Single European Market Flashcards
Common/Single European market
Adds free factors of production
(CU = movement of G&S)
(CM/SEM = movement of G&S + factors of production)
Why was there limited progress to common market?
Due to many NTBs (non-tariff barriers)
E.g Italy & Spain banned British chocolate and not even called chocolate (doesn’t meet a min amount of cocoa butter)
Which act updated the treaty of Rome, removing NTBs
Single European Act 1986 (SEA)
Basically industries have to harmonise and agree their standards
Trade was still hindered due to NTBS.
What was needed in European institutions
C) who were the main threat?
Qualified majority voting (since 1 state could veto)
C) USA/Japan a threat as EU uncompetitive
Casis de Dijon (1979) : what key principle was founded in this case
B) what did this lead to?
Mutual recognition - If a product (Casis - blackcurrent drink) was suitable for sale in one state, then it was suitable to sell in all states.
B) Led to the development of the single market (removal of technical barrier)
Cecchini report aims
Increased supply side efficiency (increased competition)
Aid/promote integration
Benefit consumers (more choice and lower prices)
Cockfield white paper 1985 - removed 3 types of barriers
Physical (obstructed movement of g&s and FOP e.g passport control limited the free movement of FOP)
Technical (principle of mutual recognition)
Fiscal (tax harmonisation.. but hasn’t worked too well, differences in VAT etc)
Back to Cecchini report - we just considered the predictions of the SEM (2 cards earlier)
Expected microbenefits of SEM (we consider medium term 10 years)
Up to 6.4% GDP attributed to:
Removal of technical barriers 2.4%
E.o.S 2.1%
Reduced monopoly power since more comp 1.6%
Others 0.3%
Note: preparation of SEM between 1986-92, and SEM began 1993
That was microbenefits - 6.4% GDP increase (following removal of technical barriers (mutual recognition) , EOS, reduction of monopoly power and others.
Assuming passive government policy
Expected Macro benefits IN THE MEDIUM TERM to:
(GDP, Price level, Employment)
GDP +4.5%
Prices -6% (competition)
Employment increase by +1.8M
So that was Cecchini’s predictions for micro/macrobenefits.
Criticisms of the report (4)
E.os - some sectors (drinks) already pan European
Brand loyalty still exists - may not use new foreign competition out of habit
Redistributive effects ignored - losers from greater competitive effects of integration not accounted for (inefficient firms e.g esp in Greece die out)
Psychological benefits important - people realise more competition
Where was there limited progress in (6)
Public procurement
Tax harmonisation (links back to fiscal barrier)
Company law e.g it was hard for foreign firms take over German firms (protectionist) dont want foreign interest own key strategic assets (whereas UK lets this e.g Royal Mail bought by Czech billionaire)
Postal services
Financial services
Service sector (not as successful as goods sector - part of first essay.. explain why)
How has the Single market performed? From the EU commission report
Well
GDP, investment, employment, trade & FDI higher
Use pg 16 report, good for first essay, lots of data about the different markets doing well/not. (Can help support why single market good or bad)
Single Market theory
What market structure is it
Simplified cournot oligopoly
Assumption for Single Market theory
Firms are symmetric in size
Break even competition (BE-COMP) diagram
A) what does the competition (COMP) curve show?
B) under imperfect competition what is the condition
C) as a result, would COMP curve be upward/down
D) diagram with monopoly and duopoly structure
E) SR and LR possibilities
F) 3 part diagram (one to show LRAC& SALES per firm, one shows home MARKET total sales, panel A is same as previous diagram)
A) COMP curve - how much P exceeds MC as number of firms changes
B) P>MC in imperfect competitive, and more firms survive
C) Downward sloping, more firms = lower the markup (more comp)
D) diagram simple, number of firms on X axis, mark-up on Y axis so downward sloping COMP curve.
E) SR - not always on BE curve since can earn > or < than normal profits
LR - lie on BE curve due to entry and exit
Theory applied - what did the European integration result in
This theory shows the effect of the removal of NTBs, since tariffs were already removed.
Industrial restructuring - bigger, few, n more efficient (due to EOS) firms facing more effective competition and lower prices
2 stages - short run and long run
Short run - make a loss (more firms n’>2n)
Long run - industrial restructuring - firms merge, so fewer firms to restore normal profit (less firms (2n>n’‘) average costs also falls (ac’ to ac”) following E.OS from industrial restructuring
Diagram
BE curve shifts downwards following removal of NTBs, and number of firms increases n’ to 2n’. New mark-up is μA. (SO OPERATING BELOW BE CURVE, A LOSS!!! HENCE THE RESTRUCTURING PART, FIRMS MERGE TO REDUCE COSTS)
Middle diagram new price is pA. (Free trade benefit for consumers, but bad for producers as making a loss)
No change to costs yet in left diagram
Long run diagram
u’’ where we break even (where BE curve intersects the COMP curve
Fall in AC due to economies of scale
Welfare gain in area W from lower prices
Welfare gain? 2 evals
Yes, lower price and rise in consumption, more choice, buy foreign products too)
Eval: ignore adjustment costs e.g unemployment
Speed of adjustment varies between industries and sectors
Doesnt work as well for service sector e.g energy
This what Britain has lost since Brexit.
Example of this
KLM and Air France - merge to get lower costs, and welfare gain as consumers get lower prices
Coffee money
Bribes
lines at borders, traffic waiting to get approved at customs to ensure whether they met the home country’s standards. with SEM customs posts are removed.
QMV introduced alonng with SEM, vote majority to carry a measure through, improves efficiency of decison making in the EU (no 1 vetoer)
