Essay on "European Union Single Market Philosophy Is Spelled"

Essay 5 pages (1799 words) Sources: 1+

[EXCERPT] . . . .

European Union Single Market philosophy is spelled out in its four freedoms. These are economic and include the freedom of movement in goods, capital, people and services. The idea, born in the original European Coal and Steel Community of 1953 was to tie Europe together economically to lessen the tendencies toward war that rocked the continent twice in the twentieth century. Essentially, integration equals peace ("General policy framework") because peace is good for business. The movement of capital, people, goods and services is essential for any business.

Certainly, no one can argue that freedom of trade does not have benefits. But how will the deficits affect new and established businesses? Is the EU Single Market still a favorable area to startup business after the crash of 2008 and the beginning of worldwide recession? Jittery investors and entrepreneurs have only to look at Spain and Greece's troubled economies to know that all is not easy in the EU. However, economic troubles can also present opportunities if they are properly exploited. It is the opinion of this author that economic investors and entrepreneurs can approach the EU Single Market with cautious optimism, if the German economic investment model is adhered to EU wide and the Greek crisis does not get out of hand. The EU single market will continue in its half century tradition of economic and social ability, optimizing conditions for business development and market wide trade. Entrepreneurship will thrive, intellectual property protection will foster the development of new goods and services and their unique multinational partnerships between companies that has been developed and will continue to be the hallmark of the EU. These new goods and services will be marketed across national lines and cultural differences.

Strengths:

The single market is basically all about bringing down barriers, simplifying bureaucracy and allowing all of those in the EU (especially entrepreneurs and their startup businesses) to maximize the opportunities inherent in having access to a market encompassing 27 countries and 480 million people. The four freedoms definitely rank up as the strengths of the EU Single Market. As in any customs union, freedom of movement in order to trade is the primary reason for coming together. In practice, this gives individuals the right to start a business in any EU country. For consumers, increased competition leads to lower prices and a much wider choice of items to buy with higher quality. For businesses, business transactions are easier and cheaper across borders ("General policy framework" 2010).

Besides the official advantages, the potential investor needs to look at its hidden ones as well. The biggest of these is the amazing health of the German economy, historically and at present, even given the present economic downturn. In the Hill textbook in Chapter 11, a key component of this strength is accentuated and a component of why the EU single market will remain sound. The example that this author will cite will be Deutsche Telekom. New businesses should follow their example. The German government privatized the company after 1996, selling its shares to the public. This prepared it for the deregulated atmosphere of the EU telecommunication industry regime in 1998. In essence, Deutsche Telekom got a two-year jump on the competition to do what it needed to become competitive. Decisions like this reflect the strength of the German engine of the EU (Hill 2009, 383).

Despite high unemployment and currency exchange issues with regard to the weak Euro, decisions at the recent G-20 Summit in Toronto, Canada would seem to indicate that cautious optimism is warranted with regard to the EU Single Market economy as world leaders pledged to slash government deficits in the most industrialized countries in half by 2013, using flexibility as a yardstick. China demanded and got a "greater exchange rate flexibility" which will allow market forces more to dictate currency exchange rates. All of this in the long-run will be good for business in the EU (Raum and Gillies 2010).

Weaknesses:

While attention has been primarily of late upon Greece, they are not the only countries with weak economies. Clearly, the worst weaklings in the EU Single Market are represented by the countries that make up the PIGS -- a name coined to describe Portugal, Ireland (Italy at times) Greece and Spain. In essence, this seeming rogue's gallery of weak economies would on the surface at least represent a clear and present danger to the health of the business climate of the EU. If Greece were the only country in need of a bail out, it would be kicked out of the market. Instead, by asking for help, it is putting the EU leadership in a bind. If the EU helps out Greece, then countries such as Portugal and Spain with economies only slightly stronger could also demand similar help.

On Feb. 10, 2010, EU officials seemed to be coming up with a compromise plan. However, the harsh terms could keep the PIGS away from the trough, so to speak. Germany and France, whose economies were much stronger, resent giving help under easy conditions and have maintained that the terms to help Greece have to be under "tough preconditions" as described by German European Parliament member Markus Ferber (Raum and Gillies 2010). By demanding these tough terms, the faith in the EU Single Market should mitigate many of the present problems, including a weak Euro. Indeed, countries such as Germany are taking advantage of the weak Euro to export their way out of the recession and prop up their own social welfare system.

However, a key support of the German economic strategy is via hedge funds that have invested in financing the public debt of countries. According to Stephen L. Jen, a portfolio manager of Blue Gold Capital Management, a London-based hedge fund manager claimed that the German banks' exposure to the debt of the five PIGS equals 19% of German GDP (Coy 2010). Prior privatization (as mentioned above), coupled with pragmatic investment in hedge funds in the debt markets in weaker countries such as Greece provide a pragmatic mix that is very German but has become very generally European and now powers the EU as a whole.

It will be interesting to see if the austerity plan of Prime Minister George Papandreou will make a difference. Greece is supposed to issue 4-4.5 billion Euros in T-bills to roll over present debt and prevent a default. If this happens, the Greeks will have staved off doomsday (Strekas and Bartha 2010).

Opportunities:

In terms of opportunities, truly the most superior one is the potential for the EU to be a springboard to Asia, in particular, India. Aiyar Pahlavi speaks of these in a recent Business Standard article. Rana Kapoor, Founder and Chief Executive Officer of YES Bank says that a further opening up of India's banking sector to foreign players will be made very much from Europe, especially by 2015. While this action is primarily centered around Europe's banks, where they go, business follows. So, an export intensive business should do very well (Pallavi 2010).

Threats:

As for threats, the political arena always contains a wild card such as Turkey and the unstable nature of the Erdogan regime and its tilting toward Iran and Syria. In addition, the Greek debt crisis continues to be a concern, even though as indicated above it is likely to be contained with the country's July bond issue. However, if the debt hemorrhage continues, what will be the reaction of the potential lenders? No matter how onerous the terms are and how unreasonable the interest rates, will they continue to bail out Greece for fear that the other PIGS will want space at the economic trough? If they do not, what will the effect upon the strongest economic organizations in Europe such as Germany's hedge funds. So far Germany has beat the odds and played both ends against the middle. The Germans have accomplished this feet on the one hand by using the low Euro to export their way out of the deepest economic downturn in 70 years while also playing the debt market of countries such as Greece to provide safe investments for hedge funds that are running away from leveraged debt based upon real estate investments.

Ironically, Europe's hope may be as profound as the proverbial luck of the Irish. In an article by Arthur Beesley in Irish Times.com, he observes that "political courage, collective ambition and solid pragmatism-all are essential if the union is to survive (Beesley 2010)." For more than 50 years, the EU and its preliminary manifestations in the form of the European Coal and Steel Community and the European Common Market, it has weathered crises and problems. It is the opinion of this author that the EU single market will continue in the half century tradition of economic and social stability, optimizing conditions for business development and market wide trade. Entrepreneurship will thrive, intellectual property protection will foster the development of new goods and services and their unique multinational partnerships… READ MORE

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