The ECSC, EEC and Euratom formed the ‘first pillar’ of the European Union or the ‘community pillar’. The Maastricht Treaty of 1992 supplemented the communities by introducing two further pillars: firstly the common foreign and security policy (CFSP) and secondly the third pillar concerned Police and Judicial Co-operation in criminal matters (PJC), which surrounded the existing first pillar. The Amsterdam treaty of 1997 came into force in 1999, which revised the provisions of the Maastricht Treaty, and the ‘old’ third pillar – co-operation in Justice and Home Affairs (JHA) – was reduced in size and changed in scope as certain matters were transferred into the ‘first pillar’. The Treaty of European Union and Amsterdam finalized the three-pillar system, which continues to structure the framework of the European integration.
I will now move on to mentioning the Treaty of Maastricht. The treaty on European Union was approved at the Maastricht meeting of the European Council on 9th and 10th in 1991, it was signed in a Dutch town in Maastricht on February 7th 1992. After ratification by the 12 national parliaments, the Treaty of Maastricht came into force in November 1st 1993. At the moment fifteen member states have joined the European Union. The diagram below illustrates the countries, which are at present the member states of the European Union.
The countries, which have joined the EU, are in a more favourable position to those countries that are not members of the EU. Mainly because of the lifting of trade restrictions for businesses has enabled Member States to trade freely between each other. This means that each country has the right to move goods, services, people and capital from one Member State to another without any form off restriction. By doing this political, economic and cultural links are strengthened across the European Union. The Union brings new opportunities to businesses.
The treaty of Masstricht was regarded as a new stage in the process of creating an ever-closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen. Nevertheless the Treaty of Masstricht also set out a number of key provisions, which are mentioned below:
- Firstly the development of common foreign and defence policies, with defence issues initially to the Western European Union.
- To promote economic and social progress and a high level of employment and to achieve balanced and sustainable development, in particular through the creation of an area without internal frontiers, through the strengthening of economic and social cohesion and through the establishment of economic and monetary union, ultimately including a single currency in accordance with the provisions of this Treaty.
- The introduction of union citizenship, defining the rights and obiligations of nationals of the member states. This would include freedom of movement, right of residence, the right to vote and stand as a candidate at European elections.
- Institutional Changes, including an extension of the legislative powers of the parliament and the granting to the Court of Justice of the right to impose fines on member states for failing to implement its judgements.
- The strengthening of judicial, immigration and police co-operation between member states, largely on inter-governmental basis.
Therefore the Maastricht treaty set out a timetable for economic and monetary union for the EU, but also included a ‘social chapter’. The UK government refused to sign this part of the Maastricht Treaty and took no part in voting on the implementation of the elements of the social chapter. It maintained that such measures would increase costs of production and make EC goods less competitive in world trade. Critics of the UK position argue that the refusal to adopt minimum working conditions (and also a minimum wage) will make the UK the ‘sweat-shop’ of Europe.
The expectation of the treaty of Maastricht was that the functioning of the common market, in conjunction with the Treaty’s rules preventing unfair competition, would automatically result in social development. When the EU was set up there was rapid economic growth therefore the underlying objectives of European social policy were to avoid any distortion of competition and to promote free movement of labour within the community. Because it was feared that unfair competition might emerge if some countries imposed higher social charges on employment, leading to social dumping as companies relocated to areas with lower labour costs. Therefore the creation of a common market formed areas without barriers in which the free movement of goods, services and capital in accordance with the provisions of the treaty.
Now moving onto discussing how the Maastricht treaty affects European Business. The introduction of the Maastricht has affected European business in many ways. The 1985 agenda for the single market intended at removing all non-tariff barriers to the free movement of goods, persons, services and capital. It became clear, that the benefits of the internal market would be difficult to achieve with the uncertainties created by exchange rate fluctuations and the high transaction costs for converting one currency into the other. Therefore the single currency was seen as the vital piece in the single market development. Consequently eleven European countries formed an economic and monetary union (EMU) and introduced a single currency - the euro. These countries shared the new currency and a single interest rate, set by the European Central Bank (ECB), and a single . The Maastricht Treaty determined three stages for achieving monetary union. The first started in 1990 with the removal of any restriction on capital movement. The second stage began on January 1, 1994: the European Monetary Institute (EMI) was established and governments could no longer have overdraft facilities. The third stage of EMU started on January 1, 1999. According to the Treaty, the exchange rates of the participating currencies would be irrevocably fixed, monetary policy would be conducted by the ECB and the Council shall take the measures necessary for the rapid introduction of the single currency.
