The EUs policy in the past has been strongly orientated towards market liberalisation. Using examples discuss the likely dangers of greater interventionism by the member states in recent times

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The EU´s policy in the past has been strongly orientated towards market liberalisation. Using examples discuss the likely dangers of greater interventionism by the member states in recent times


Table of Content

Introduction        3

An overview about the financial and economic crisis in the past         3

The market liberalisation model        4

From market regulation to market deregulation        5

Why did the EU states support the market liberalisation model?        6

The danger of greater intervention        7

  • Automobile industry…………………        8
  • Finance industry        14        

Conclusion        14

Reference List        15

Bibliography        17

Introduction

This topic was chosen, because everybody normally thinks that state interventionism is good and sometimes really necessary to support a country. Nobody would directly know that it could also have dangers, this is the reason for this topic to get more information’s about it and what for dangers it has. This topic would show some examples to highlight the disadvantages and advantages.

An overview about the financial and economic crisis

The finance crisis has his beginning in the US-American subprime market.  “Subprime-credits” are credits, which are consciously giving to consumers with lower reliability. Although the finance givers have to book regular failures, so-called “lame credits”, these losses are contra financed calculated and budgeted with dear interests and other liquidation methods. The problem was that too much mortgages have been given out to people with no money. The outputs of subprime credits have extended because of a low interest rate. By the step by step raising of the prime rate in 2004 from 1 % to 5.25 % the mortgage interest level increased, whereby the real estate prices stagnate. The matching from the variable mortgage credits reached to an unexpected payment shock, which can not be anymore financed by a boost of the house price. From this it follows finally a multiplicity forced sale from the hypothecated real estates. The swelling failure rate of the subprime credits reached to an oversupply of houses on the real estate market, whereby the price decline of the real estates have been activated. Therefore numerous American real estate banks have to claim high write offs and finally to go into an insolvency. The US real estate crisis is then the beginning of the finance crisis, because this subprime credits have been contra financed by identifying revolving funds. The requirements of the source against the finance slave have been bundled to bond packets and as asset packed bond sold to especially investment banks and hedge-funds. After the illiquidity of the debtors the buyers have to available high write offs. Many banks have investigated into the subprime bonds from the US building funder. With the shortfall of the lame credits the banks have to make high write-offs which operated into a threatening of the existence crisis. So the countries have to give cash infusions but this reached to a high interest rate level so that the consumers do not want to waste so much money so the economy stocked and it comes to an economic crisis and recover plans were made (TYPELOG, 2008).

The market liberalisation model

Market liberalization seeks to remove administrative and regulatory burdens that are related to business start-up, operation, trade, payment of taxes, closure and capital flows and profit  repatriation by reducing the time and cost associated with various government and other requirements. The liberalisation of markets is influenced by globalisation. Globalisation force companies to compete at global standards of efficiency, productivity and quality. Liberalisation and globalization are driven by developments in technology, which companies leverage in three ways. First, to improve internal business processes in a company. Second, they apply the lessons to the supply chain, which technology makes possible and finally investment in technology is used to expand customer base. Liberalization means the opening of a monopolistic market to competitive provision of facilities and services. Liberalisation has taken the form of privatization, deregulation and competition (Canto, 2010).

(Post, 2009)

A good and well known example for market liberalisation is the postal market. For many years, the European postal market has been in a state of considerable change. The goal of European decision makers has been to achieve a full scale market liberalisation in the postal sector whilst ensuring that high-quality universal postal services continue to be maintained. The EU Commission is committed to adhering to the scheduled postal market liberalisation plan, and proposes complete market liberalisation on the 1st January 2009 (Post, 2009).

From market regulation to market deregulation

Regulations are rules designed to control certain actions by people. They are an individual statement by the government against the people, more often a specific industry, although they are represented as a protection for the people.  Since the effects of regulation cannot easily be quantified in terms of cost of goods or quality of life, it is difficult to assess whether the regulation is causing more harm than good. That is one of the inherent dangers of any form of regulation. During the 19th and early 20th century, the common government attitude was to leave businesses alone. The belief was that as long as markets were free and competitive, private individuals and corporations would work together for the common good of society. Economic regulation exists in the form of price controls to protect the consumer from price gouging and tax breaks to theoretically stimulate growth and subsidies to protect American products from price-cutting by foreign markets. In general, the more restrictive a government is in regulating an economy, the lower the growth rate. In the 1990s, the U. S. economy grew at an average rate of 4.3%, while Germany, France and Italy, which have a much higher rate of regulation, grew at 2.0%. The United States and Great Britain started the process of removing many regulations in the 1970s, while the three European countries have been relatively stagnant. The deregulation has taken place in four primary industries: Power, telecommunications, auto insurance and the airlines. The Airline Deregulation Act of 1976 opened up the U.S. airline business to free market principles, which incentive a dramatically larger, more accessible and, some say, a more affordable industry.  On the positive side, deregulation opened the market to many competitors and low-cost airlines often with less frills than existed under regulation. On the negative side, many carriers disappeared through mergers, acquisitions and bankruptcy.  But in reality, that is the essence of the free market economy. The strong survive and the weak perish as in the animal kingdom. According to the General Accounting Office (GAO), airline fares decreased by 21% from 1990 to 1998. Average airfares declined and quality of service improved at 168 of the 171 airports examined generally because of competing service from a low-fare carrier (ApatheticVoter, 2010).

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The deregulation has finally thereby enabled the liberalisation and privatisation, the role of the state in the economy has been reduced, state or rather public monopoly has been limited and state public interventions into the economic process at all bounded and limited.

Why did the EU states support the market liberalisation model?

The primarily EU target for the co-operation is to abolish the existing trade barriers by a general market liberalisation and to allocate as much as possible public goods, to support the trade interests (Bieling H.J. and Lerch M., 2006).

The Liberalisation enabled a fair competition between the ...

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