The EU and the single market Flashcards
(11 cards)
What is the European Union (EU)?
The European Union (EU) is a political and economic grouping that currently has 27 member countries. These ountries have given up part of their sovereignty in exchange for political, business, economic and monetary membership of the world’s largest free trade area. This loss of sovereignty means that the EU (through the Commission, Parliament and Council of Ministers) sets many laws and regulations that control large parts of business activity, economic policies and trade throughout the European Union.
The EU is a single market, what are the main features of a single market?
- No barriers to trade between member states.This means no quotas (limits on number, value or quantities) on imports and exports.
- No tariffs (taxes on imports and exports) on goods and services traded within the single market.
- Free transfer of resources from one country to another. These resources include capital and labour.
- Consistent standards from one country to another (a good, service or professional qualification that is valid for sale or for use in one member state, is free to be sold or used in all member states) .
- Common external tariff on imports into the EU.
Advantages of a single market (EU) for businesses
6
- Increased levels of demand results from access to a larger marketplace.
- Lower costs through increased economies of scale. Larger markets results in larger scale production, lowering average costs of output.
- Freeing of capital markets. Businesses will be able to access the best finance and capital-raising deals throughout Europe.
- Greater employer access to labour markets – workers from all member states are potential employees.
- Growing wealth in poorer parts of the single market could drive future demand.
- Single market legislation has deregulated markets, increasing opportunities for competitive businesses to enter these markets.
Avantages of a single market (EU) for workers and consumers
4
- Increased wealth as trade and competition increases. Lower prices means higher ‘real income’, and increased economic activity leads to more employment.
- Increased consumer choice. There is access to all manufacturers and service providers. Why not take out a mortgage or loan with a German bank if the interest rates offered are lower?
- Greater employment opportunities. For those with ‘marketable skills’ – employment anywhere in Europe is available to anyone living in one of the 28 member states
- EU competition law has increased choice and forced down prices.
What is the single currency?
The Euro
What is the Eurozone?
Those countries that adopted the euro as their currency are collectively known as the Eurozone. This means, for example, that a French business can pay for supplies from any Eurozone country without having to exchange any currency to do so, saving both time and money.
What are two disadvantages of the UK not being in the Eurozone?
- Every time a UK business wishes to change £s into euros it has to pay commission to a bank. Its competitors within the Eurozone do not have this additional cost and therefore have a cost advantage over their UK com
petitors. - When exchange rates fluctuate, there is always an element of risk involved for businesses. The uncertainty created means that UK businesses could lose out if the exchange rate fluctuated and they had to pay more for their supplies than originally anticipated. Eurozone countries dealing with each other have no such uncertainty.
Why have the UK not joined the Eurozone?
The key reason put forward for the UK keeping the £ sterling as its currency centres on the fact that the Bank of England would not be able to set the interest rate for the UK economy. Instead that would be set by the European Central Bank. It is argued that this would then limit the ability of the UK Government to control economic growth and inflation. The raising or lowering of the interest rate in the UK is regarded as a key weapon in the government’s economic armoury. Lowering interest rates to encourage spending has often been a strategy used by UK governments in an attempt to get the economy out of recession. If the ECB decided not to lower the interest rate, or even raise it, then this might prove very bad for UK businesses. Many in the UK feel that losing the ability to manage the economy in this way was a step too far.
Impacts on UK businesses of not being a member of the EU
3
- For large businesses importing and exporting goods and raw materials, variations in the value of the € against the £ will impact on cost-pricing decisions and profitability.
- The single market creates opportunities for producing businesses of all sizes. Meeting member countries’ regulations for imported goods being the same as meeting regulations for domestic markets reduces costs and makes exporting a great deal simpler
- The growth of cross-border trade and removal of customs regulations within the single market have created opportunities for logistics companies to expand their markets, reducing costs at the same time.
benefits of Brexit/ argument for Brexit
4
- Businesses would not be subject to so much regulation/red tape.
- Businesses could be protected from competition
- Some businesses could get government subsidies which are not allowed under EU regulation (e.g. the steel industry)
- Trade deals could be negotiated with countries outside of the EU (e.g.India and China) that might benefit UK businesses.
Drawbacks of Brexit/ arguments against Brexit
- They would not getthe full benefit of the single market; some businesses such as farms would not get the subsidies that they are currently recieving.
- They would not get the benefit of price transparency, lower transactional costs and elimination of uncertainty due to exchange rate fluctuations
- depends on type of business e.g.some businesses export most of their products to the EU