The introduction of the single currency established by the Maastricht Treaty, would be regarded as one of affects on European business because the euro would make certain changes for business. The euro would influence the markets in three important ways. Firstly cheaper transaction costs because the euro would allow countries in the euro zone to trade with each other without changing currencies therefore this would reduce transaction costs and it will cost less for businesses to make payments between countries within the euro zone. Secondly the euro will eliminate exchange rates between countries in the euro zone. If UK companies purchase products priced in euro the exchange rate risk may be transferred to them. Finally the single currency will make price differences in different countries in the euro zone. However this may affect companies who charge different prices for their products in countries within the euro zone. On the other hand, companies buying from the euro zone will be able to compare prices more easily. Either way, this will sharpen competition. Therefore the changes introduced by the single currency began to affect businesses after 1999.
Since the changes introduced by the maastricht treaty, business will be affected by increased cross border competition because businesses who want to export into the euro zone may be at a disadvantage against competitors within the zone who share the same currency as the importer therefore increased competition might make business mergers within the zone more likely. Another influence of the Maastricht is that distribution and purchasing arrangements may become simpler and cheaper inside the euro zone, because businesses twill not have to worry about exchange rates risk when trading with each other. However the euro could bring new opportunities and threats for many businesses therefore businesses will need to reconsider their marketing strategies, especially where products are priced in euro. The establishment of EMU, will affect business product prices because businesses who export goods into the euro zone may have to decide whether to set new pricing points.
The major influence of the treaty on European business would mean several other changes would need to be implemented to the way businesses actually function which could be costly. For example IT would need to be changed to accommodate the euro. Also larger businesses may need to think about the effects of EMU on the financial markets, as well as on their own internal treasury. Nevertheless the UK stays outside EMU, the euro will be a foreign currency and will not be legal tender in the UK. UK businesses will not have to accept it unless they agree to do so. The Government will facilitate businesses that do wish to use the euro in the UK. Also there will be a number of legal implications for all contracts, which contain a payment obligation in, or a reference to a disappearing currency.
There are, however, some other aspects of the change that deserve closer attention. First, the value of the Euro might differ from the value of the currency of the contract. The value of the Euro is comprised of the values of the underlying economies of the EMU member states and not only the value of the country of the currency. This means that an American company that is engaged in business transactions with, for instance, a company in Germany or the Netherlands, both countries with strong economies and stable currencies, could receive payment in Euros that may have a lower exchange value in U.S. dollars than Deutsch marks or Dutch guilders. Damages could also be incurred as a result of interest rate fluctuations, especially if the contract contains a fixed interest rate. Therefore, a party may want to renegotiate or terminate a contract or claim damages.
Overall the changeover to the Euro will have a major influence on parties doing business in these countries. Also the transition to the Euro will have implications on other areas of law such as tax and corporate law. However, directly after the EMU started, a number of negative effects of the transition will be felt because computer software will have to be rewritten and, for a limited period of time, companies will have to institute dual pricing for their products. The consequences for financial institutions will be severe-they stand to lose a large part of their currency and business. Therefore it is true to say that the Treaty of Maastricht has had a major influence on European business in today’s economical integration. From my findings it has been established that the single currency combined several countries to work together as well as setting up policies to govern member states as well businesses. However the union is now moving towards greater political and economic unity through the adoption of a single currency and the co-ordination of members states in relation to areas of state policy, such as defence and security, and justice and home affairs. Consequently to achieve such a Union there must be further sacrifice of national sovereignty. Consequently if Britain had joined the single market and adopt the single currency, the major decisions in economic policy would be taken centrally rather than by individual national governments.
http://europa.eu.int/abc/obj/chrono/40years/en.htm
The six member states included France, Germany, the Netherlands, Italy, Luxembourg and Belgium
Since 1993 when the Treaty of European Union came into force, the EEC has been redesignated as the ‘European Community’ (EC)
The central aim of EEC Treaty set in article 2 EC, was to establish a customs union among the six founding members, based on the ‘four freedoms’; freedom of movement of goods, services, capital and people.
PJC also known as Co-operation on justice and home affairs (JHA)
See Appendix One, for a diagram of the EU’s pillar structure after the treaties of Maastricht and Amsterdam.
Page 279, Dick Leonard, 1997
The 11 countries of the euro zone are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain
http://www.no-euro.com/release.cfm?IDNO=15