Issues In European Economics

Economic integration between national countries can be defined as the

removal of trade obstacles in the production and movement of goods
between these countries. Integration does not stop there as furthermore
common policies are introduced. Along with these policies comes governing
bodies over these policies editing and modifying to better the collective
group.

Integration between countries can be absolutely essential for survival in the

world market. Over the past 50 years, superpowers like America and China
have been dominating markets due to their huge supply of labour and other
resources. Smaller countries did not have the capital nor the reputation to
compete against these big firms. On top of that, the firms that raised enough
capital to venture into foreign markets were hit with large trade tariffs and
quotas, set by individual governments.
This effectively made profitable foreign projects almost impossible.

When the European Union was officially constituted in 1992 by the Treaty on
European Union, a whole new means of national co-operation was set to pass.
Certain aspects of todays current European Union existed even before this
Union was formed, however now an official and respected body has been
formed to govern many economical areas with efficiency. This integration
mainly focused on economic growth and prosperity.

A main activity of the EU is first the establishment and then after the
administration of a collective single market, which effectively eliminates
trade barriers between member states. Customs Unions, Common
Agricultural Policies and other policies are then set up as part of this market.
Some have adopted a single currency policy (The Euro).

The European Union offered many more equal opportunities for firms, which
was only one of many benefits it offers;

Improved Competition leads to more efficient work methods and cost

reductions.
Removed trade barriers allow improved location opportunities for a
company. Also offers free movement of labour, goods and services.
A common system of taxation and also a fixed exchange rate to most
members.
Companies can exploit other economies which may have a high demand for
a particular product.
More firms working together which contributes to technological
improvements.
Company growth will occur more rapidly.
A closer step to obtaining a Common Procurement Policy.
A common set of rules and regulations governing production, employment
and trade.

The EU board can opt to exclusively offer their tariff free priced goods to
members. This is known as Preferential Trading.

Agricultural Goods

Prior to the European Unions formation there was a diverse range of prices
and costs between EU states concerning the agricultural market. The
average variation from EC mean price without indirect taxes in 1985 was 15%
consumer goods and 12 % capital goods, (pg 113 The European Union)
which shows the big difference between European prices.

Agriculture manufacturers within the EU all have to comply with their

Common Agricultural Policy (CAP). This is effectively a set of rules governing
the movement of products. Agricultural goods that are produced throughout
the European Union are set with a minimum selling price. This amount
ensures that the goods will not be sold below this specific price. It is known as
a floor price. This value per unit of the goods in question will always be higher
than that of the equilibrium price, and as a result surplus goods will be
produced.

A surplus of agricultural goods has benefits and drawbacks. The benefits of

this CAP are that there are always sufficient food stockpiles in case of famine,
prices of goods are stabilized and by offering farmers a stabile and often
increasing wages they subsequently re-invest in the market area creating
growth. These surpluses contribute to reducing world famine as they are
often given as aid.

After these benefits come the drawbacks. To keep a stabile floor price the
intervention board of the EU has to occasionally buy goods to ensure more
demand. Storing this excess stock can prove costly. Each year around 80
per head of the EU population (pg 75 Essentials of Economics) is spent on
storing these excess foods. Another problem is that firms often are left with
surplus goods which they illegally try to sell their goods off at cheap prices. A
big portion of all this excess food is sold off to third world countries.

EU Subsidised food stocks sold to countries create many problems. Local

farmers find competing against the subsidised food almost impossible. Local
food exporters may also suffer as other countries would much rather have
the cheaper European stocks. This leads to insufficient investment in the
market and more rural farmers move to crowded cities where they are not
needed.

Manufactured Goods

Manufactured goods throughout the European Community, like in the

Agricultural market, have a customs union with a common external tariff. This
is essential as in the manufactured goods section there is a wider range of
diversity between the products that are on sale. The manufacturing industry
has more products, and so more prices and more compatibility problems. By
1985 a supposed integrated market was in operation but in truth it was far
from it. The EC recognized this and in 1992 they brought the Common
Market program into action. This was considered a huge leap towards
European integration.

This program promoted integration and made it easier. The main reasons that

this program advanced the manufacturing market were that more trade was
occurring between the EC states and so more money was being re-invested
into the market. More and more prices were converging towards a common
market price and companies were obtaining better locations for their
production. The increased competition contributes to a converged price as it
provokes companies to find cheaper ways of producing their product. They
will also always be some compatibility problems that cannot be ironed out
through a market policy, like different plug sockets in different countries,
however the European Union has improved manufacture markets on a whole
significantly.

Government Procured Goods

Government procured goods is works, supplies and services provided by

national, regional or local bodies. It is a broad sector and must financially
support these services. The EU alone spends 500 billion a year on these
areas. Problems occur when a biased procurement contract is passed. This
means that a government will choose a contract from a domestic supplier,
when purchasing something like military equipment, over a more affordable
and competitive price abroad. The EU is getting ever closer to eradicating this
special treatment and perfecting a Common Procurement Policy.

