Britain, immigration and Brexit. CER Bulletin, 30, 64-65.
Vousden, K. H. (2019). Brexit negotiations: What is next for science? EMBO Reports, e48026. Web.
The European Union was born in 1956 but during the last decade of the twentieth century and, especially, in the new millennia, it has been constantly expanding. New member states have been joining the Union time after time. The last cases were that of Bulgaria and Romania in 2007. At the moment speaking it is the largest customer consuming market in the world with more than 498 million people in 27 countries. There are also several other countries who aspire to join the union in the near future, thus rising the potentiality of the consumer market even more. For our company, it would be of great benefit for our company if it manages to expand its activities within this huge market. But in order to fully develop our activities within the borders of the union, we have to better understand how it functions. It is imperative to know the rules and regulations (the laws) that govern the market conduct of the European Union. It would be advantageous for us to conduct business in as many areas as we can of this huge market. But, as we will try to explain below, the conduct of business has not to be identical or similar in different parts of the Union. It varies from country to country and sometimes it creates confusion on whether which law is supreme ‘on the land’, the European Union law or the local member state law for governing the conduct of business within a specific area. Such is the case with our company with its new branches in the member states of the union, Flavia, Albia and Viridia. Of course, each of them has specific characteristics which we will consider case after case.
Customer protection is on the kernel of the new regulations imposed by the European Commission and European parliament. The quality of product and customer health and satisfaction are highly protected by the laws of the union. Several cases demonstrate that businesses find it difficult to find their way in the European market due to these tight customer protection laws. The European Commission imposed a fine of several million of Euros to the American-based company due to what it considered anti-competition behavior. The case was eventually brought under the judgment of the European Court of Justice. During the process, the European Commission defended its position by claiming that Microsoft corporation had inflicted damage on customers with its anti-competition behavior (Hines, 2004, p. 3).
It is this fact that must make us more prudent about the way we conduct business in the member states we want to expand in order not to commit the same mistakes as other companies before us. What the board must understand is that in the union the concept of protectionism of customers and fair competition is far more important than the American based principles of free trade.
Nevertheless, as acclaimed by the European Union official website:
“The single market is one of the European Union’s greatest achievements. Restrictions between member countries on trade and free competition have gradually been eliminated, with the result that standards of living have increased. The single market has not yet become a single economic area. Some sectors of the economy (public services) are still subject to national laws. The individual EU countries still largely have the responsibility for taxation and social welfare.
The single market is supported by a number of related policies put in place by the EU over the years. They help ensure that market liberalization benefits as many businesses and consumers as possible.” (“The European single market”, 2009)
The European Union has a policy of allowing single member states to regulate on their own their markets in accordance with the principles of the Union as established in the Treaty of Lisbon. thus, the member states can apply several additional rules for their internal local markets as long as these rules are in accordance with the principles of the Union. Such is the case of Flavia. As mentioned above, customer protection is at the heart of the European Union and it was reassessed in the treaty of Lisbon (“The European single market”, 2009). Thus, Flavia has the right to ask for businesses to pass the tests of its own inspecting consumer goods body. It is imperative for us to ask for a certification of our products by this governmental body of Flavia if we want to sell our products there. Certification in another European member state may be rejected by Flavia and have no legal obligation upon its territory but it surely will influence positively on the decision the Flavian inspecting of consumer goods body. This is the recommendation for the managing body of the company. It is best to send sample products to be tested for quality with the local authorities of Flavia before beginning any marketing campaign or any other relevant activity. Along with the sample test products we can send any other product certificate of any other member country of the Union we have. Since the principle of customer protection applies to all of the member states of the union, then the inspectorate at Flavia could take this as a positive sign for our quality of products.
The second case is that of Albia. This country adopted a law in 2004 stating that printers and print cartridges may only be sold in shops specialising in printer supplies in order to ensure product quality. As a result, our company cannot sell its products in general electronic stores or department stores in Albia. Here we can file a case against this member state of the Union because the ruling to differentiate our products to a specific category of stores could damage our business. Just like in the case of Microsoft against the European Commission, here we can claim that this rule is damaging our business and ultimately the consumers by not offering them the possibility to find properly these products if they want to. They will have to go only to a specific store instead of finding them on general electronic stores.
The third case is that of Viridia, which in 2003 prohibited the sale of print cartridges unless they contain Viridianink, a form of ink available only in Viridia. The Viridian government considers that all other forms of ink cartridge pose health risks, although scientific opinion is divided on this point. This is the same case as with Albia but even stronger for us. We can send our cartridges to be verified if they are compliant to the European Union health standards and if the results are positive then we can file a case in the European Court of Justice against Viridia for not compiling with the principles of the Union and damaging the consumers by limiting their choice of ink usage.
References:
2009. The European single market. Europa online, Web.
Hines, M. 2004. Microsoft pays EU in full. CNET News, Web.