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Business Environment

Business Environment. Lecture 15&16 ( L2&3/S2) The EUropean Environment Milena Malinowska. Definitions. The EU is a unique union of sovereign states, which cooperate in multi-tier structure

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Business Environment

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  1. Business Environment Lecture 15&16 (L2&3/S2) The EUropean Environment Milena Malinowska

  2. Definitions • The EU is a unique union of sovereign states, which cooperate in multi-tier structure • It is the world’s most largest economy (2011) with a GDP of € 12.2 ($ 17.7) trillion and market of 500 million consumers • The EU ‘institutional triangle’ is the most powerful structure on the supranational level • The EU is a unique blend of culture, where democratic values are granted highest appreciation

  3. Development of the EU

  4. Enlargement

  5. Potential Candidates: • Albania • Bosnia-Herzegovina • Serbia • Kosovo • Current Candidates: • Croatia • Macedonia • Montenegro • Turkey • Iceland

  6. EU Conditionality • ‘Conditionality’ is the EU approach of imposing criteria (conditions) that a candidate state should meet in order obtain pre-accession aid and ultimately to become a member state (MS) • Copenhagen criteria: • Political: to establish institutions that promote and secure democracy, the rule of law, protect human rights and minorities • Economic: to establish a market economy (that is competitive on the single market (SM) • AquisCommunautaire: to adopt EU legislation

  7. EU & the Balkans • EU had a fragmented ‘ad-hoc’ approach until the late 1990s • After the Kosovo war first comprehensive framework was established – Stability Pact for SEE • Stabilization and Association Agreements (SAAs): • Potential Candidate status • ‘pre-accession’ assistance • FTA • EU legislation approximation • Accession of BG and RO in 2007 – stabilizing the region • Shift towards ‘regional ownership’ for the WB - Regional Cooperation Council 2008

  8. EU Institutions

  9. Council of the EU • Primary decision-making body • Comprised by (27) ministers of MS, which change due to the topic discussed • Rotating presidency every 6 months • Adopts EU legislation (together with EP) • Adopts the EU budget (together with EP) • Defines the EU Foreign and Defense policies • Mainly ‘qualified majority voting’ • Unanimity voting in the areas of tax, defense, foreign policy, social security and enlargement

  10. Council of the EU (2) MS hold votes, according to the size of their population

  11. Council of the EU (3) The Council has 10 main subdivisions (configurations), which deal with the following policy areas: • General Affairs • Foreign Affairs • Economic and Financial Affairs • Cooperation in Justice Home Affairs • Agriculture • Competitiveness • Transport, Telecommunication and Energy • Environment • Education and Culture • Employment, Social policy, Health and Consumer Affairs

  12. The European Parliament (EP) • EP has 751 members (MEP), which are directly elected every 5 years • Each MS has seats proportionate to its population • It is the democratic body of the EU, hence: • It co-decides on the most important matters: • Approves the choice of Commissioners and Commission President • Amends and adopts the budget • Amends and approves legislation • Oversees malpractices

  13. The European Commission (EC) • ‘Guardian of the Treaties’ and ‘engine’ of integration • Comprised by 26 Commissioners (each one appointed by his/her MS) and a President for a 5-year term • Drafts legislation • Monitors law obedience • Implements decisions of the Council and Parliament • Proposes the budget, oversees and reports its allocation

  14. The European Council • Defines the general political agenda and environment of the EU • Consists of EU Heads of State / Parliament • Chaired by a Council President (elected every 2 and a half years) • A general meeting with the EU leaders, the Council President and the Commission president is held every 3 months

  15. The European Central Bank • The ECB deals with the monetary policy of the EU and especially the Eurozone (17 MS) • Owned by MS central banks • ECB’s main functions are: • Keeping the fixed target for inflation – 2% • Controlling the money supply (authorizing MS central banks to print €) • Setting the interest rates – 0.25% in (Dec 2011) • Keeping the foreign currency reserves • Supervising MS financial markets & institutions • Most independent body in the EU

  16. The Court of Justice of EU • Comprises the European Court of Justice, the General court and the Civil Service Tribunal • The ECJ has 27 judges appointed by MS for a 6-year term • Interprets EU law (ECJ) • Infringements of EU law are monitored by the EC and brought to the Court • Deals with matters on the EU level, but also with national, regional, commercial and individual cases within the EU context • Current President – VassiliosSkouris

  17. EU Court of Auditors • Comprised by 27 judges (one per MS) • Carries out annual audit of the EU finance: • Examines and reports to the Council and EP the Commission’s allocation of the EU budget • Runs audit on MS, EU institutions or any organization dealing with EU funds

