The European Union

16 perc olvasás
The European Union

Ease of trading. The reduction in the number of customs posts, and the amount of paperwork which is required for goods traded between EU countries, should save businesses time and reduce costs.


The single European currency EUROPEAN MONETARY UNION (EMU) became a reality

in January, 1999 when a single European currency was introduced. At that time, eleven of the fifteen member states of the EU signed up to the single European currency, known as the euro. Four member states of the EU, including the UK, delayed the decision to join the single currency in 1999. They indicated that they would decide whether or not to join at a later date.

In 1999 participating countries fixed their exchange rates so that they could not move against each other and against the euro. In 2002 euro notes and coins were to be available. In order to manage the single currency a European Central Bank (ECB), based in Frankfurt, was established. Amongst other things the European Central Bank is responsible for setting interest rates throughout the eleven participating countries.

It was argued that European Monetary Union would have a number of benefits for businesses within the euro zone:


A reduction in transactions costs:

It is expensive for a business to change currencies when trading abroad. There are administration expenses in exchanging the currencies and possible charges. The costs of exchanging one currency for another are eliminated if all trading between countries is done in euros. For example, a French business exporting telecommunications equipment to Italy will no longer have to convert Italian lira into French francs. It has been estimated that the savings made from the introduction of the single European currency would be between 0.25 to 0.5 percent of national income for a member country.

A reduction in uncertainty:

The uncertainties of trading are reduced for those businesses within the euro zone. It has been argued that greater stability within the euro zone would lead to greater confidence amongst businesses, thus leading to more trade between member countries. One reason for stability is because there is no possibility of exchange rate fluctuations. Fluctuations in exchange rates can make it difficult for importers and exporters to know what price they will receive or have to pay for future transactions. For example, a Spanish business that received the value of 500,000 lire instead of 600,000 for a sale as a result of a fall in the value of the pound will find that its profit margins are cut. Some businesses try to hedge against rising prices by stockpiling stocks of components, which can be expensive. It could also be argued that the control of monetary policy by the ECB would not lead to sudden, large changes in interest rates, for example. The control of interest rates to restrict inflation should also lead to more stable conditions in which businesses may operate. Businesses may also have a greater choice of finance if the euro encourages more investors in stock exchanges.

Transparent prices:

pricing all products and services in one currency makes price differentials for products in different countries more obvious. This may show that a company is offering good value for money in the products it is selling. Companies that charge different prices in different countries may decide to reduce their prices to be more competitive, or to round up prices, which may increase profits. Companies will also be able to see the prices of competitors more easily.

Merger activity:

The introduction of a single currency will make cross-border mergers between businesses in member countries easier. They will each have the same pricing and accounting system, which should help the coordination of the business.


The impact of the ECB:

The European Central Bank’s central role in setting interest rates and controlling monetary policy for all nations within the euro zone could have a damaging effect upon businesses. This is because the interest rates and monetary policy pursued by the ECB will reflect the needs of the member countries as a whole. If there are inflationary pressures in the euro zone the ECB is likely to pursue tight monetary polices, such as the raising of interest rates. However, there may be particular countries within the euro zone which do not have inflationary pressures, but which are seeking to avoid recession. Such countries would also be subject to tight monetary policies, but for them it would be inappropriate. These policies could help drive these countries into recession with damaging effects for business.


Lapozz a további részletekért

1 2 3 4 5

Címkék: Europian Union

Iratkozz fel hírlevelünkre

Értesülj elsőnek a legújabb minőségi tételekről, jegyzetekről és az oldal új funkcióiról!

Sikeres feliratkozás

Valami hiba történt!