Advantages and Disadvantages of EU

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J. Gašková, Mat/Eco 5 Advantages and disadvantages of being a member of EU The main advantages for the existing members of the European Union are generally thought to be: 1. Export Potential – commercial opportunities from enlarging the Internal Market a) Classic trade creation effects of increasing the size of a customs union b) Accession countries are small – but have grown more quickly than EU(15) in recent years and have much faster growth potential c) If living standards increase – export
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  J. Gašková, Mat/Eco 5 Advantages and disadvantages of being a member of EU The main advantages for the existing members of the European Union are generallythought to be: 1.Export Potential – commercial opportunities from enlarging the InternalMarketa) Classic trade creation effects of increasing the size of a customs union b) Accession countries are small – but have grown more quickly than EU(15) in recentyears and have much faster growth potentialc) If living standards increase – export potential for consumer goods industries is huged) Much recent FDI into accession countries has concentrated on retailing, banks andhotels!2.Exploitation of economies of scale from supplying to a larger marketa) Gains in productive efficiency / increasing returns to scale b) Exploitation of principle of large minimum efficient scale in many industries3.Foreign Investment and Incomes and Profitsa) FDI into accession countries will provide a net flow of interest profits and dividends b) FDI flows likely to supplement rather than reduce domestic capital spendingc) FDI will speed up the transformation of accession countries4.Free tradea) Potential cost savings when importing raw materials and components fromaccession countries5.A more diverse European labour marketa) Opportunities for British and other EU(15) businesses to import lower cost skilledlabour in areas where there are severe labour shortages b) Migration of labour from accession countries may help to offset longer-term effectsof ageing populations / slow growth of population of working agec) Increased opportunities for EU people to travel, live and work in Central, Easternand Southern Europed) Successful integration of appellant countries may reduce the surge of economicmigrants seeking employment in the existing EU from eastern European countries6.More jobs7.Higher EU economic growth8.A cleaner environmenta) Accession countries have spent huge sums in securing improvements to air andwater quality to meet more stringent EU standards – reduction in cross-border  pollution will have positive externalities9.Enlargement will be a catalyst for further economic reform in the EUa) Reforms to the CAP b) Spur to countries to reform their labour markets in the face of increasing low-unitlabour cost competition from accession economies There are three significant potential costs of enlargement: (1) The costs for public finances(2) The costs of labour market disruption (including higher unemployment) and(3) The costs of wage competition.  In many ways the costs of enlargement (including the effects on the total EU budget) aredriven by political rather than economic factors – i.e. how generous the existing members of the EU are prepared to be to accession countries. Several “controls” have been put in placeduring final negotiations on accession – most of them relating to regional aid, CAP fundingthe limitations on the free movement of labour within the EU.1) Budgetary Costs for the EUa) Accession will increase the budgetary contributions of existing members b) Steps have been taken to limit the fiscal costs to EU(15) countries from enlargementc) Long Term Need for Higher Regional Subsidies2) Labour Market Issuesa) Fears of higher structural unemployment among accession countries – which might leadto large immigration of labour into higher-income countries as well as increasing politicaland social tensions b) Fears that enlargement will lead to a huge surge in economic migration from East toWest
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