Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union February 2011 www.tutor2u.net 1 An Ever Larger Union Enlargement of the EU Single Market A2 Economics: Global and European Context Issues (Geoff Riley, February 2011) The Map of Europe The EU is now the The EU is now the largest integrated economic area in the world, accounting for more than 30% of world GDP and more than 17% of world trade
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Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 1
An Ever Larger Union
Enlargement of the EU Single Market
A2 Economics: Global and European Context Issues (Geoff Riley, February 2011)
The Map of EuropeThe EU is now the The EU is now the largest integrated economic area in
the world, accounting for
more than 30% of world GDP and
more than 17% of world trade
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 2
Expanding the Single Market
• First Expansion– 1973: UK, Ireland and Denmark
• Mediterranean Spirit– 1981: Greece– 1986: Portugal and Spain
• Entry of the Neutrals– 1995: Austria, Finland and Sweden
• The Big Bang– 2004: Latvia, Lithuania, Cyprus, Malta, Slovenia, Slovakia, Estonia, Hungary, Czech Republic, Poland
– 2007: Bulgaria and Romania
Backward agrarian sectors?
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 3
Or countries and cities of deep cultural and political interest
Many new EU countries offer surprises
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 4
And lead the way towards a low carbon economy
Benefits of EU MembershipTrade and Investment
• Free trade access to richer EU markets
• Attract inward capital investment
EU funding
• Structural funds for transport & environment
• Farm support (but at lower rate than ‘Old EU’)
Macroeconomic stability
• Commitment towards joining single currency
• Must be fully‐fledged market economies to join
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 5
How have “New Europe” nations performed since EU entry ?
• There are many indicators we can look at:
1. Volume /balance of trade within the EU
2. Economic growth rates and cyclical volatility
3. Relative productivity levels
4. Relative per capita incomes
5. Unemployment rates
6. Consumer price inflation
7. External trade and investment balances
Dining at the Rich Man’s TableExports of goods and services, annual value Euro billions
Slovakian Exports to the UK
Source: EuroStat
99 00 01 02 03 04 05 06 07 08 09
bill
ion
s
0.0
0.5
1.0
1.5
2.0
2.5
EU
R (
bill
ion
s)
0.0
0.5
1.0
1.5
2.0
2.5
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 14
Unemployment in the EUUnemployment - % of labour force, seasonally adjusted
Unemployment Rates
UKGermany
SpainPoland
Ireland
Source: Reuters EcoWin
05 06 07 08 09 100.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Pe
rce
nt
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0A third of the Euro Zone's 15.8 million unemployed
are in Spain
InflationAnnual % change in consumer prices (all items)
Inflation Rates for Selected new EU States
Hungary Czech Republic Poland Latvia Euro ZoneSource: Reuters EcoWin
04 05 06 07 08 09 10-5.0
0.0
5.0
10.0
15.0
20.0
Pe
rce
nt
-5.0
0.0
5.0
10.0
15.0
20.0
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 15
EU Enlargement and the UK economy
Trade Flows
FDI FlowsLabour
Migration
TradeExports of goods and services, annual data, current prices, £ billion
UK Exports to some new EU States
PolandSlovakia
HungaryCzech Republic
00 01 02 03 04 05 06 07 08 09
bill
ion
s
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
GB
P (
bill
ion
s)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 16
UK Trade with PolandAnnual value of trade, £ billion
UK Trade in Goods and Services with Poland
Imports from Poland Exports to PolandSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09
bill
ions
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
GB
P (
bill
ion
s)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
UK Trade with PolandAnnual value of trade, £ billion
UK Trade in Goods and Services with Poland
Imports from Poland Exports to PolandSource: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09
bill
ions
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
GB
P (
bill
ion
s)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Poland now takes as many exports from the UK as China does
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 17
Migration – Push and Pull Factors
Wages
Welfare
TravelLanguage
Jobs
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
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The Migration Stats
Long Term Migration
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 19
Supporters of Inward Migration
• Fresh skills and boost to innovation– Twenty‐two of Britain's 114 Nobel laureates were born abroad– Tesco, Marks & Spencer, Easy Jet, Google, Yahoo!, eBay, YouTube
all founded or co‐founded by immigrants or their families
• Migration is a form of trade and there are gains from trade– If you go to France for an operation, it is classified as trade; if a
French surgeon comes here, it is migration– Reduces labour shortages
• Remittances add to GNP of new Europe• Net contribution to government tax revenues• Multiplier and accelerator effects• May contribute to higher trend growth• Justified on grounds of freedom, justice and human rights
Opponents of unrestricted migration
• Extra welfare burden
• Downward pressure on real wages and jobs for domestic workers
• Social pressures and tensions
• Pressure on property prices and housing rents
• Some reports question the size of the macroeconomic benefit of migration
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 20
• Entry into the EU involves a commitment to join the single currency at some point
• But the timing is flexible
• 5 new EU states have joined since 2004
• Slovenia, Malta, Cyprus, Slovakia and Estonia
• Some have a pegged currency against the Euro
• Others favour a floating exchange rate
Decisions on the Euro
Some have pegged to the EuroLocal exchange rates to the Euro, daily valuePegging to the Euro - Estonia and Latvia
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10 11
0.500
0.550
0.600
0.650
0.700
EU
R/L
VL
0.500
0.550
0.600
0.650
0.700Latvian currency
15.620
15.630
15.640
15.650
15.660
EU
R/E
EK
15.620
15.630
15.640
15.650
15.660
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 21
Poland – currency depreciationTop Pane: Real GDP Bottom Pane: Effective Exchange Rate Index
Poland - Growth of Real GDP and the Exchange Rate
Poland, Real GDP, precentage change from previous period, Constant PricesEffective Exchange Rate Index
Source: Reuters EcoWin
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct06 07 08 09 10
85
90
95
100
105
110
115
120
125
130
Ind
ex
85
90
95
100
105
110
115
120
125
130
0
1
2
3
4
5
6
7
Pe
rce
nt
0
1
2
3
4
5
6
7
An ever wider Europe? Or risks of enlargement fatigue?
• Iceland• Croatia• Macedonia and Montenegro
• Bosnia and Herzegovina
• Serbia• Kosovo• Turkey• Ukraine, Georgia or Tunisia?
Geoff Riley (tutor2u) ‐ Europe an Ever Larger Union
February 2011
www.tutor2u.net 22
Enlargement – A Work in Progress
• Enlargement ‐ one of EU’s greatest successes• New Europe was vulnerable to the global and European financial crisis
• But many countries have outperformed old Europe since 2007 on a variety of indicators
• They have provided fresh dynamism into the EU• Europe needs it! Since 2005, Britain's economy has grown by 2%, the Euro Zone's by 4%, Brazil's by 25%, India's by 47% and China's by 69%
• The political significance of enlargement cannot be underestimated