Global Topic Unit 2- EU

Question 1

Reasons to remain in the EU

Answer 1

1. Between 3-4 million jobs are linked to the EU membership
2. People from other EU countries any claim benefits for the first 3 months and then they have 3 months to find a job
3. A normal working week can’t be longer than 48 hours
4. There are standards in food for EU countries
5. Free movement between countries
6. Britain is safer in Europe- police can share information
7. Export market will reduce

Question 2

Reasons to leave the EU

Answer 2

1. Britain would regain control over its borders
2. Free to trade faster
3. Migration without limits is putting a lot of strain on our services
4. The EU undermines British democracy
5. British parliament has no say in our country
6. Farming pigs is declining because people export food as it is cheaper- bad standard- domestic firms will suffer
7. Costs £10 billion/ per year membership fees
8. Losing money for services such as health care and education
9. Countries break the rules but there are no consequences
10. Foreign people are taking up jobs- high skilled people cannot work
11. Many people come in for free health care and jobs and benefits

Question 3

Benefits of EU membership

Answer 3

1. Free movement of labour- people have moved to other EU countries to work or retire
2. Higher incomes- countries can specialise in the production of goods as they are more skilled and so prices increase
3. Greater choice for consumers
4. Larger market for businesses- opportunities for businesses to expand will be greater if a country is a member of the EU.
5. Increase on exports- free trade encourages buying and selling across borders
6. Political influences- countries are granted various powers to influence policy, the EU

Question 4

Limitations of EU membership

Answer 4

1. Cost- Membership fees
2. Common Agricultural policy (CAP)- although it allows some countries guaranteed farming, other countries such as the UK’s farming will lose out. Cannot offer their products for a lower price because of the CAP
3. Discourage trade outside the EU Bloc- member states may overlook opportunities to trade with other countries outside of the EU
4. Lack of freedom on product standards- products have to conform to EU health and safety standards
5. Competition for U.K. firms- some eu countries have lower prices so may be hard to compete

Question 5

What is the EU?

Answer 5

The European Union is a political and economic union of 28 members states that are located primarily in Europe which promotes freedom of movement

Question 6

What is the Eurozone?

Answer 6

Countries of the European Union which use the currency euro

Question 7

What did the European monetary system do?

Answer 7

Stabilise exchange rates and offset inflation

Question 8

What is a monetary union?

Answer 8

A monetary union occurs when at least two countries share the same currency.

Question 9

What is the convergence criteria?

Answer 9

To join the single currency, a county must meet the following criteria:

1. Stable prices- inflation must not be higher than the top three countries who have the best stability
2. Stable exchange rate- currency stable for the last 2 years prior to entry
3. Sound government finances- total gov debt must not exceed 60% of GDP
4. Interest rate convergence

Question 10

Benefits of a shared currency (EMU)

Answer 10

1. No costs of converting currency- no exchange rate fees to pay
2. Easy price comparison
3. More competitive exports- UK has Spiced whereas EMU countries don’t have this + lower translation costs
4. More trade and growth- firms can be more efficient and able to expand as it will be easier, faster and more convenient to trade within the eurozone (demand shifts out)- economy of scale
5. Longer term planning- better info on prices and costs for firms and government
6. Single monetary policy bringing stability- controls inflation by setting interest rates for all members

Question 11

Limitations of a shared currency (EMU)

Answer 11

1. Menu costs- significant amount of money would need to be spent on training staff and educating the public- not to mention costs in time and money of changing all prices of goods and services.
2. Control- the U.K. would lose control of setting our own interest rates
3. Exchange rates- allowing exchange rates of the pound to fall is a way of boosting economic growth because it leads to a country’s exports being more desirable in foreign countries as they appear cheaper.
4. National identity- the U.K. government has refused to join the euro as our nations pride is strong and we would lose this

Question 12

What is the stability and growth pact (SGP)

Answer 12

An agreement between eurozone countries to ensure they all maintain the value of the euro by enforcing fiscal responsibility. Each country must maintain an annual budget deficit that is no greater than 3% of GDP.

Question 13

What is the OCA?

Answer 13

Optimal Currency Areas which is a geographical design of highly integrated and similar countries where shared single currency allows for greater facilitated of trade and growth, leading to greater economic performance e.g. the eurozone is the largest OCA.

Question 14

Benefits of an OCA?

Answer 14

1. Generate credibility- for poor countries
2. Facilitates trade- no transaction costs
3. Serves political goals

Question 15

What does it mean by fiscal transfers ?

Answer 15

Redistribute wealth- taxes

For example, Germany may bail out Greece by re-distributing there wealths to support the country.

Question 16

What is the OCA criteria ?

Answer 16

1. Countries within it are highly integrated and geographically near
2. Where each economy had a sufficiently flexible labour market to cope with external shocks such as rising oil prices
3. Impact of interest rates- should have a similar effect on businesses and households from country to country.
4. When member nations are willing to make fiscal transfers between eachother- have to supper one another

Question 17

What is an asymmetric shock?

Answer 17

An external economic event e.g. the banking crisis.

Question 18

EU entry criteria:

Answer 18

1. Candidates must have stable democratic institutions, human rights and respect for and protection of minorities
2. Candidates must have a functioning market economy as well as the ability to cope with pressure of competition
3. Candidates must have the ability to adhere to the objectives of political, economics and monetary union.

Question 19

4 key benefits of enlargement of the Eu?

Answer 19

1. Export potential- trade creation= wider market of countries in the free trade area
2. Exploitation of ‘economies of scale’ from supplying to a larger market- bigger market to sell to= more growth potential to increase output= spending production costs over a greater output level, reduced cost per unit
3. Foreign investment and incomes/ profits- flow of profits back to the U.K. thus boosting U.K. GNP. Extra income supper the current account of the balance of payments- more money for government spending
4. A more diverse European labour market- fill skill gaps, greater opportunity of British businesses to import lower cost skilled labour in areas where there are shortages

Question 20

4 key risks of EU enlargement

Answer 20

1. Extra budgetary costs for financing EU programmes- most new members are relatively poor and thus do not contribute as much as others for membership. And due to their needs the EU has to spend the most on these countries
2. Social and economic pressures from inward labour migrants- EU citizens from poor ore countries going to wealthier economies such as U.K.
3. A shift of FDI and jobs to (Eastern Europe) e.g. wealthier/ more expensive countries lose investment from businesses in favour of cheaper countries
4. Politics instability and uncertainty of certain members

Question 21

Name some countries:

a) in the EU
b) Not in the EU
c) Applied

Answer 21

a) Spain
b) Kosovo
c) Iceland

Question 22

What is the Schenen area?

Answer 22

26 county passport free travel zone such as Italy, Germany, Spain etc.