The EU and Britain

Some basic facts that will help us during the next two days

Some observations

• Idealism and realism

• Reduce inequalities

• Support similarities

• Accept differences

• Develop understanding

• Look to the future

Changing circumstances

• Knowledge-based economies• High-research economies• Labour turnover• Skills and training• Ubiquitous learning environments• Single Market• Single Currency• Enlargement

Changing Circumstances - 2

• Greater say in international affairs

• Large contributor to development spending

• Increased dependency amongst countries as global trade expands

• EU has 40% of world exports

• Value of EU exports x10 that of Japan and Asian Tigers

Where did it come from?

• The earlier look at philosophy

• Marshall Aid which led to OECD

• 1948 Customs Union within Benelux countries

• 1951 Schumann Plan for Iron and Steel

• 1957 Treaty of Rome – 6 original members

• 1973 UK joins

Origins - 2

• 1989 Delor Report – Single Currency

• 1992 Start of Single Market

• 1999 Start of EU Single Currency – Euro

• 2004 Enlargement to 25 member states

• 2007/8 2 more new members and others have and will apply

• Where will it end?

Single Market- 1

• More later• Free access to market – 400m and rising• Access to factors – integration?• Protection from external competition – CET• Increased competition (Internal)• Drive for efficiency and common standards• Common currency• Transparency of prices

Single Market - 2

• Consumers will decide on price and non-price factors

• BUT – will choice continue to expand?

• Will costs fall?

• Reduced market shares as competition increases = less economies of scale?

• Lack of efficiency as barriers protect?

• Can all tastes be satisfied – too diverse?

Single Market - 3

• Will the marketing mix have to be changed?

• Problems with expansion beyond 25?• So, does it have other less obvious power

to change things?• Greater freedom to move?• End of tariffs, quotas, government

subsidies, harmonise taxes, reduce transaction costs?

Single Market - 4

• We now have to tender for large public contracts

• Will we move towards EU wide qualifications?

• Will decisions become more centralised?

• Will trade creation grow? – replace high cost domestic production with imports from a more efficient EU partner?

Single Market - 5

• Will trade diversion increase – switch purchases to high-cost suppliers?

• If we are to increase economic welfare then internal producers will have to be as efficient as external producers?

• Does a Customs Union offer dynamic market conditions? Inelasticity of demand and supply of commodities affected by CET

• Will EU reduce monopoly power?

Single Market - 6

• Will EU increase drive for R and D and innovation?

• Will it push for economies of scale and what of diseconomies?

• Will growth be ‘balanced’ – peripheral v core areas?

• Structural problems?• Increased mobility of labour• Power of mergers/takeovers?

Single Market - 7

• What of price fixing?• What of predatory pricing?• What of need to monitor corporate behaviour

and application of Social Charter and Health and Safety?

• Where will free factors, such as labour and capital flow?

• Will EU unemployment rates vary?• Can all new members afford to adopt social

policies?

Single Market - 8

• Signed 1986• Non-discrimination between imported and

domestic goods• Mutual recognition of products but

acceptance of different standards• Burden of Proof • 4 big areas removal of frontier controls,

technical barriers, public procurement and fiscal frontiers

Single Currency - 1

• Needed to reduce uncertainty

• Bring harmonisation within monetary and fiscal regimes

• To reduce use of exchange rate manipulation

• Control money expansion within member states

• Competitive de-valuations

Single Currency - 2

• Started with ERM – UK left in Sept 92.

• Maastricht Treaty decides on currency stability

• Monetary Union – designed to create common inflation and interest rates within member states

• Integrate financial sectors, so developing greater freedom of capital

Single Currency - 3

• Membership based on meeting convergence criteria and accepting political rules

• Price stability – no more than 1.5% above average of three best performing members

• Interest Rates – no more than 2% above average of the three member states with lowest inflation rates in previous year

• Gov deficit – no more than 3% of GDP.

Single Currency-4

• Public Sector Debt Control – must not exceed 60% of GDP

• Reduced transaction costs• Reduced uncertainty• Price transparency• Lower interest rates• Lower inflation and unemployment• Euro a powerful currency, greater parity with $,

integration of financial markets, greater market liquidity, sounder fiscal policy

Single Currency - 5

• Gains? – one catalogue price, one bank account, less formalities, stability, enhanced competition as prices remain stable, integrated bond markets, stricter discipline in tax issues

• BUT – at what costs?• Loss of economic sovereignty• Asymmetric shocks• Lack of convergence – two speed Union?

Single Market - 6

• Different labour market regulations• Different growth rates• What if one country gets out of synch?• What if monetary flexibility required?• Structural differences between countries – we export

52% to EU, Germany 56%, France 63% • Different housing market – mortgage debt in UK = 57%

of GDP, 33% within rest of EU• More vulnerability to oil price hikes?• Can it be sustained as enlargement continues?• Can Regional Policy cope

The future?

• Can the poorer nations be accommodated?

• Common Agricultural Policy?

• Greater political cohesion needed?

• Managing the Euro?

• Huge trading block?

• Trade-offs – winners v losers

The EU Constitution

• Why does EU need a new constitution?

The new constitution will replace all previous treaties and allow easier understanding of rules etc once the EU expands to 25 member states

The new constitution will be a streamlined version of the older documents

Constitution - 2

• What are the sticking points?

The largest problem is voting rights. Spain and Poland did not like the idea that if a proposal is passed by 50% of the member states representing 60% of the EU’s population it becomes EU law. Germany and France want this type of voting to become the way of the EU in 2009.

Constitution - 3

• Sticking point – 2How many commissioners should there be?10 voting positions to be held in turn by 25

members. Some of the smaller countries want one commissioner per member state. Others feel that this would be unwieldy

* Religion – some countries (Poland, Spain, Malta and Ireland want a reference to Judaeo-Christianity in the preamble

Constitution - 4

• VetoesThis is a big sticking point. Foreign Policy,

defence and tax are veto issues for the British

So might the mutual defence clause as not every nation wants to come to the defence of another if it is attacked

Another tricky issue is the amount of power the EP should have over the EU budget

Constitution - 5

• What else is in it?An EU Foreign Minister – answerable to the Council of

MinistersAN EU President – to replace the current six months rolling

system. Some small countries do not like this.Charter of Fundamental Rights – most seem happy with

this.European Parliament – more power so that it votes on

nearly all EU decisions and has a say in who is EU President.

Exit Clause – first timeSuspension Clause – for those who violate EU rules

Constitution - 6

• How might it affect us?

No mention of Federal in the document

High profile appointments of President and Foreign Minister

More transparency on how national governments voted on EU issues

More discussions on EU issues in national parliaments

Constitution - 7

• Who does not like it?Eurosceptics – fear too much power in

hands of EU.New big 2 would be very powerfulWill the new EU really be democratic• When will it become law?If the new proposals are agreed it could

become law in 2004, though some countries have to have referendums