  18. Interaction of EU institutions CA of the EU European Council Heads of state ECB CJ of the EU Reports Decides Audits Cases Influences & decides Council of the EU EU Commission Interprets the law Governments Proposes law & budget Co-decision Controls & decides 27 MS EU Parliament Elect MEP

  19. EU main policy areas

  20. EU integration and policies • The basic idea of the EC/EU was to create gains for its members through economic integration: • negative integration – removing barriers • positive integration – adopting common rules • The EU integration stared with a FTA, and evolved into a customs union in the late 1960s • More rapid economic integration set out in the mid 1980s, leading to the emergence of the SM and EMU • The EU countries pursued political integration as a result and also established a framework of common policies/laws in various other fields (close 40! today) • The EU has regulatory and budgetary policies

  21. The Single Market • The Delors Commission’s impact • White Paper 1985: • Free movement of goods, services, people and capital should be fully enabled until 1993 • The Single European Act 1986 established legally the Single Market • Physical barrier to the movement of goods are abolished – the principle of ‘mutual recognition’ • Shengen – free movement of people ? • Liberalization of services ? • More capital mobility ?

  22. Competition policy • Implemented and monitored by EU Commission • Based on the liberal (free-market) idea of the SM, it promotes competitive environment • Main policy areas are: • Antitrust– bans agreements resulting in monopoly or oligopoly (<40% market share) • Mergers– bans single companies to become monopolists • State aid – should be limited • Liberalization– of public sectors including energy, water, postal services, telecommunication, transportation

  23. The Economic and Monetary Union • Within a single market, a single currency makes economic sense • Three stages of the EMU: • 1st ‘convergence’ stage (1990-4) – completing the SM, adopting common competition policy and harmonizing economic policies of MS • 2nd ‘institutional’ stage (1994-98) – established the European Monetary Institute (EMI), independence of MS central banks, set up ECB • 3rd ‘euro’ stage (1999-2002) – dual currency usage, followed by complete adoption of the euro • Currently, the Eurozone has 17 members • To become part of it, new MS should meet several requirements of convergence

  24. Eurozone criteria • Convergence (Maastricht) criteria: • Price stability – inflation ≤ 1.5% of the average of the 3 MS (with the lowest inflation rate in the EU) • Inflation – interest rate ≤ 2% of the of the average of the 3 MS (with the lowest inflation rate in the EU) • Exchange rate – should be within the limit (ERM2) for the past 2 years • Budget deficit – should be less than 3% of GDP • Public debt – should be less than 60% of GDP • Stability and Growth Pact – in case the last 2 fiscal criteria are broken, the MS should pay fine of 1,5% of GDP

  25. Euro zone: (1999) Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, Netherlands, Austria, Portugal, Finland, (2001) Greece (2007) Slovenia (2008) Cyprus, Malta (2009) Slovakia (2011) Estonia ERM2: Denmark, Latvia, Lithuania Unilaterally adopted: Andorra, Kosovo, Montenegro Special adoption: Vatican City, San Marino Monaco Other: Bulgaria, Romania, Hungary, Czech Rep, Poland, Sweden, UK

  26. The EU Budget 2011: € 141.9 billion

  27. Regional (cohesion) policy • The biggest proportion of the budget goes to EU regional policy • It aims at reducing disparities between more and less developed MS and increasing living standards in the latter (solidarity principle) • Currently 15 MS are beneficiaries of RP funds • Each MS acquiring aid draws a list of main priorities (National Strategic Reference Framework) • Regional priorities are incorporated into Operational Programs (OP) • Pre-accession assistance is part of RP – BG acquired €1.3bn in 2004-2006

  28. Structural & Cohesion Funds

  29. Common Agricultural Policy • Logic behind the CAP: • Ensure reasonable amount of (high-quality) food for EU citizens • Provide farmers with normal standard of living • Assure environment and animal protection • CAP measures include: • Import duties and quotas • Direct subsidies to farmers • Intervention price on the internal market • Market distortions – ‘lakes of wine’ and ‘mountains of butter’ • The Iron Triangle – why is reform so hard? • The CAP today

  30. Strategies for development • Lisbon Strategy (2000-2010): “The EU should become the most competitive and dynamic knowledge economy by 2010” – χ • Europe 2020: ? • 75% employment among 20-64 years-old population • 3% of EU GDP to be invested in innovation • Climate change – Directive 20x20x20 • Reducing the rate of school drop-out by 10%; increasing the rate of 30-35 years-old population with university degree to 40% • Decreasing the number of population below poverty line with 20 million

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