European Country

After looking into the EUs markets it is now time to assess a specific country
and its economy, then compare it to that of the EU. The nation I have chosen
is Germany.

World War 2 had no greater affect on one economy than that of the German
Economy. Prior to it, the economy was strictly run through state intervention
and domination. The main goals of the new economy were to make an equal
economy that not only helps the rich but the poor also. They sought for a
social market. The economy is very structured and directed however there is
one governing body. The Economy tries to remain competitive with rules over
monopolistic tendencies. Now the German Economy is the 5th largest nation
economy in the world.

The German Economy can be described in two parts. First of all the German
Economy is conservative in that it still uses some of its old traditions with
state roles in the economy. They are not big risk takers and they are cautious
when concerning investment. The other side argues that the German
Economy is dynamic as it is heavily geared toward growth.

The German government is part of the EU, but it insists on making its own
decisions when it comes to domestic problems. They support
supranationalism which is a form a convergence between bodies, however
they wish to remain with power. Other countries that support this means of
integration are France and Italy. Although more efficient and competitive
economies are present in Europe, Germany opts to turn to tradition when
concerning the traditional industries weighing down the economic growth.

Agriculture
German Agriculture is the smaller of the markets. Compared to its industry
sector it is not as strong. It contributes only a small part of the nations GDP
which is very different in other European countries such as Spain. Both the
EUs CAP and their own government heavily subsidise the food, leaving little
profit if sold.
Manufactured Goods

The German industry sector is very good at processing and has been
renowned as this for many years. It is home to such big firms as Siemens. It is
the largest market sector by far and contributes 38 % of the GDP. The
German Economy is well known for its extremely efficient smaller firms, that
do not offer the diversity of some companies but offer second to none quality.
They produce specialized goods of all varieties, such as chemicals and
electrical products.

Also in Germany there is less taxation on consumer goods than there is in

other EU members For instance on an E class 220 CDI Mercedes;

In Germany the cost of the car before tax was $33250 and after tax was

$38570 (38570 33250 = 5320). Therefore the tax is $5320 or 16 %.

In Spain the cost of the car before tax was $33483 and after tax was
$42858 (42858 33483 = 9375). Therefore the tax is $9375 or 28 %.

This shows a drastic contrast in taxation.

The sector is among the worlds largest and advanced producers of iron,
steel, coal, cement, chemicals, vehicles and electronics. Its the worlds
leader of brown coal production. The production of hard coal is slowly being
reduced as high costs and increasing subsidies.

Procurement Goods

Germany is a very traditional and patriotic country and this has an knock on
effect with contracts regarding the government. The EU works towards a
Common Procurement Policy, however obtaining this is near impossible.
Germany still elects its favored companies over the more competitive and
efficient companies, which causes problems. Also provides a large amount of
electricity to Europe.

Germany spent $38.8 billion on defense in 2002. That was 1.4% of its GDP.
Germany takes particular interest in their military forces and are members of
the UN peacekeeping force. 63.8 % of the labor workforce work in the
services sector.

B)

Reducing food stockpiles to minimal levels to reduce wasted national income

on storage and decay. Also this would provide smaller foreign firms the
chance to increase their production/sales, with less of the population eating
from the subsidised stock. In turn the firms would invest into the market
providing desperate income for their country. This would diversify the market
by opening new areas with which comes new jobs.

After identifying the problem with byist government purchases, a new stricter
approach could be formatted to prevent them. This would ensure the best
company is rewarded and ensures a efficient competitive environment
between companies. Germany are renowned for their favoritism and
particular attention should be paid to them.

Better public surveys should take place so that a better understanding of

what the European Society on a whole would like to be seen done to improve
integration. This would give integration policies a better idea of what
direction to head in.

Often transactions between countries can take a long time to be complete

and so better procedures and methods could be used in ports and customs.

Bibliography

Sloman J (2004) Essentials of Economics, Third Edition. Essex England.

Pearson Education Ltd.
Nello SS (2005) The European Union; Economics, Policies and History. New
York USA. McGraw-Hill Publications (UK) Ltd.
www.germanculture.com.au
(A website entirely dedicated to information on German Culture)
www.nationsencyclopedia.com
(A large website with broad information on every world country)
www.nationmaster.com/country/gm/economy
(Like the previous website, this offers information on many different
countries)
www.watzmann.net/scg/
(Nice small personal website with information on Germany)

http://europa.eu.int/comm/competition/car_sector/price_diffs/2005_autumn_m
anu_table_a.pdf
(European Car Sales Report, giving exact figures)
http://www.emulateme.com/country.aspx?
countryid=91&countryName=Germany
(A website highlighting information about different countries)