Assignment Sample On International Business Environment of European Union

European Union

It is an organization of 27 countries and it was developed by Maastricht Treaty on 1st November 1993. It is an economic and political union between European countries that makes policies related to economies, societies, laws and security. European Union is helpful for smaller nations to face challenges such as economic growth and negotiations with larger countries (Dedman, 2010). It is the largest trade bloc in the world that has more people than the US and it exports and imports more goods than any other country in the world. The European Union is the first general purpose international organization that was created by collecting of some policies under the European communities (Morrison, 2002). The result of this pooling was an innovative type of organization that was formed by the voluntary transfer of some powers by its member states. Member states decided to exercise their powers jointly at higher level.

Origin of European Union

The European Union was not developed through one treaty, but it was result of gradual integration since 1945. After the Second World War, The Europe faced great damage and the continent was divided into communist, eastern bloc, soviet dominated and democratic western nations. So, the European leaders believed that they had to work together to prevent another devastating conflict.
The ECSC union
After the world war, European countries wanted peace and solutions to economic problems. In Europe, the raw material was available in one country and industry to process that material in another country. To solve this problem, six countries developed a community in 1952 that was known as European Coal and Steel Community. In this community, six countries are involved such as Germany, France, Italy, Holland, Belgium and Luxembourg (Nugent, 2006). The main aim of this community was to control the coal production and steel industries in member states, so, one state could not build up a single powerful industry without the knowledge of others. To manage the ECSC, a group of supranational bodies were created that included council of ministers, a high authority, a common assembly and a Court of Justice to legislate, develop ideas and resolve disputes (Kaiser, Leucht & Rasmussen, 2008). So, these key bodies were helpful to emerge EU in future.
European Economic Community
The success of the ECSC promoted member countries to sign two new treaties in 1957 that was called treaty of Rome. This treaty created two new organizations such as the European Atomic Energy Community (Euratom) and the European Economic Community. The European Atomic Energy Community was developed to cooperate on the peaceful use of nuclear energy by member countries (Faber & Orbie, 2007). Along with this, the European Economic Community was created to develop a common market among all member countries in which goods and services can move freely without any tariffs. The main aim of this organization was to continue economic growth and avoid the protectionist policies of pre-war Europe. Through this, trade in common market had increased five times since 1970.
Apart from this, the Common Agricultural Policy (CAP) was designed to increase the farming in member nations and decrease monopolies. At the same time, it was the most controversial policies because it was based on government subsidies to support local farmers (Kaiser, Leucht & Rasmussen, 2008). The EEC had several supranational bodies such as a council of ministers to make decisions, a common assembly to give advice, a commission to put the policy into practice and a court to control the actions of member states. In 1965, the treaty of Brussels merged the three organizations (EEC, ECSC and Euratom) to create European communities.

Development of European Union

In 1970s and 80s, the membership of European communities were expanded. In 1973, Denmark, UK and Ireland joined the EC and in 1981, Greece became a member of the EC. In 1986, Spain and Portugal joined the community and in 1990, a united Germany became the largest country in the European community (Watts, 2008). In 1979, the European Monetary System was developed to give grants for underdeveloped areas and nations. In 1987, the Single European Act (SEA) designed that was a step further of EEC. Now, the European Parliament members had the right to vote on legislation and issues.
The Maastricht Treaty and the European Union
On February 1992, the Maastricht treaty was signed and it came into action from 1st November 1993. It changed the EEC into European Union. It had various changes in supranational bodies that were based on three pillars: the European communities, a common foreign or security policy and involvement of member nations in justice and home affairs (Grilli, 1994). Along with this, EU created guidelines for the development of a single currency in European countries. Member states vowed to create a political union and introduce a single currency “Euro” in their nations that replaced the currency of 12 European countries in 2002.
Apart from this, currency and economic reform in European countries were driven by the fact that economies of US and Japan were growing faster than Europe. It is because of objections from poor nations who wanted to create more money from the union and larger nations who wanted to pay less. As a result, a compromise situation was occurred that had closer economic union and creation of a single market (CVCE, 2012). On the other hand, the Maastricht treaty also developed the concept of EU citizenship that allows any individual of EU countries to establish their business and office in their nations.
At the same time, the EU started to handle domestic and legal matters that produced Human Rights Act but, it created controversy because this act was against of local laws of many member nations. This act had rules related to free movement within EU boarders that increased migration from poorer countries to rich countries (Kaiser, Leucht & Rasmussen, 2008). As a result, the government of member nations was affected and bureaucracy was increased. When the Maastricht treaty came into effect, it faced more objections and passed in France only.
Enlargement of EU
In 1995, Austria, Sweden and Finland enlarged the EU. In 1999, the treaty of Amsterdam focused on various issues such as employment, working & living conditions and social & legal issues. At the same time, the Europe faced great changes because of collapse of Soviet dominated east and emergence of newly democratic and economically weak eastern countries. In 2001, the treaty of Nice aimed to face this situation and various countries entered into special agreements where they joined free trade zones (BBC News, 2012). Along with this, there were discussions to modify the CAP because Eastern Europe had larger population that was involved in agriculture but the financial issues prevented the change in the CAP. In 2004, ten nations were joined while Bulgaria and Rumania joined in 2007. At that time, it was rule that agreements were passed with majority voting but national veto power remained on tax, security and other important issues.
Treaty of Lisbon
In 2007, the Lisbon Treaty was signed that aimed to install an EU president and Foreign Minister and expand the legal powers of EU through developing the existing bodies. At initially, it was rejected by the voters of Ireland. In 2009, all 27 nations had ratified the process and it came into effect (Faber & Orbie, 2007). Herman Van Rompuyn, the Prime Minister of Belgium was the first president of European council and Baroness Ashton from Britain was the ‘High Representative for Foreign Affairs’. At the same time, there were many political opposition parties and politicians in the ruling parties that opposed the treaty and EU has various issues in the politics of all member countries.
So, the European Union is working effectively to define itself and develop details of policy making and upholding. It has developed great strides in making a more unified European continent. Now, it became as one of the world’s economic superpowers. Along with this, there is a great peace among all member countries and they are in strong position to defend themselves from external attacks or threats (CVCE, 2012). Apart from this, citizens have liberty to live, work and move within the EU boundaries. At the same time, EU has faced some challenges that affect its commitment to democracy, opportunity and improving the life of all citizens in the boundaries of EU.

