A2 External Influences
The European Union
The EU
A free trade area with no internal barriers to trade and a common external tariff.
Free movement of good/services, labour and capital.
The aim is to develop economic and political stability and prosperity
History 1945 - Conclusion of 2nd world war, aim to avoid future wars 1952 - Creation of European Coal and Steel Community (ECSC) -
Treaty of Paris (Belgium, Holland, Luxembourg, Italy, France and later West Germany)
1957 - Treaty of Rome - formation of a free trade area with a common external tariff, original 6 enjoyed strong economic growth
1973 - UK, Ireland, and Denmark decide to join. 1992 - Single Market the European Community - development of a
common market with free movement of all factors of production 1993 - Maastricht Treaty- creation of European Union to develop
greater unity 1995 - Membership up to 15, Austria, Finland, Greece, Portugal, Spain
and Sweden joining at various points 1999 - Euro adopted by 11 countries 2001 - Greece adopt Euro 2004 - New members = Cyprus, Czech republic, Estonia, Hungary,
Latvia, Lithunia, Malta, Poland, Slovakia, and Slovenia. 2007 – Bulgaria and Romania join
The Single Market
Building one internal market was intended to launch Europe as an economic superpower
As member states got rid of obstacles to trade, companies would start to enjoy new economies of scale
More cross-border competition would wipe out inefficient firms
Institutions of the EU The European Commission - proposes EU policy and
legislation.
The Council of Ministers - Agrees to adopt legislation.
Both institutions can impose their will upon the union through: Regulations - which must be obeyed and primacy over national
laws Directives - require members to introduce legislation in their
parliaments They may also make recommendations and give their opinion
The European Parliament - Enforces the legislation
Student Task: Who are the current members?
Write a list of what you feel are the 27 EU members.
The European Union members
The European Union
Trade Flow: exports
$813bn imports
$801bn
Candidate countries
Croatia
Former Republic of Macedonia
Turkey
Albania, Bosnia, Kosovo, Montenegro and Serbia are expected to join in future
Implications of the EU for business
Value of membership depends on level of trade with EU
Removal of barriers to the four freedoms of movement people, goods, services, and capital within the EU
Barriers were: regulatory, technical, legal, bureaucratic, cultural and protectionist (e.g. tariffs)
Social Chapter
Element of Maastrict TreatyAims to harmonise working conditionsEnsures workers can: Join a trade union and take industrial action Be consulted and informed about company plans Equal treatment for males and females Minimum wage and maximum working hours Minimum 4 weeks paid holiday
Student Task: Produce a spider diagram with the advantages and disadvantages of this social chapter (10 minutes)
The EU - Positive implications
Bigger market - 450 million
Economies of scale opportunities = lower costs and more specialisation
More competition = more efficiency + innovation
More opportunities for mergers and joint ventures
Encourages inward investment - looking to avoid external tariff of EU
Greater mobility of labour = bigger supply
Free movement of factors of production and investment = set up in cheaper locations
The EU - Negative implications
Increase in legislation
Increased competition in Europe and domestic market
Skilled labour and investment may be attracted to other countries
Low wage rates in countries such as Poland = fierce competition as costs lower
The EuroThe Euro
Introduced on 1 January 1999
12 countries have adopted it and currencies were fixed together
These 12 countries are called the Eurozone
The Euro
Positive implications -
No exchange rate transaction costs
No uncertainty with fluctuations in exchange rates
Price transparency = easy comparison
Easier planning
Further union with rest of EU to become part of large economic super power
The Euro Negative implications -
40% of UK trade with non-EU countries
Loss of ability to decide interest rates and control business cycle
UK business cycle not in sync with EU
Firms have opportunity to put prices up
Costs of changeover, pricing and wage systems
UK is a net importer for EU
Need more focus on improving own countries services
A2 External Influences
Pan-European strategy and EU expansion
Objectives
By the end of the lesson all students should have:
Revised their knowledge of the EU and the Euro
Understood what a pan-European strategy is
Discovered the importance of emerging markets such as Eastern Europe along with the positive and negative implications
Pan-European Strategy
An approach which regards all markets within Europe as similar to one another( a ‘European’ market)
Discussion point: Will this be a successful approach? (discuss in pairs)
The aim is to achieve economies of scale
Evidence suggest markets across Europe are differentiated and fragmented
Cultural and language barriers
Emerging markets and Eastern Europe
Emerging market - an international area that has the potential to grow and develop in terms of productive capacity, market opportunities and competitive advantage.
E.g. Eastern Europe with the introduction of capitalism after the fall of communism in late 1980s
EU Expansion to the East - Potential candidates
Joined in 2007
Expansion into the East of Europe
At least six countries are waiting in the wings to join the European Union.
Bulgaria and Romania have signed accession treaties and have now joined in 2007
Croatia and Turkey started accession talks on 3 October 2005. Turkey could complete them in 10 years, Croatia in five.
Expansion into the East of Europe
The other four Balkan countries have been told they can join the EU one day, if they meet the criteria.
These include democracy, the rule of law, a market economy and adherence to the EU's goals of political and economic union.
BBC Video - http://search.bbc.co.uk/cgi-bin/search/results.pl?tab=av&q=Eu%20membership&recipe=all&scope=all&edition=d
Student Activity
Read the case study on Tesco expanding in Europe (page 387) and complete the following tasks: (25 minutes)
1. Produce a spider diagram detailing the benefits and disadvantages of establishing supermarkets in Central and Eastern European countries of the EU. (see page 386 for guidance)
2. Essay style question: To what extent might Tesco’s success be even greater if the UK adopted the Euro. (15 minutes)
Positive implications with Eastern Europe (an emerging market)
New market with large population
Big opportunities for new products and well established brands
Cheaper labour
Less stringent government control
More labour - UK currently experiencing skill shortage e.g. BUPA hiring carers from Poland and Czech Republic
Negative implications with Eastern Europe (an emerging market
Lower incomes
Immature political systems = unstable and unpredictable trading conditions
High inflation = low confidence in currency
Difficult to raise finance in these countries
Poor infrastructure