The European Union
The European Union (EU) is a collection of countries, which aim to co-operate on trade, social affairs and certain laws.
Globalisation & the EU
The EU allows free trade within member states
Throughout the world a number of trading blocs have been established e.g. NAFTA Free trade allows all companies to trade on an equal basis
To compete many countries outside the EU protect their own industries and have created tariffs and quotas for exports from the EU
The EU has created more trade within its member countries but can make trade more difficult between non members E.g. in 2005 / 2006 there were issues regarding quotas of clothing and shoes imported to the UK from China as they exceeded EU limits
This video explains how the European Union affects you
The creation of the single market within the EU means that goods, services, capital and labour can move freely between member states. The single market means that no tariffs or taxes can be levied on goods / services traded within the EU.
By creating a single market many firms were able to exploit economies of scale making efficiency and cost savings. It also allowed businesses to specialise as even those operating in a niche market had a far greater customer base to market their products to.
- Consumers have lower prices, more choice, and opportunities for work throughout the EU
- Businesses have more consumers and are able to exploit economies of scale
- In reality worker mobility is not as great as hoped
- Many businesses still see barriers
- Monopolies may be formed – these are an example of market failure
- The euro is the common currency used by 19 of the 28 EU member states.
- The euro was introduced in 12 countries on 1 January 2002, replacing their old currencies such as the franc (France) and lira (Italy).
- To convert to the Euro is expensive for member states
- To convert to the Euro a country has to meet entry qualifications
- One of the benefits of the Euro is it creates price transparency in the market – this can be a negative effect if the cost of factors of production are greater in one country
- The Euro means that it is easy for consumers to compare the price of products so makes markets more competitive
- Cost savings as no money has to be converted
- As most of UK trade is with Europe, it makes sense to have the same currency
- Stable exchange rate, so businesses can plan
- Adds to costs (all machines, computers, tills) will have to be converted to the new Euro
- Loss of the Pound – sovereign identity of UK will be lost & shoppers will have to be re-educated
- Decisions made may not benefit all countries
Enlargement of the EU has resulted in many new countries entering who have lower rates of GDP, higher unemployment and lower economic growth than the original member states.
- There is concern that high unemployment and low wages in new entrants will lead to migration of workers to old member states
- There is also a concern that the old member states may have to economically support the newer members as there are large regional disparities in wealth
Within the EU different regions have differing economic development
- Unemployment, inflation and interest rates are different within countries
- Some areas – especially the newer eastern European countries have lower GDP
- This regional disparity can result in large differences in standards of living throughout the EU
The main aim of the EU is to become the worlds strongest knowledge based economy in the next six years
Due to the new entrants older members thought they would lose their power – this lead to the Nice treaty where voting rights were agreed for all member states where the older and more powerful members such as Germany, UK, France and Italy had the most votes and smaller and newer members such as Malta and Estonia had the least votes
- There have been discussions regarding the harmonization of taxes between EU countries
- In the future there is a movement towards common economic and social policies for member states
- Common Agricultural Policy was an EU policy focused on agriculture
- Looked at providing subsidies for farmers based on how much they could produce
- This has been scrapped and now concentrates on sustainability, food quality and safety
Economic problems in member states can influence other members
Pan-European unemployment will have a massive influence on the economies of all member countries If unemployment is regional it means that people can move for jobs however if it is across the EU there is not this problem
The central aim of the European central bank is to achieve stable prices therefore some members have adopted direct inflation control as a target of financial policy.
EU Aspects of Global Problems
- Global events and problems impact the EU
- The increased pressure on the environment has influenced the EU as they have to meet environmental targets
- The EU have their own competition commission who investigate unfair practices, they are currently investigating Tesco
- Interest rates – by joining the Euro countries lose the ability to set their own interest rates
- In the UK the Bank of England controls interest rates as a way of keeping inflation at a target rate
- If the Bank of England were unable to control interest rates they may have problems controlling inflation