Current economic profile of European Union

After the global economic crisis in 2008-09, the economy of EU has moderate GDP growth in 2010 and 2011. At the same time, a sovereign debt crisis in the euro zone occurred in 2011 that influence the economic and political conditions. After the adjustment programs between EU and IMF in Greece, Portugal and Ireland, risks to growth remains same with high public debt, aging populations, fears of debt crisis contagion and onerous regulations (Herrmann, Krajewski & Terhechte, 2013). For the response of this, euro zone leaders increased funding levels for the temporary European financial stability facility up to $600 billion and made loan terms favorable for crisis faced countries. Along with this, 26 to 28 member nations indicated their motive to do a “fiscal compact” treaty to increase long term budgetary discipline and coordination. In 2012, the European Central Bank committed to implement a bond-buying program for euro zone member nations for fiscal and structural reforms, reduce their borrowing costs and restore confidence in the euro zone.

(Source: OECD Fact book statistics)
Apart from this, Global finance also provided economic report of European Union including GDP data, economic, financial and trade information and population overview of EU. According to Global finance, the total gross domestic product at market prices in euro area is 9,298,403millions of euro in 2011 and for 2012, it is forecasted that the GDP at market prices is 9,269, 467 millions of euro. Along with this, it is forecasted that general government debt is 88.2% of GDP in 2011 (Global Finance, 2013). In addition of this, population age structure in EU is 0-14 years (15.44%), 15-64 years (67.22%) and 65 years and above (17.34%).  In EU, life expectancy at birth in males is 77.32 and in females 83.27.
On the other hand, the main agriculture products in EU countries are wheat, barley, sugar beets, wine, grapes, oilseeds, dairy products and poultry & fishes. It is world’s largest and most technologically advanced, so, there are various kinds of industries are developed such as ferrous and non-ferrous metal production, petroleum, coal, cement, chemicals, aerospace, pharmaceuticals, rail transportation equipments, construction equipment, shipbuilding, machine tools, electrical power equipment, electronics and telecommunications equipment, fishing, food and beverage processing, furniture, paper and textiles (Index mundi, 2013). The EU countries have exported various commodities such as machinery, pharmaceuticals, motor vehicles, fuels, plastics, iron and steel, wood pulp and paper products, aircraft, furniture and alcoholic beverages. The EU countries have imported several commodities such as fuels & crude oil, machinery, pharmaceuticals, vehicles, chemicals, precious gemstones, aircraft, plastics, textiles, metals and ships (Index mundi, 2013).

