According to the Single Market Review completed by European Commission in 1996, during 1987 and 1994, the intra-industry trade between member states had a significant increase which grew from 35% to 42% of total manufactured trade. The review also estimated that the GDP of the single market increased by between 1.1 % and 1.5%. (Lintner V, 2001). In fact, over the last ten years, the Single Market has created 2.5 million jobs and 877 billion euros of extra prosperity for its member states. (Europa, 2003b)
3.3 The Euro
Due to the economic crisis of the 1970s, the first plans for a single currency were drawn up and in 1991, the 15 members of the European Union met in Maastricht and agreed to set up a single currency, which partly aimed to drive towards Economic and Monetary Union. (BBC News, 2003) On 1st January, 2002, the single European currency came true. The Euro notes and coins began to take the places of twelve national ones including those of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain and received widespread acceptance by 300 million persons in the eurozone. (BBC News, 2002)
Although, for various reasons, Denmark, the United Kingdom and Sweden do not participate in the monetary union, the transition to the single currency is undoubtedly an important milestone in the construction of the Single European Market. With the European Central Bank in Frankfurt overseeing monetary policy in the Euro area, the Euro creates a number of advantages for businesses and individuals in the eurozone. First of all, adopting the same currency, firms within the eurozone can avoid the risks of exchange rate changes. Secondly, with the Euro, businesses and individuals can enjoy the transparency of economic information which can help firms to find cheaper suppliers and help employees to find where offers high wages etc. Thirdly, the Euro can also remove transaction cost from trade. It is predicted that this benefits will be as much as 8% on the total price of industrial goods. (Mercado, S. et al, 2001)
Besides the above advantages, as an international reserve currency and transaction medium for third countries, the Euro now is so important that it is able to rival the dollar. (European Economic and Social Committee, 2002)
3.4 Common Policies
Over the last fifty year, the European Union has established a number of common policies such as Common Agricultural Policy, Industry Policy, Social and Employment Policy, etc. These policies affect a wide range of economic and political life—from employment contracts to the quality of drinking water, and from local economic development to industrial subsidies, etc. With the financial support from the EU budget, these common policies not only change the nature of economic governance in member states but also promote convergence towards the single market. (Lintner V, 2001)
With the establishment of common policies and all the other achievements above, the European Union seems to have done a great job to create a single integrated economy for its member states. However, in fact, the Internal Market is not complete. There are still not only divergences in business environments between member states but also areas where the integration is incomplete.
4. Major Divergences and Incomplete Integrations
4.1 Different Corporate Governance Regimes
Because the big business firm plays an integral role of the economies of the EU member states, understanding how they are governed is a necessity to understand the governance of the economies. (Moran M, 2001) Unfortunately, when understanding this, people will find there is a major divergence of the corporate governance regime in Germany and the corporate governance regime in the UK.
These two systems can be highly distinctive in the following aspects. First of all, the institutional structure of large companies in Germany consists of a management board and a supervisory board which trade unions and employees are also included while in the UK, the boards of the largest firms are not separated into two and there is only a unitary board made up of executive and non-executive directors. Secondly, German and the UK companies have different philosophies of representation. Due to different institutional structures, in Germany employees and trade unions have a say in their companies while in the UK only the shareholders have a say in governing the firm. Thirdly, Germany and the UK have their own understanding of the roles of laws and the patterns of ownership. (Moran M, 2001) All the above leave the European Union a big task to deal with, in terms of enhancing the free movement of people, service and capital within member states.
4.2 Different Social/Labour Models
Divergence not only exists in the corporate governance regimes between member states but also exists in the social/labour models within the European Union. Due to different historical contexts, there are two main different social/labour models in the 15 member states. One is the Anglo-American social model; the other is the continental European social model.
These two models can be distinguished by two different features—the employment law and the trade union. In Britain, a large part of labour and market law developed as additions to the contract and company law which govern the British economic life. Thus, in the UK, the employment law emphasises more on the side of employers and British employees do not have a right to strike. While in the continental European countries, such as France and Germany, employment law are more specifically and strictly defined. This gives workers not only the right to strike but also specifies when they can exercise this right. As to the trade unions, because they are based on different ideological divisions, the trade union leaderships in the UK were considered more adversarial in their approach to company management than those in the Continental Europe. (Grahl J, 2001) These differences will probably make the free movement of labour even harder to achieve.
4.3 Enlargement in the Future
Although the European Union has achieved a lot of successes in terms of creating a single economy for its member states, there are still areas where the integration is not complete. The enlargement towards the Central and Eastern Europe probably is the biggest task for the EU to complete in the 21st century.
Ten central and eastern European countries including Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia will join the European Union on 1st May, 2004. This enlargement does not only offer opportunities but also challenges to the EU. There are surely some benefits from this enlargement. For example, after the enlargement, the consumers within the Union will grow from 370 million to 450 million which will stimulate economic growth and new investment. (Euro Info Centre, 2003)
However, according to a Financial Times report, all the ten candidate countries have some problems to resolve before they join the EU. These problems are concerned with the free movement of people, goods and services, payments to agricultural sector of EU fund, company law, etc. What is worse is that these countries even do not have the skilled people who know the EU law to implement the liberalisation. (Dempsey J, 2003) Thus how to ensure all the EU rules are enforced effectively in the enlarged union will be a problem for the EU to deal with in the future.
4.4 Other Incomplete Integrations
During the integration process, there exist some areas where the integration is not complete or is not thoroughly complete. One instance is that as mentioned above, for various reasons, Denmark, the United Kingdom and Sweden up to now do not adopt the single European currency--the Euro. This probably will be an obstacle for the further enhancement of trade flows within the member states. Another example is also concerned with the Euro. Adopting the Euro, member states must control their budget deficits less than 3% of their GDP unless higher deficits are temporary or exceptional. However France and Germany have broken the rule for twice and will breach it for a third time in 2004. (Parker G, 2003)
In some cases, even the achieved success can be out of date and needs modifications. For example, the Common Agricultural Policy was once successful in assuring the supply of foods, stabilising the market. But it now is considered to have cost too much of the EU budget and damaged the environment. Thus the European Commission has prepared proposal to reform this policy to meet the new need. (Defra, 2003)
5. Conclusion
Although in the last fifty years, the European Union has been keen to create a single economy for its member states and achieved many great successes, such as the Single European Market, the single European currency—the Euro, all these achievements are enough for a true single economy. For various reasons, there still exist major divergences in the business environments within member states which are not likely to be changed in a short time. Besides these, there are also areas where the integration is not complete. Even the European Union can achieve all of these, new challenges will consistently arise. Thus, all the member states need to put more effort to cooperate with each other in order to reach the goal of creating a true single economy for their own.
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