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 efficient EU-companies and their competitors in other countries. To help developing countries, the EU is ready to open its market to their exports even if they cannot give in return. The disappearance of trade barriers within the EU made a significant contribution to its wealthy and has reinforced its commitment to global Liberalisation. As EU countries removed tariffs on trade between them, they also integrated their tariffs on goods imported from outside. This means that products pay the same tariff whether they enter the EU via the ports of Genoa or Hamburg. As a result, a car from Japan which pays import duty on arrival in Germany can be shipped to Belgium or Poland and sold there in the same way as a German car. No further duty is charged (European Commission, 2010).
Markets which have opened their markets have had an averaged economic growth rate of 3.5 % in the 80’s and 5 % in the 90’s and the so called “not globalised countries” have only had an average of 0.8 % and 1.4 % in the same times (Mildner S., 2002).
An open market has the result that their will be a better economy, because their will be more working places for people.
The danger of greater intervention
The industrial and competition policy (ICP) can be distinct as acts and policies of the state designed to improve countries economic performance. The industrial policy provides a framework in which private sector flexibility is encouraged and adjustment to shocks is helped and disapproval is expressed of industrial policy which might try to lead the private sector through a more or less opened planning procedure, because it would take the form of picking winners, predicting the emergence of sunrise sectors and charting the rationalization of sunset sectors. ICP today would also be distinct which include policies to provide industry with appropriate resources such as an educated and trained labour force, an appropriate research base and infrastructure. ICP could be defined as acts and policies of government designed to improve economic performance by ornamentally the effectiveness of market pressures and providing resources and infrastructure (EL-Agraa, 2007 p. 261).
The current financial difficulties are the result of a series of government actions that has ended in greatly expanded government intervention in the credit markets, which may provide short-term relief but is dangerous in the long run. This happened in the fact of Fannie Mae's government sponsorship, the Community Reinvestment Act of 1977, the creation of the secondary mortgage market and imposition of government accounting rules (Wolfram G., 2008).
The following examples are two examples to describe interventionism and his impact in the past.
Automobile industry
Is the one which have been hit most by the recession as a consequence of the finance crisis. The demand for cars fell sharply, emphasizing the difficulties of extra production capacity already faced before the crisis and deepening the economic downturn in major car-production countries. Relative to the downturn, the decline in car sales was nonetheless not deeper than what was observed in the past. The Government support (Interventionism) to the car industry has been offered in a variety of forms, including financial assistance to the firms and direct involvement in industry restructuring plans. These ways are likely to block the structural changes the industry will need to go through in the years to come. Many countries have introduced car scrapping schemes to reduce the overall downturn in economic activity, boosting sales in the short term. However the effect was that the demand for new cars reduced the demand for other products, so this lowered their final impact on economic activity. But as soon as the schemes end, there was no demand for cars any more, the demand is covered. These schemes also do not appear to be cost-effective instruments to reduce greenhouse gas emissions (OECD, 2009 p. 1-2).
The automobile industry is central to Europe’s prosperity, because the EU is the world’s largest producer if motor vehicles. It is a huge employer of skilled workforce and a key driver of knowledge and innovation. It represents Europe’s largest private investor in research and development. It also makes a major contribute to EU´s Gross Domestic Product and exports far more than imports. That is the reason why the EU especially supported the automobile industry (European Commission, 2010).
The following graphic shows the different measures in different countries to support the automobile industry during the crisis.
Principal measures to support the automobile sector
Scrapping scheme
Other measures
Duration
Incentives
Total amount
Effects
Australia
Direct schemes of industry assistance of AUD
6
.2
billion to make the automotive industry more
economically and environmentally sustainable by
2
0
2
0
.
Business tax deduction on new capital
investment, including vehicles: for SMEs;
deduction of 50% of the cost of assets ordered
between 13 December 2008 and 31 December
2
0
0
9
.
For other businesses in 2009: deduction
of 30% of assets acquired before 30 June 2009
and 10% between 1 July and 31 December
2
0
0
9
.
Austria
April 2009 to
December 2009
(probably phased
out in July).
€
1
5
0
0
Belgium
Tax reduction to purchase new cars equivalent
to 3% (< 115 CO2) or 15% (< 105 CO2)
depending on emissions (started in 2007). In
addition, the automobile sector will benefit from a
number of horizontal measures, in particular
changes in the system for economic temporary
unemployment for blue-collar workers and its
provisional extension to white- collar workers.
Measures at the regional level: the Flemish
goverment support to the car industry amounted
to €
1
0
.
5
million in 2009. The Walloon
Government has developed a specific fiscal
green measure to promote buying of less
polluting cars (CO2 emissions), in the form of an
“eco
-
bonus/
malus”
.
Canada
Until
3
1
March 2011
(for the federal
programme).
Varies by
manufacturer. "Retire
your ride
programme": CAD
3
0
0
.
Provincial scrap-
it programme (British
Columbia).
