European Management and Business Strategy

Topic 1: The Development of the EU
Assess the extent to which integration in the European Union has been economic. Why has economic
policy played such an important role in the development of the EU?

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Answer

Development of the European Union

The European Union (EU) consists of 27 members from Europe. The origin of the organisation is traced in the 1950s between European steel and coal communities who were in constant wars. It is a political and economic union where it has developed an internal market for various goods and services through the standardised laws and regulations among the members (Chalmers, Davies and Monti 2019). The policies of the organisation are about free movement of goods, people, capital and services among the member states. Member countries maintain standard guidelines in the trade, agriculture and fishing sector to enhance the common objective of free movement. There has also been the enactment of legal laws for the administration of justice to home affairs. There is no restriction on travelling, making it easier for the flow of people among the member countries. 

In 1992 a monetary union was established which came into existence in 2002, the monetary Union aimed to improve the trade policies of the movement and the usage of a common currency. The monetary Union consists of 19 member states. With time other countries have been able to join the organisation like the 2009 Lisbon treaty, which was amendments to the European Union constitution to allow members to join. European Union is represented to the World Trade Organization (WTO), which promotes economic and trade growth (Richardson 2015).  EU has played an essential role in improving the financial states of the member countries and also the nominal gross domestic product (GDP). Member states have lower inflation rates which are enhanced by free movement across the borders. 

Economic policies have played an important role in the development of European Union because there was partisan support brought about by the policies put in place. Prior to the formation of EU partisan support was associated with political but with the formation of the EU, partisan support was achieved through the economic policies. The market and price stability was the main objective of the formation of the Union which was achieved through sound economic policy (Braniff 2011). The economic policies that were put in place enabled more countries to joining strengthening the Union. It is through the policies that we see more countries participate in free trade. The policies were important to minimize the trade wars that could arise, for example, wars that were early witnessed in the steel and coal region.

Policies of the European Union

European Union is commonly characterised by its single internal market which was among the main objectives during formation. The internal market involves free movement of capital, goods people and services in the members’ states. Also, there is the customs union which requires the implementation of standard external tariffs. When the goods are already circulated in the market, they are not subjected to discriminatory taxes, custom duties and import quotas. The legislation and policies are well articulated in the constitution, and this enhances the trade relationships between countries (El-Agraa 2011). The free movement on capital targets on more manageable investment in share capital and also buying of properties in other countries. Free movement of people means that there is reduced administrative requirements on the boarders; hence people can work and live freely in other countries. 

 Various policies help in governing and ensuring that the objectives of the organisation are made. The policies are in line with the goals of each member state. In the movement, there is a policy on the economic empowerment of member countries. The monetary policy aims at stabilising the use of Euro. With the help of a common currency, there is completion among the companies. The European Central Bank regulates the interest rates applied by all financial institutions in the member countries. The standard interest rates will be easier for companies that need financial assistance to access with the same rates in different countries. The bank also regulates the inflation and exchange rates which means there are no additional costs incurred when doing transactions in other member countries. The European Central Bank, through the Union, pays member states subsidies on development projects intending to improve the living standards of the people and also the economic value of the state.

There is enhanced financial supervision in the Union.  There are three authorises governing the supervision aspect they are; European Securities and Market Authority, European Banking Authority and European Insurance and Occupational Pensions Authority. These authorities can check on the financial obligations of the members. The securities exchange board is responsible for supervising the aspects of the capital and securities performance on the market. The authority also oversees that all the companies participating in the market are treated equally and doing the right businesses. Through this board, there has been improved and secure trading of securities (Maudos and de Guevara 2015.). The Insurance and Occupational Pensions Authority has been on the frontline on fighting for better laws about the occupation. Different occupations have been recognised in member states. Also, there has been the application of standard procedures and rates when pensions are applied—the European Risk Systematic Board, which analyses risks in the markets and advice on the way forward. There has been excellent economic stability since risks are analysed, and internal controls are put in place to minimise the occurrence.

