International Management Dr.

Thomas Prosser

Thinking about popular representations of the EU...

Thinking about popular representations of the EU...

Lecture structure
I Historical development of the EU
II EU institutions and their functions III Key achievements of the EU and its effects on firms

IV Common criticisms of the EU

V Economic crisis and the future

Historical precedents for European integration

The Roman Empire
The Holy Roman Empire The Catholic church and notion of Christendom

European imperial ambitions of Louis XIV and

Napoleon

Immediate pressures for closer European integration

Germany had invaded and occupied France three

times in seventyfive years by 1945 Experience of two world wars and the Holocaust A European Germany, not a German Europe Thomas Mann Crucial to remember that the primary motivation for the creation of the European Communities was the desire to avoid further European wars

The European Communities

1951 Treaty of Paris establishes the European Coal and

Steel Community and includes France, Germany, Italy, Belgium, Netherlands and Luxembourg European Economic Community and European Atomic Energy Community established by the same countries in 1957 Three communities gain a common set of institutions under the 1965 merger treaty

The European Communities

1985 Schengen Treaty
1986 Single European Act 1992 Maastricht Treaty creates European Union

1997 Amsterdam Treaty

1999 Introduction of Euro 2001 Nice Treaty 2004Enlargement of EU to 25 member states 2007 Lisbon Treaty

The European Union: the key actors

The European Commission
The Council of the European Union The European Parliament

The European Court of Justice (ECJ)

The European Central Bank (ECB) The European social partners (ETUC, Business

Europe, UEAPME, CEEP)

The European Union: the key actors

Enlargements of the EU
1973: Denmark, Ireland and the UK
1981: Greece 1986: Portugal and Spain

1995: Austria, Finland and Sweden

2004: Malta, Cyprus, Hungary, Poland, Latvia,

Lithuania, Estonia, Czech Republic, Slovenia, Slovakia 2007: Bulgaria, Romania

So, whats driving the process of European integration?

The need to guarantee European peace
Economic drivers: free trade, a single currency and a

single market all benefit economic growth The development of an European cultural identity: because (some!) European citizens begin to feel more European, there has been a gradual shift in loyalty to the idea of the EU. Freedom of movement has helped with this.

So, whats driving the process of European integration?

The EU institutions themselves: institutions like the

European Commission have gradually sought to increase their power since their creation. The EU is a common response to globalization: individual member states are less viable in a globalized, competitive world General process of spill-over: because EU institutions have acquired more and more power, firms and national elites increasingly look to them to lobby.

EU achievements: economic integration

Customs Union completed by 1968 no tariffs

between members, common external tariff 1979 Cassis de Dijon case permitted EU to enforce single market 1985 Single Market White Paper (almost 300 barriers to go by 1992) Fiscal barriers, physical barriers, technical barriers 1987 Single European Act Creation of single market by 1992

EU achievements: economic integration

European economic integration has had several

benefits for member states Greater specialization between member states Countries tend to become more efficient as they compete with other member states Introduction of reforms that have made member state economies more efficient

Benefits of European economic integration for firms

Firms able to achieve greater economies of scales
Access to hundreds of millions of consumers Firms tend to become more efficient as they compete

with firms in other member states Creation of Euro-company

EU achievements: the Euro

Euro was established by the provisions of the 1992

Maastricht Treaty In order to join the Euro, member states had to comply with a series of fiscal and monetary criteria The Euro was introduced in January 1999 The first coins and banknotes came into circulation in January 2002

Benefits of the Euro

Trade becomes easier between countries because there

is no longer fluctuation in exchange rates Helps complete the single market Loss of national ability to determine monetary policy/constrains on fiscal policy means that member states are likely to become more competitive Helps create a common European identity and makes travel between member states easier

Benefits of the Euro for firms

Reduction in exchange rate costs
Reduction in uncertainty associated with fluctuating

exchange rates Helps entry into new European markets Increases the ability of firms to compare costs across European sites and to make their operations more efficient

EU achievements: Freedom of movement

The EU has always promoted the rights of citizens in

member states to freely travel to and work and reside in other member states These rights have been guaranteed by a series of Directives 1985 Schengen Agreement abolished borders between countries signatory to it Twenty-six European countries are in the Schengen Zone and it covers over 400 million people

Benefits of freedom of movement for firms

Greatly increased pool of skilled workers
Often decreases wage costs though competition in

labour markets Immigration often helps decrease tax burdens on firms For these reasons firms tend to view immigration positively it is public opinion that tends to be hostile to mass immigration

EU Social Policy
There also exists a body of EU law and policy that

exists to strengthen social rights in member states European structural funds (European Regional Development Fund, European Social Fund) Advanced body of equal opportunities legislation Employment protection legislation that concerns the rights of workers to be informed and consulted, working time regulation, and protection of the rights of atypical workers Advanced body of health and safety legislation

What are the advantages of European social policy?

If there is a common market, then there has to be a

common social policy Prevents social dumping: the lowering of social standards due to immigration and offshoring Idea of common EU social citizenship that is founded on a strong European social model

Implications of European social policy for firms

Often entails a greater regulatory burden many firms

(particularly in the UK) thus oppose much European social policy However it helps firms to coordinate HR policies across European countries Can also be advantageous for firms based in member states where there are high existing levels of social policy regulation

Thinking critically about the EU: a democratic deficit?

One of the key criticisms that is made against the EU

is that it is undemocratic The argument is that power is concentrated in the hands of unelected bureaucrats, and that they have gradually wrested power from nationally elected parliaments This objection has much to it; political scientists have described the EU as less democratic than the traditional nation state

Thinking critically about the EU: does the EU smother us with red tape?
One of the key allegations that is made on the political

right, and particularly in the UK, is that legislation that emanates from the EU places very high burdens on firms It should be noted however that in countries like France the EU is often criticized for its pro-business agenda; the reaction to EU regulation often depends on pre-existing national regulatory traditions Furthermore, the volume of EU regulation has declined in many areas in recent years, and soft law (non-legally binding guidelines) are increasingly popular at the EU-level

Thinking critically about the EU: has it unleashed uncontrolled immigration?

A further critique of the EU (on the political right and

left in many Western European countries) is that it has unleashed uncontrolled mass migration This argument has been made with more and more force since the accession of ten new member states since 2004 Most old member states (with the exception of UK, Ireland and Sweden) imposed restrictions on the entry of immigrants from the new member states But, isnt the EU all about freedom of movement? Particular worries about the future accession of Turkey

Disadvantages of the EU for firms

Increased competition has led to many firms

becoming bankrupted Break up of national monopolies Increased regulation

Crises in the 2000s

EU split over the invasion of Iraq in 2003
French and Dutch voters reject the proposed EU

constitution in referendums in 2005 The sub-prime crisis affects global economies from the summer of 2007 In 2008, real economies begin to be affected and outputs fall and unemployment rates rise

EU sovereign debt crisis

Partly as a result of the economic crisis, several

Eurozone countries were severely indebted by 2008 The yields on Government bonds from many Eurozone countries (the rate at which these countries borrow money from financial markets) went up after a series of strikes by financial markets As a result, three Eurozone countries (Greece, Ireland and Portugal) needed emergency loans in 2010-11 There was a big political backlash against these countries and the EU in general in many Northern European member states

EU sovereign debt crisis

EU sovereign debt crisis

The future
Will the EU be able to weather the current crisis?
If so, will an Eurozone emerge with greater economic

and fiscal powers? How will the EU be able to respond to concerns about its legitimacy? What about future enlargements? Will Turkey and Ukraine enter the EU in future years?

Questions?