Czech
Republic
Under
abeyance.
CZK 30 000.
Tax measures: increase rates for old cars, lower
rates for some types of vehicles (hybrid etc.).
Denmark
Since
1
July 2000 but
changes in the
incentives in
2
0
0
2
.
Premium of
DKK 1 750
(
approximately €
2
3
5
)
for cars retired after
3
0
June 2002.
DKK 150 million
allocated in 2009.
In the budget
proposal for 2010,
DKK 153.2 million
are allocated
Premiums were
paid for
approximately
9
5
0
0
0
cars in
2
0
0
8
.
Finland
In the 2009 budget car taxation based on CO2
emissions, heavier lorries, vans and coaches will
get a reduction based on the total weight.
France
Until end 2010.
€
1
0
0
0
in 2009 then
€
7
0
0
in January
2
0
1
0
and €
5
0
0
in
July 2010.
€
3
8
0
million
in 2009 and
€
2
4
0
million
in 2010.
About 20% of all the
cars sold in January
benefited from this
scrapping incentive.
State guaranty for loans for the purchase of cars
(
€
6
.
5
million).
An additional tax of €
4
on every
registration certificate (in force from 15 April
2
0
0
9
)
.
New measure to favour model shift and
encourage eco-maintenance of vehicles
(reduced VAT).
Source: OECDSecretariat; EuropeanCommission(2009); OECD(2009); andCouncilof Economic Advisers (2009).
Principal measures to support the automobile sector (con't)
Scrapping scheme
Other measures
Duration
Incentives
Total amount
Effects
Germany
Until December
2
0
0
9
but funds
used by
September 2009.
€
2
5
0
0
.
€
5
billion.
New car registration
increased by 30% in
February.
Adjustment of the annual circulation tax for
passenger cars on the basis of CO2 emissions.
Greece
3
0
September - 2
November.
€
5
0
0
to 2 200
depending on the
type of vehicle.
A 50% cut in the registration tax on new cars
applicable between April and August 2009.
Italy
Until end 2009.
€
8
0
0
to 1 500.
Japan
1
0
April 2009
to 31 March 2010.
Subsidie of ¥ 125 000
to 250 000 for the
purchase of high-
energy efficiency car,
if scrapping a car 13
years old or more.
Subsidie of ¥ 50000
to 100000 for
purchasing a high-
energy efficiency car
if scrapping a car of
less than 13 years
old.
¥ 370 billion
(
€
2
.
7
8
billion).
As of 28 September
2
0
0
9
, about 730 000
requests were
received while 18 600
cases were already
subsidised. A total of
¥ 19.9 billion has
been spent.
Green tax schemes for automobiles were
upgraded in April 2009. The motor vehicle
tonnage tax (April 2009 to April 2012) and the
automobile acquisition tax (April 2009 to March
2
0
1
2
)
were reduced or exempted for
environmentally-friendly automobiles.
Korea
May 2009 to
December 2009.
Tax incentives for
consumer trading in
older vehicles: 70%
tax reduction on
individual
consumption tax
(national tax, 5 to
1
0
%) and 70% tax
reduction on
registration tax (local
tax, 5%) and
acquisition tax (local
tax, 2%).
Luxembourg
January 2009 to
December 2009.
€
1
5
0
0
to 1 750.
The scrapping scheme complements a pre-
existing measure which provides €
7
5
0
for
purchase of energy-efficient cars.
Netherlands
1
August 2009 to
1
January 2011.
€
7
5
0
to 1 750.
€
8
5
million.
Reduction in the registration tax compensated by
an increase in the annual circulation tax for all
vehicules. Discount in annual circulation tax for
fuel-efficient cars. Lower excise duties for
Liquified Natural Gaz to the amount applied to
petrol cars. Reintroduction of a fiscal scheme for
passenger cars with low-emission diesel
engines.
Norway
Permanent
scheme.
NOK 5 000.
Poland
Increase in excise tax.
Portugal
Since 2000,
renewed annually.
Scheme made
more generous
from August to
December 2009.
€
1
2
5
0
to 1 500 from
August to December
2
0
0
9
(
€
1
0
0
0
to
1
2
5
0
before).
€
3
4
million (estimate
for 2009 before
August change).
The car industry is currently an important
beneficiary of a short-time working scheme.
Source: OECDSecretariat; EuropeanCommission(2009); OECD(2009); andCouncilof Economic Advisers (2009).
Principal measures to support the automobile sector (con't)
Scrapping scheme
Other measures
Duration
Incentives
Total amount
Effects
Slovak Republic
Until
end
2
0
0
9
.
9
March to 25 March: € 1 500; 6
April to 14 April: € 100.
€ 55.3 million.
In these two periods
4
4
2
0
0
cars with
average age of 21
years were scrapped.
The owners of
scrapped cars can
use the subsidy by
the end of 2009. Up
to 30 May 2009,
3
1
5
8
9
cars with
subsidy from this
scheme were sold or
ordered.