The Union is concerned with the industry and entrepreneurship among the members. There has been an emphasis on the need for industry development and also encouraging the growth of Small and Medium-sized Enterprises (SME). With the growth of digital industries across the members, there will be enhanced trade relationships. There have been programmes that have developed to aid in the establishment and functioning of the SMEs. Through SMEs, there has been increased economic growth and innovation. There have been policies which encourage the operation of small and medium-sized enterprises (Cini and Borragán 2019). With the right economic systems already put in place, many SMEs have been formed. There has been an immense improvement in innovation and also the digital economy. Many enterprises have been able to embrace the digital economy since its cost-effective.

The agricultural policy is critical in the European Union. This is evident by the passing of the Common Agricultural Policy (CAP). The policy focuses on the increasing food certainty to the members, increasing agricultural production and also improving the living standards of the farmers. The policy too focused on stabilising the farming markets and ensuring fair prices for both farmers and consumers. The policy also looks on ways of minimising on overproduction of agricultural products so that the supply does not exceed the demand. The policy allows subsidies and direct monetary aid to be offered to cut the cost experienced by the farmers (Richardson 2015). For example, farmers in less fertile areas are given financial assistance to support their cattle rearing compared to farmers from the productive areas in central Europe. Good packaging has seen many consumers be satisfied and happy for the example Finland people are delighted when they see food packaged in Finnish even if it was imported from other EU member countries.

There has been a policy on the infrastructure whereby the organisation is working on improving the inter-country transport system through the Trans-European Networks (TEN). There have been various projects to improve the infrastructure coverage in the Union they include, Brenner Base Tunnel and the Strait of Messina Bridge. There has been a notable improvement on the railway, roads, harbours and airports in the member countries. Also, the synchronising of the railway network by the European Railway Traffic Management System (ERTMS) has enhanced security and efficiency of railway services to the people (Dall’Erba and Fang 2017). With developments in the infrastructure across the countries, there has been ease of accessibility to different parts. Perishable agricultural products can be transported promptly to reach the consumers in time. Good infrastructure has enhanced the operation and movement of goods across the borders.

The policy on security has been emphasised by the members, which focuses on the internal matters of Europe. There is a standard enforcement agency called Europol, which allows police authorities among member states to cooperate and solve crimes affecting the region (Kaczorowska-Ireland 2016.). Europol focuses on international crimes like illegal immigration, drug trafficking and money laundering. The cooperation between law enforcement authorities like judges and prosecutors has led to improved justice delivery and also saves time. The presence of rapid forces to help when there are an emergency or terror attacks as helped in mitigating difficult situations among members. There is a possibility of formation of common security across the member countries of the 

Union.

An acceptable policy on labour force has been a good relationship between member states. With the development experienced in world trade, the economic recession, there has been an increase in the unemployment cases (El-Agraa 2011). The Unions seeks to keep jobs for its people and find more jobs to cushion the shortage. There is an excellent investment in the education system and research in forecasting any changes in the economy in the forcible future. The Union offers grants to education and research to make it easier to access education systems for better service delivery. During the economic recession, there are subsidies granted to building offering large scale jobs. With better terms on the labour policy, there is the easy availability of the services which has common laws across member countries.  

Impact of the European Union

The European Union has played a significant role in the development and growth of the world economy since it is the second contributor to the world economic income. The Union has brought about the economic development of the member countries. The member countries have had a significant improvement in the national per capita income and the national gross domestic product, which has enhanced development of other sectors in the country (Chalmers, Davies and Monti 2019). With no application of trade tariffs on goods and services, also the free movement of people, capital, goods and services, there has been an improvement in economic growth. Trade tariffs increase the cost of imported goods which, when used in production it increases the cost of production, making the price to go high. The EU has no tariffs on the goods; hence the cost of production will be cheaper.