Scenarios for future development of EU

The future development of EU means the period of ten years (2010-2020). It started at the time of Lisbon treaty came into effect (December 1st, 2009). This treaty refers to major international legal document that marked a long period of structuring and development of the EU. The complex socio-political relations, international relations, economic and financial crisis influence the decisions of the EU, so, it necessary for EU to adjust with changing conditions of the world (Bjarnason, 2010). The EU faces many challenges that affect its development in the future. At the same time, the euro area faces the biggest challenges in its history such as systematic crisis, political attempts to overcome the future of Economic and Monetary Union, European integration and condition of Europe in the world.
With the help of main driving forces that influence the future development of the Economic and Monetary Union, a number of different scenarios were developed (International Policy Analysis, 2013). The four major scenarios are following:

  • Muddling through the crisis
  • Break-up the euro-zone
  • Core Europe
  • Completion of the monetary union through a fiscal and political union

Crisis management is important to solve the euro-debt and economic crisis. The measures that are adopted by EU for many crises proved inadequate and exacerbated the symptoms of the crisis. In many European countries, this made itself as dramatic intensification of the social situations, high unemployment rate, economic recession and increasing frustration among broad segments of the population in Europe (Collyer, 2011). In this situation, daily crisis management and alternative long term solutions would be useful and necessary. Along with this, the scenario method offers the possibility of beyond conventional thinking and developing new horizons. These scenarios sketch various pictures and situations of the euro zone in 2020.
These scenarios were developed for military strategic planning, but it starts to implement in business, politics and civil society. Scenarios offer various possible and realistic pictures of the future of the EU. At the same time, these are not helpful in decision making and they don’t convey a clear message. The scenarios are ranging from the collapse of the euro zone, through continuing to muddle, establishing a core Europe to completion of fiscal and political union in the European economic and monetary union. These different scenarios are emerged by different driving forces.
Muddling through the crisis
In the year 2020, the EU still faces ongoing crisis that started in 2010. Most of the southern European countries still require rescue packages and the European Central Bank keeps on buying their public bonds because the borrowing cost is so high. Along with this, the resources of the European Stability Mechanism are still inadequate, so, there is always a risk of sovereign default (International Policy Analysis, 2013). The Economic and Monetary Union is still incomplete and unable to ensure growth and employment. At the global level, Europe is a weak region whereas the US and China have managed the financial crisis effectively (Ahearn, Hanrahan, Lane & Becker, 2002). So, the dependence of the EU increases on external partners for financial support.
Along with this, there are various unsuccessful attempts to solve the financial crisis after 2010. The crisis management of the Euro Zone is basically as a muddling through policy. At the same time, the German elections in autumn 2013 brought a change in government due to the participation of Social Democratic Party (International Policy Analysis, 2013). As a result, some changes are occurred such as stronger emphasis on growth and certain relaxation in the rigid austerity policy. But the basic principles of crisis management implemented so far to prevail. The revised stability and growth pact was still face pressure towards the regular reduction of the public debt and structural public deficit. Along with this, fiscal consolidation remains difficult in various member nations because of slow growth rate.
As a result in 2020, access to financial resources remains unstable. Along with this, regulation of the financial system to reduce volatility and pressure is not complete. The rating agencies are still free to interfere in the political area. At the same time, the European financial system’s supervisory bodies remain weak. There are no changes in the European instruments for supporting investment and macroeconomic coordination for growth (Great Britain: Parliament: House of Commons: Foreign Affairs Committee, 2013). There is not a European industrial policy to support European trade policy. Further, the European strategy for growth is limited to complete single market and structural reforms. So, against this background, it is difficult to reduce difference between member nations related to growth, employment rates and investment. Some nations are faced recession, stagnation, emigration flows and brain drain.
Break-up of the Euro-zone
In the year 2020, the European Economic and Monetary Union is divided into different blocs and some countries have introduced their former currencies instead of euro. The European Union is still exists but it has loose alliance that influence free trade by protectionist measures in member countries (Smith & Grant, 2003). In some of these countries, anti-European and nationalist-populist movements have come into power. At the same time, in poorer countries, many strategic assets are bought up by non-European countries that reduce Europe’s control over its own production chains.
The crisis management within the Economic and Monetary Union that started in 2010 continued in the same way and leads to worst situation. Regulation of the financial system to reduce volatility and pressure was deal with resistance and agreements. Along with this, the European financial supervisory bodies were weak (International Policy Analysis, 2013). In the issuance of public debt, differences in borrowing costs across the member states were so high and resources of the European stability mechanism were so low. In 2020, the differences among the European countries related to growth, employment and investment have increased. Some countries are trapped by deep recession, high unemployment and strong emigration flows that worsens the situation.
The president of the European commission might be elected by the European parliament but his powers are limited due to weak financial and political instruments for solving the issues. Further, the lack of participation by member states and citizens in decision making increases hostility for Europe (Piris, 2012). In some countries, anti-European and populist parties are in power that challenge the Union and search alternative economic and political partnership with other countries such as Russia, China and Middle East. The disintegration of the European Union leads to a global recession.
Core Europe
In the year 2020, the EMU is completed by smaller group of member nations under the new framework in which non-euro zone members and some euro zone members are not included in the Union. The European Union has main function related to free trade zone (International Policy Analysis, 2013). The core group has developed fiscal union and wants to develop a political union but some EU members are behind of these developments. When the crisis in Europe is increased despite various strategies to solve this, then an antagonistic movement is emerged (George, 1998). Along with this, some member nations are faced unemployment, recession, emigration flows and anti-European and populist come into power. So, the differences among member nations exist related to growth, employment and investment. Member nations believed that crisis could be solved through cooperation and development of fiscal union to save the euro.
In 2020, the fiscal union is implemented and regulation of the financial system is developed that provides more financial stability and focuses on the needs of real economy. European supervisory bodies think that banking with responsible lending and borrowing is required but inter-bank lending within the group is difficult because of different borrowing costs. In the core group, the budgetary process is developed, so, there is complete coordination between national budgets and community budgets (International Policy Analysis, 2013). There are no changes in the budgetary process outside the group. The budget of the EU exists in same size and has inappropriate resources. European commission has weak financial and policy instruments to solve and prevent problems. Core nations in the EU face challenge of competitiveness because of their high social standards. But it is expected that core group could serve as a locomotive and solve the crisis situations in other nations.
Fiscal union is completed
According to this scenario, in 2020, fiscal union is completed in the EMU and saving rules are developed for countries that faced crisis situation. The euro zone builds a more consistent EMU to coordinate with external bodies. The euro becomes a reference currency that attracts financial resources across the world (International Policy Analysis, 2013). The several attempts to solve the crisis situation proved insufficient, so the situation remains worsened. Along with this, a revised stability and growth act increase pressure on member nations to reduce their public debt and public deficits. Member nations reached at certain level of indebtedness with implementation of a European redemption fund and joint debt management. It strengthens the long term sustainability of welfare systems.
In this scenario, in 2020, investment, growth and employment opportunities are supported by European instruments, community programs, community budget resources, loans, guarantees & private project bonds, pension funds and taxation sources. These new sources joined with European industrial policy, structural reforms and single market to develop smarter, greener and more inclusive economy (International Policy Analysis, 2013). It is because more organized and competitive European production chains are able to obtain the potential of the European single market and global markets. To improve the macroeconomic condition in the European economy, the macroeconomic surveillance process is used that is joined with stronger resources for implementation of the structural funds.