Spain
1
December 2008
to
3
1
July 2010
(Plan Vive) and
2
2
May 2009 to
1
8
May 2010
(Plan 2000E).
Plan Vive: interest free loan up to
€ 10 000 for a period of five years
provided the new car has
a value up to € 30 000. Also
applicable for the purchase of old
car if the scrapped car is at least
1
5
-
years old. Plan 2000E: direct
support from the government:
€ 500 per car, conditional on the
manufacturers adding another
€ 1 000 per car. Some
Autonomous Communities could
provide an additional support of
€ 500 per car if the scrapped car
is at least ten years old or at least
1
2
years old when people
purchase second-hand cars.
Plan Vive:
€ 1.2 billion.
Plan 2000E:
€ 100 million and
2
0
0
0
0
0
cars, at
maximum, to be
financed. It is likely
to be widened to
€ 140 million euros
and 280 000 cars, at
maximum, to be
financed.
From December 2008
to February 2009, the
credit was granted for
9
0
0
0
vehicles (Plan
Vive). At the end of
October 2009, more
than 190.000 cars
were scrapped (Plan
2
0
0
0
E).
Support of € 800 million for the
sector in forms of soft loans for
investment in production facilities
and support for investment in RD
and training. Promotional
measures to support export. Pilot
programme for electric cars.
Financing facilities for small and
medium-size companies in the
automobile sector.
Sweden
Until
July
2
0
0
9
.
Tax premium of SEK 10 000 for
private persons purchasing a new
eco car.
A number of tax exemptions for
eco cars were abolished.
Turkey
Special consumption taxes (SCT)
on motor vehicles were reduced
in varying proportions according
to vehicle types and periods of
2
0
0
9
.
United Kingdom
May 2009 to
March 2010 (but
probably used up
to October 2009).
£ 1 000 (conditional on the
manufacturers adding another
£ 1 000).
£ 300 million.
Accounted for about
1
0
% of car sales in
June 2009.
United States
2
4
July
to
2
4
August
2
0
0
9
.
$3 500 to 4 500 bonuses.
$3 billion.
Between 0.2 to 0.6
million vehicles
(Council of Economic
Advisers, 2009).
Tariff on Chinese tyres.
Source: OECDSecretariat; EuropeanCommission(2009); OECD(2009); andCouncilof Economic Advisers (2009).
Principal measures to support the automobile sector (con't)
Scrapping scheme
Other measures
Duration
Incentives
Total amount
Effects
Brazil
Reduction of federal VAT on
purchases of small cars and
trucks, and other federal taxes on
the production and financing of
motorbikes. Value: About $3.3
billion for 2009.
China
From
1
June 2009 to
3
1
May 2010.
CNY 3 000 to 6 000
(only large cars can be scrapped).
CNY 4 billion.
Cars to the countryside
programme (CNY 5 billion).
India
A reduction in the excise duty on
cars and utility vehicles with an
engine capacity of 2 000 cc and
above. A reduction in excise duty
for small cars from 16 to 12 per
cent and for hybrid cars from 24
to 14 per cent in the 2008 budget.
Source: OECDSecretariat; EuropeanCommission(2009); OECD(2009); andCouncilof Economic Advisers (2009).
(OECD, 2009 p. 12-15)
So the help from the government was very important to help the car industry to get better profits especially while the car industry is such a big thing for the EU. But now there is no big demand anymore so the support was maybe no good idea because it was only for a short time and not for long.
Financial markets
The bust crisis and the recent boom of our financial markets is not the failure of free capitalism. It is a result of government intervention into the financial markets. It is this intervention that prevents the free market forces from bringing markets into balance to offset the possibility of runaway booms or busts. The financial markets are driven by interest rates which is the price of money. This interest rate decided the matching of the supply of money from savings with the demand for money in the investment and debt-related markets. Increasing interest rates support the supply of saving but makes investing more expensive. If the interest rate is low it frustrates the supply of savings but it makes investing cheaper. The monetary policy from the government controls the supply of money which, consequently effect the interest rate. Increasing the supply of money push down the interest rate (Moneys price) just like the over abundance of any product and vice versa. If there is too much money available and government without a commensurate increase in goods and services this will bid up the price of those goods and services. The result is inflation and this lowered down the dollar’s purchasing power. An inflation force savers and lenders to demand higher interest rates to offset their money’s loss of purchasing power during the time they lend it. Sadly, by trying to regulate the money supply to governments purposes, regulating the banks, and guaranteeing loans, the government undermines or destroys the free market forces that keep the markets balanced with appropriate incentives, de-incentives and responsibilities for savings and investments (Flait, S. 2010).
Conclusion
If we have no free market, the markets move away from equilibrium and have nothing to keep them away from running toward boom or bust.
Intervention help is only a short term solution but not for a long term period so sometimes the dangers of an industry will be delayed but they will come even if there is an intervention.
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