Economic Arguments for Further Enlargement of the EU - Essay Example

Economic Arguments for Further Enlargement of the EU Introduction The European Union has been expanding constantly since the early 1970s with each round of enlargement being unique and dynamic politically and economically (European Commission, 2013, para 1-3). European Union easily welcomes any European state that is deemed to be democratic, has a market economy, and has an administrative capability to handle obligations and rights of their membership (Weiler, 2012, p.116). This move has ended up making UE expand tremendously and still the block is likely to continue experiencing a constant growth because of the evaluation of its policy. On top of the European Union expanding its roles from social and economic policies, the block also covers security and foreign policy. All these changes (expansions) that the block has experienced over time have introduced numerous political, social to economic effects (Great Britain, 2005, p.42). However, this research paper will mainly focus on evaluating the economic arguments for further enlargement of the EUROPEAN Union. The report will be based on many statistical components including the EU’s Gross Domestic Product (GDP), imports and exports, and Foreign Direct Investment (FDI) in the member states. The report will be directed to the European Commissioner and the heads of states in the leading economic giants of EU (UK, France and Germany). It is important to give a clarification of the above mentioned phrase ‘further enlargement of the EU’ before I embark on the economic arguments about this move. Further enlargement of the European Union means introduction of more new members in the union, a process that is well stipulated by the EU policies (Campanella, 2013, p.74). The number of countries willing to join the European Union has been rapidly increasing since the 1990s with the most recent members to join the block being Croatia. European Union has a very concise and clear policy that stipulates the requirements that a country applying for membership has to meet. This policy also referred to as the Union’s acquis communautaire and contains rules and regulations that applicants must follow with the main aim of the policy being to prevent rise of any conflict in the future (Ginsberg, 2010, p.35). The countries have also to meet the criterion that was introduced in Copenhagen fully. The Copenhagen criterion was introduced primarily to cover political and economic aspects of the candidates or what scholars refer to as ‘democratic credentials and economic competitiveness’. Deepening of the economy of the European Union is among the economic arguments that are highly outlined by economic experts. This is a call for an integration of the economy of the member states commonly termed as ‘having a Full Economic Union’. This would lead to a common market and an entire unification of the current fiscal and monetary policies. Deepening the economy would also mean that EU’s member states should harmonize industrial standards and use similar regulations for elements such as the institutions that can register as an insurance company, a bank or any other type of corporate. Economic integration is achieved in stages which range from zero integration to full integration (Campanella, 2013, p.74). The union has been able to make some significant moves towards deepening its economy of which many scholars claim that its level of integration is somewhere between stage four and five. European Union economy has not yet been fully integrated since member states in the EU use different fiscal policies despite the block having a common monetary policy. Another factor that accounts for the economic experts to range the level of economic integration at stage 4-5 is the fact that the block has a common currency that is doing so well in the global currency market. However, the block has not introduced a full set of common and basic principles that would harmonize industrial standards in the member states. Most countries apply industrial standards the way they wish (Great Britain, 2007, p.45). This report will use three criteria in deciding whether further expansion and deepening of the economy of the European Union will be of any benefit to economic advancement of the member states or will simply jeopardize their growth. The first criterion is that further expansion and deepening of EU will increase the demand for products produced in the member countries both in the short term and in the long term (Hill, 2011, p.114). The second aspect is the fact that working practices and labor mobility will become more efficient, a factor that would attribute to a long-term productivity. The third element that the report will use to discuss the concept of further economic expansion of EU is the concept of increasing investors’ confidence in the member countries, a factor that that would enable business organizations adopt long-term strategies with very little chances of failure. Removal of all trade barriers and trade tariffs like quotas would result to a rapid increase in cross border trade among the EU member states. The addition of the over 100 million people within the EU market will allow business organizations to sell their merchandise to more people than before thus their products gaining more demand (McCormick, 2011, p.49). Most of the countries applying to join EU as well as those who have recently joined are strictly required to undertake strict economic reforms that result to a tremendous growth of their economies, a factor that gives their citizens more purchasing power. This ultimately leads to a tremendous demand for products that can only be met such countries increasing their imports into their countries. In this case, the initial members of the EU will be the major beneficiaries (Sajdik and Schwarzinger, 2008, p.85; Wieclawski, 2010, para 1-54). However, there is a weakness in this argument since as many analysts argue that the fact that there is a bigger market with a large population of people does not mean that there is a guaranteed increase in demand for products from the existing or leading member states. This can be attributed by the fact that there might be products in the countries willing to join the block that are closely related to those supplied by corporates in the leading and existing members (Oberthür, Pallemaerts and Kelly, 2010, p.52). Moreover, there is a very high likelihood that the new members who will join the block might be producing inferior products that are below the set standards in the existing countries meaning that their economies might not grow or they might not enjoy much export and hence he overall demand will not increase. Nonetheless, this