Transcript Macroeconomics, foreign trade and the European Union. Basics.

Macroeconomics, foreign trade and the
European Union. Basics and Examples.
Lecture 1, December 1st
Macroeconomics, foreign trade and European Union. Basics.
Today‘s topics
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What is the European Single Market
four columns of the single market
Evaluation of the single market
Convergence or divergence?
What to do to be successful…
Putin’s proposal of Nov. 25th . Discussions, outlook.
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
European Single Market
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Common market in Europe is not just a usual free trade
zone of national states
We saw in lecture 1, that there is quite a deep integration in
European Union, besides trade, even besides economy
So besides possible positive effects in foreign trade, there are
several positive effects for the private and firms
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
The four freedoms in single market
There are four columns of the EU common market (only one of them the free
trade of goods):
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Free traffic of goods; (no border controls, no tariffs, no technical
burdens)
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Free traffic of services; (transportation, telecommunication,
financial services, public assignments / tenders (!) )
III.
Free capital traffic; money transfers and financial transactions as well as
traffic of EU currency is NOT limited
IV.
Free traffic of citizens; Each citizen of European Union can settle
down everywhere he wants, no border controls, working permission
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Single Market Review
to evaluate the outcomes of its single market policy, European Union
implemented an “Single Market Review” which reported to the beginning
of the 2000s.
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economies of scale are visible to only a small extend
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concurrence didn’t grow vastly (60-80% of the firms said
there was no change)
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The quota of foreign firms winning a tender was relatively
low
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big companies’ profit is bigger than small companies’
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Evaluation of the Review
The Review shows the changes in between the Maastricht treaty (1991)
and the early 2000s. It’s coming to positive effects, which are, however
much smaller than expected. When reading this Review we should keep in
mind two points:
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most of the countries were members of EEC and EC before and
thus had already a quite strong integration behind them. The
single market was more the last step in a row for them, not the
huge step.
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The review took place before eastern enlargement of EU
(integrating totally non integrated countries)
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
The single market as way to convergence?
It is argued, that a single market would give poorer countries the chance to
develop faster and start a convergence process towards the richer states:
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poorer states have less capital, through single market they can
attract capital and invest in modern technology
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products can be produced cheaper in poor countries, as
usually wages are lower. They can be sold in richer countries
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Through a single currency this process will be even faster, as
transaction costs fall apart and the price advantage can be used
better. Capital transfers to poor countries become easier.
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
The single market as way to divergence?
A bigger market leads – as we learnt in the last lecture – to economies of
scale and thus to specialization on goods a country is good in.
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rich countries are usually good in high tech products. If they
specialize in them, they can develop even better technology
letting poor countries even farther behind.
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through factor mobility highly qualified workers move to the
rich countries
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if wages in poorer countries move up – as workers want the same
wealth as in the partner countries – but productivity doesn’t;
poor countries fall farther behind
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Who is right? – a synthesis
The described danger of falling behind by specialization is smaller, the more the structure of
the integrated economies is similar. However being “different” doesn’t necessarily mean
falling behind. If convergence is an aim the country’s policy should act carefully. If there can
be a convergence process can be dependent on:
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functionality of market mechanisms
conditions on labor markets
availability of human capital (level of education!)
functionality of economic institutions
socio-political structures
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Some data and its evidence (1)
The following data takes the EU15 – before eastern enlargement as
basis. The percentages are of the average of the EU15 states, GDP
/head PPP.
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Greece was in 1970 at 63%, 2002 at 69% of the EU level. It
hardly moved up. Greece as very poor country, has as well
very poor institutions, a lot of corruption, one of the worst
educational systems in Europe. It seems to be at least no
evidence for the convergence thesis.
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Some data and its evidence (2)
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Ireland was 1970 at 62% (worse off than Greece!) 2002:
119%; Ireland has clearly structured institutions and paid
money to technology firms to invest in Ireland. Ireland’s
educational system is above European average on rankings,
the people speak English, and so could attract EU basis of
many US firms. Ireland not only converged but overtook
many states. Even through the actual crisis in which Ireland
is damaged strongly, it won’t fall behind European average
again
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Some data and its evidence (3)
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Germany was 1970 at 116% 2002 at 104%. Germany was
and is the richest of the big EU states. Its economy is at
highest standards in regard of technology. German
GDP/head PPP grew from $3774 to $27584 in that time.
This shows clearly: Germany grew at a high rate, however
there were more states that grew faster. Meaning: there was
a convergence process in between the 15 states taking place.
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
What to conclude
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European integration can help to give impulses for an economical
growth
Growth through integration is not for sure. Member states
have to create a surroundings, which let the market powers
take into action
Although it is free trade, it is foreign trade so it can cause
distortions in a countries external balance. However the access to
bigger markets gives a big chance if used (Ireland, Poland, Czech
Republic)
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Prime minister Putin‘s proposal of Nov 25th.
“… our aim should be to create a single continental market from Lisbon to
Wladiwostok… however that shouldn’t be the final step, but only the first
towards even deeper forms of integration between Russia and European
Union… “Wladimir Putin in Süddeutsche Zeitung (Germany) on November
25th, 2010.
This position is a 180° turn around of the Russian government. So
far they were, to express it in a positive way, “very skeptical” towards
EU and hardly accepted EU as a partner on talks, but only national
governments.
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
Let‘s apply what we learnt! A good proposal?
Tell your opinion!
Some hints what we should think about:
How similar is Russia’s and EU’s economy structure?
What could be the economies of scale for Russia?
Which goods would Russia sell to EU? What does that mean
for the future?
Is Russia a state with strong and reliable institutions to take
the positive effects of integration?
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
So what to do for Russia, if this proposal is the aim? (1)
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Russia needs to develop industry producing products
competitive on world markets, if it doesn’t want to be
dependent on exporting raw materials in future.
Russia needs to improve its economic institutions and give
more space to the free market (the government needs to
gain more neutrality)
Russia needs to fight against corruption
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3
Macroeconomics, foreign trade and European Union. Basics.
So what to do for Russia, if this proposal is the aim? (2)
Russia needs to open itself for foreign investors, if it wants to gain
positive spillovers
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Russia needs to get more independent from US$, as EU mostly uses
EURO and currencies bound to EURO
However, after doing so it is a great opportunity for Russian economy.
Besides these only economic effects it is a great opportunity to make relations between Europe
and Russia even better and closer and to bring the peoples closer together. Putin’s proposal is
not less than the last step of ending Europe’s division and make it one again, as it last was
before 1914. So this aim should be supported, but rationally and not only by heart and
wishes. Some way to go! But the biggest journey starts with the first step!
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Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 3