Highlight the critical factors

In 2030, Europe will remain a great power but the present conditions are not favorable for the Europe. At political and economical level, the stakes are high, so, the future is uncertain for the Europe. The European economy faces current euro zone crisis that influence its productivity, growth, R&D and employment (Eurativ.com, 2012). From 2010, the leaders of the EU have taken necessary actions and introduced reforms, new instruments to manage the crisis situation in euro area, but more integration is required to address the debt crisis and structural problems in the future.
On above four scenarios, “fiscal union is completed” scenario is good and favorable for the future development of the EU. It is because in this scenario, fiscal union is implemented to face the crisis situation in euro zone. After that, euro zone can strengthen its external position and euro becomes an attractive currency all over the world. It can attract financial resources across the world. Along with this, the direct election of the president of the EU increases the power of European institutions to solve the problems (Krammer, 2013). Member nations and European citizens are involved in the decision making that strengthen the support for European integration and weaken the power of anti-European and populist parties.
Apart from this, opportunities for investment, employment and growth are created through budget resources, bonds, pension funds, taxation and other financing resources. Along with this, social communication and negotiation are increased at national and Euro zone level that helps to align wages and productivity. With the help of this, differences between member nations related to growth, investment and employment are decreased and undeveloped nations can increase their competitiveness and living standards as well as decrease economic and financial deficits (International Policy Analysis, 2013). So, according to this scenario, European Union can manage all its crisis and deficit situations effectively and increase the growth and investment in member states. With the help of structural reforms and European Industrial Policy, the EU can develop a smarter and inclusive economy.

References

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BBC News (2012). Profile: The European Union. Retrieved from: http://news.bbc.co.uk/2/hi/europe/country_profiles/3498746.stm
Bjarnason, M. (2010). The Political Economy of Joining the European Union: Iceland’s Position at the Beginning of the 21st Century. UK: Amsterdam University Press.
Collyer, M. (2011). The Development Challenges and the European Union. Italy: European University Institute.
CVCE (2012). Origin and development of the European Union. pp. 1-3.
Dedman, M. (2010). The Origins and Development of the European Union 1945-2008: A History of European Integration. USA: Taylor & Francis.
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