might be a temporally challenge corporates in the new applicant countries will quickly adopt and start producing products that are within the international standards due to the competition they will experience (Ingham, 2009, p.63). It is expected that business organizations in the new members will improve their technology after sharing information and learning from the current economic giants. Foreign direct investment (FDI) is also likely to increase greatly as a result of further expansion of the European Union. This may result from the high rate of economic prosperity in the prospect states. Promotion of foreign direct investment will provide business organizations with the necessary funds, technology and labor that would ultimately increase their productivity so as to meet the expected intense demand in the Euro zone (IMF (Washington, DC), 2010, p.113). FDI will also promote expansion of the businesses in these regions to expand their operation even to other parts of the world since they will be having the needed capital. Moreover, the excessive funds resulting from FDI can be used in modernizing production techniques used by corporates in the region, a factor that will give them a competitive advantage not only in Europe, but also in the international market. The main threat of FDI is the element of intense competition that is likely to emerge in the euro zones whereby countries with small economies are likely to pay the price by killing their local industries (Ginsberg, 2010, p.93). Democratic and stable administration in the prospect countries as they are required by the Copenhagen criteria will ensure that that their economies are stable and prosperous. Most of the states that have recently joined the union and those showing interest were initially communist countries thus calling for implementing reforms in their systems of governance. Introduction of good governance will guarantee investors of political and economic stability in the new entrants hence increasing their probability of them investing into those particular countries with little fear of losing their venture (Laçiner, Bal and International Strategic Research Organization, 2005, p.120). Political stability and good governance are some of the key factors that investors consider before they make a venture. Labor movement is another economic benefit that cannot be overlooked whenever evaluating whether to continue expanding the European Union. According to the Single European Act 1987, there should be free labor movement between member states (Erne, 2008, p.24). This would enable businesses to access cheap and highly skilled labor force that would end up lowering their production cost while on the other hand increasing productivity. Free labor movement would help countries that were producing low quality products produce better products simply because they can get experts from the developed nations (Bauder, 2006, p.73). The main disadvantage of this move will be the fact that the new entrants who in this case comprises of the developing countries will suffer a major blow because they might end up providing only unskilled and semi-skilled labor that is lowly paid. The leading giants on the other hand are likely to be the main beneficiaries since they have the capacity of be providing high tech labor. Another key benefit of integrating the EU economy will be the stimulation of technological advancement. Further integration of the EU economy will promote technological progress that will end up improving the overall productivity in the member states (Cahill, 2005, p.47). Advanced production technology is likely to result to better and effective production techniques that would increase production and lower production costs. Nonetheless, this might be the case since companies hesitate to share their business secrets with their competitors because that is what makes them unique and make them survive in the market. As a matter of fact, with the expected intense competition, none of the corporates in the region would be friendly to its competitors to a point of pouring all innermost business secrets to them (Cini and McGowan, 2009, p.100). Further expansion of the EU economy (deepening the economy) will be advantageous to business organization since reports show that EU is creating net trade and that the block has increased the EU GDP by more than 1%. This uplift in as a result of lifting of trade barriers and other tariffs, a factor that has intensified competition thus inefficient producers being replaced by efficient producers. Further expansion of the economy will improve business efficiency because of competition and the larger market created will make businesses enjoy economies of scale to a greater degree (Nazzini, 2009, p.117). The weakness of this argument is the fact that the increased competition is likely to be a major threat to some businesses particularly in the developing new member states as explained earlier. However, according to past carried out studies like the 1997 research study that was that was conducted by Smith and Allen Gasiorek, new entrants are likely to experience much impact compared to the strong economies (Woolcock, 2012, p. 58). This study showed that developed economies like that of UK and Germany are not likely to gain much compared to the uprising economies if further economic integration is made in the EU. Smith and Allen Gasiorek study was commissioned and funded by the European Commission and was conducted on their behalf. The main beneficiaries will be the countries that are trading with these new entrants or those who have clear plans of trading with them in the future (Tang, 2009, p.83). In conclusion, the main economic arguments for further enlargement of the EU include the element of free labor movement that is likely to be of much benefit to business organizations though the leading economies might benefit more than the developing new entrants. It also involves stimulation of technological advancement in the member states, a factor that will also foster economic growth in member states, increase in foreign direct investment (FDI) and increase in demand for the products produced in the member countries. As a result, corporates in the euro zone countries will significantly benefit since they will make excessive funds that would give them an upper hand not only in the euro market, but also in the global market. Therefore, further enlargement of the EU is a highly commendable move that member states especially the leading economic giants (UK, Germany and France) should fully embrace. Further expansion of the block is a prudent idea that would be implemented without hesitation. 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