There is the growth of small and medium-sized enterprises. The Union has a strategy that helps in the development of SMEs, especially in developing member countries. Growth of SMEs help in reducing unemployment and also plays an essential role in inflation (Wallace, Pollack, Roederer-Rynning and Young 2020). The Union gives subsidies and direct monetary aid to countries so that they can develop the SMEs system. The development of SMEs has had an increase in innovation and inventories in the economic world. Through SMEs, the tax base of the country is increased hand also it encourages competition from peer companies. Small and medium-sized enterprises adapt fast to the changing economic situations; hence they are suitable for financial cushioning during the recession. 

There is a reduction in financial market risk. The use of common currency by members has led to reduced risks in currency exchange fluctuations. The use of different currencies is associated with fluctuations in the exchange process. Business loses money since there is value difference and the exchange rates change from day to day (Cini and Borragán, 2019). The EU central bank is instrumental in tracing the interest rates applied by financial institutions. The use of similar interest rates across member countries has helped businesses to access financial loans in different countries. Availability of financial loans has helped in the expansion of other companies leading to economic growth in the country.

There has been enhanced unity among the member countries. The union advocates for co-existence and harmony among the member countries in the Union. The joint police cooperation among member states has helped in fighting injustice and crimes. This has reduced the rate of crimes and fostering unity (Maudos and de Guevara 2015). The Union states that there should be no conflict in the affiliate countries, making it clear on the importance of unity.  It has discouraged inequality by stopping rich nations like Germany and France in controlling the affairs of developing countries. Each country has a say in the matters concerning the Union and economic empowerment.

The Union has experienced various setbacks in its functioning. With free movement of goods services people and capital, countries have little power on either to agree or not (Braniff 2011). This has reduced the economic powers of the state in implementing the regulations that favour them. The rules set for members are hard to achieve; for example, Iceland could not join fishing trade due to the regulations set.

Another challenge is the restriction of members by regulations and laws stipulated in the Union. With such laws, the powers and responsibilities of affiliated members are limited. Countries are not able to fully utilise their economic capabilities. Also, the rules make it hard for members who want to exit voluntarily from the Union. For example, in 2016, after the United Kingdom referendum, they decided to leave the Union. Still, they had to sign an agreement for the successful exit, which will be effective from January 2021 (Leruth, Gänzle and Trondal 2019). Considering all the formalities and regulations set, it becomes tough for and time-consuming for a country to exit the organisation.

In conclusion, the European Union has played a vital role in the economic growth of the member countries and the world at large. There has been immense growth in the financial and banking sectors since the Euro is the second traded currency after the Dollar. The Union has enhanced unity among the affiliates and non-member countries (Dall’Erba and Fang 2017). The trade tariffs, which was not applied to goods, led to lower prices of goods encouraging consumption. The policies that were put in place by the Union like the agricultural policy led to sufficient production of food commodities. Through the Union there was market stability and also prices due to free movement. The European Union was able to achieve its set objectives.

 

                                       

 

                                       References 

Braniff, M., 2011. Integrating the Balkans: Conflict Resolution and the Impact of European Union Expansion. IB Tauris,

Chalmers, D., Davies, G. and Monti, G., 2019. European union law. Cambridge university press.

Cini, M. and Borragán, N.P.S., 2019. European union politics. Oxford University Press, USA.

Dall’Erba, S. and Fang, F., 2017. Meta-analysis of the impact of European Union Structural Funds on regional growth. Regional Studies, 51(6), pp.822-832.

El-Agraa, A.M., 2011. The European Union: economics and policies. Cambridge University Press.

Kaczorowska-Ireland, A., 2016. European union law. Routledge.

Leruth, B., Gänzle, S. and Trondal, J., 2019. Exploring Differentiated Disintegration in a Post‐Brexit European Union. JCMS: Journal of common market studies, 57(5), pp.1013-1030.

Maudos, J. and de Guevara, J.F., 2015. The economic impact of European financial integration: The importance of the banking union. The Spanish Review of Financial Economics, 13(1), pp.11-19.

Richardson, J., 2015. European Union: power and policy-making. Routledge.

Wallace, H., Pollack, M.A., Roederer-Rynning, C. and Young, A.R. eds., 2020. Policy-making in the European Union. Oxford University Press, USA.