International Economics Essay

7656 words - 31 pages

International Economics International EconomicsEnlargement and Deepening of EUThe original six members established the European Community in 1957: West Germany, France, Italy, Netherlands, Belgium and Luxemburg. The main reason behind this unification was a specific response to a series of problems, which confronted a group of countries in Western Europe in the immediate aftermaths of 1945. Unification offered Western Europe a means of strengthening itself against both super powers united states and USSR. Stanley (p.30) argued that "the main motivation for European Community integration...is the argument of scale, or put more bluntly, the attraction of sizeism" In 1945 it was easy to relate ...view middle of the document...

"...Increased size of the internal market combined with the relatively higher growth of the CEECs (productivity gains over the medium term in the applicant countries will be higher than in the EC-15...)" (p.141) The extension of zone of peace, stability and prosperity in Europe will enhance the security of all its peoples and this is supposed to attract large volumes of portfolio investment. In the process of enlargement of the Union both group of countries joining, and the EU-15 are going to be faced with trade creation from a cheaper source and trade diversion from a cost producer. "the applicant countries trade mostly with existing members..." (p.142) so from this we can understand that the enlarged Europe is going to gain more through trade creation than loose by facing trade diversion. Andurton in 1995, suggested that "existing countries are afraid that their markets will be swamped by cheap imports from these countries...specially the agriculture and textile markets, where the EU has traditionally imposed high tariff barriers to protect domestic economies". It is not only the cheap imports they should be afraid of it is also the influx of cheap labour from CEECs which can create a disequilibria in the labour market. Another dynamic economic gain arises from enlarged Europe is increased competition between firms. An enlarged Europe will eliminate restrictions on trade between EU-15 and the new member countries. Domestic industries will therefore face greater competition than before from firms in other member countries. Competition is believed to encourage innovation, reduce costs of production and reduce prices. Anderton contradicts this point by saying "...competition is reduced in the long run. Competition will derive the least efficient firms out of business...over time, the oligopolistic nature of competition will be recreated" (p.561) Movement of labour and capital can also pose problems. According to Anderton "there is a fear that capital would move to newly joined cheap labour countries whilst workers would move in large numbers from these countries to existing member countries, attracted by much higher wages" After looking at several sources on advantages and disadvantages of enlargement, the threats to existing members are mirror images of the opportunities to applicant countries. Even Breuss (2000) said in his report "the enlargement debate in the EU and in the Central and Eastern European countries centres on different priorities, the earlier the better...in the east, while the west takes cautious attitude towards enlargement". Some economists like Avery and Cameron argue the point that "The Economic gain to be reaped from enlargement will depend primarily on the conditions in which the Single Market is enlarged". According to Breuss time is an important factor in the process of enlargement, and his main argument is all in all earlier enlargement will bring the poor CEECs more rapidly to EU standards. Enlargement will involve an...

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