Transcript The European Economy

GEOG 3762
Geography of Europe
Week 4 The European Economy
Fall 2008
Dr. Olaf Kuhlke
Overview
• The European economy at a glance
• The primary sector
– Origins of European agriculture
– European agricultural traditions
– The contemporary agricultural economy
– The Common Agricultural Policy and its aftermath
Overview
• The European economy at a glance
• The secondary sector
– Origins of European Industry
– Industrial resources in Europe
– The EU and industrial policies
Overview
• The European economy at a glance
• The tertiary sector
– Origins of European monetary policy
– European financial integration
•
•
•
•
The common market
The European Central Bank
The Euro
Impact of the introduction of the Euro on EU national
economies
The European Economy at a glance
How big is the EU economy and what does it look like?
• Large market of 500+ million people
• Larger total Gross Domestic Product than USA
• Similar average purchasing power than USA
• Most EU countries have lower per capita GDP than USA
• Human Development Index: 15 of top 20 countries are
European, 20 out of top 30 are European
• US ranks 12th in HDI list
• For the last 30 years, a European country has topped
the annual HDI list for 15 years
The European Economy at a glance
European GDP per capita in 2006
The European Economy at a glance
European GDP (adjusted for purchasing power) per capita in 2006
The European Economy at a glance
HDI in 2006
The European Economy at a glance
How big is the EU economy and what does it
look like?
• Small, highly productive, and highly subsidized
agricultural sector
• Large, highly varied industrial sector that is
also subsidized and protected by tariff barriers
• Large, highly competitive tertiary sector
driven by European integration
The European Economy at a glance
The European Economy at a glance
The European Economy at a glance
The European Economy at a glance
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Wal-Mart Stores 378,799
12,731
Exxon Mobil
372,824
40,610
Royal Dutch Shell 355,782
31,331
BP
291,438
20,845
Toyota Motor
230,201
15,042
Chevron
210,783
18,688
ING Group
201,516
12,649
Total
187,280
18,042
General Motors 182,347
-38,732
ConocoPhillips
178,558
11,891
Daimler
177,167
5,446
General Electric 176,656
22,208
Ford Motor
172,468
-2,723
Fortis
164,877
5,467
AXA
162,762
7,755
Sinopec
159,260
4,166
Citigroup
159,229
3,617
Volkswagen 149,054
5,639
Dexia Group
147,648
3,467
HSBC Holdings
146,500
19,133
The twenty largest corporations in the world
The European Economy at a glance
European Agriculture
What are the characteristics of European
agriculture
• Medium size production area
• Medium size market
• Highly productive and mechanized work force
• Highly regulated production and market
• Highly trained and paid workforce
• Highly protective and subsidized market
European Agricultural Traditions
Transhumance
• Traditional agricultural
practice
• Highly productive
• Grazing
• Livestock migration
from summer to winter
pastures
– Sheep and Cows
The contemporary agricultural
economy
• Agricultural Statistics
– By Country
– By Product
– Discussion of Statistics
• Discrepancies in holding size
• Discrepancies in ag. contribution to GDP
– “Old 15” versus “New 10”
• Discrepancies in import/export patterns
The Creation of European Agricultural
Policy
Why does the EU need a common agricultural
policy?
• Post-WW II: Fear of Shortages
• Integration of national policies
• Creation of a “fair, transparent and
competitive market”
• Protection of European agricultural goods
from outside competition
The Creation of European Agricultural
Policy
What issues does this policy encompass?
• Economic and ecological sustainability
• Food quality and safety
– Animal welfare
– Control mechanisms
The Creation of European Agricultural
Policy
Elements of CAP
• Economic and ecological sustainability
– Productivism
– Price support
– Intervention buying
– Tariffs on imported goods
The Creation of European Agricultural
Policy
Elements of CAP
• Problems
–
–
–
–
Price guarantees hike up market prices of goods
Guaranteed prices for goods encouraged overproduction
Overproduction requires storage and disposal
Tax money is used to support the sale and disposal of
goods!!
– Tax money is used to artificially manipulate world markets
and to establish import barriers
The Creation of European Agricultural
Policy
New Elements of CAP (2003+ newer)
– Post-productivism
• Single volume-independent, size-dependent farm
subsidy
• Subsidies are tied to environmental, food, and safety
standards
• Quotas
• Gradually reduced intervention prices
• Diversification grants
• Land diversion
• Pluriactivity
• Strong support of new member states
The Creation of European Agricultural
Policy
New Elements of CAP (2003+ newer)
– Problems
• Subsidies are not cut, but just shifted in focus
• Non-productivity is rewarded
• Large farms will receive the largest benefits for not
using their land
• Small farmers will receive less for products, and will be
moving further towards poverty
• Countries contribute to agricultural subsidies according
to their overall economic status, but receive according
to the development of their agricultural sector.
European Industry
Why study European Industry?
• Regional differences in industrialization
• Historical conflict over key industries
• Recent market integration and its effects on
member states
• Recent transition of parts of the EU (and
potential future members) to a market
economy
Geography of European Industry
How and where did European Industry begin?
• Industrial revolution
• 1750’s United Kingdom
• 1769 steam engine
• James Watt
• Late 1800’s diffusion
• Industrial restructuring
Geography of European Industry
How is European Industry distributed today?
• Regional patterns show
– Clustering in “traditional” sites near resources
• Weber’s model of industrial location
– Clustering of resources
– Strong inequities in resource and industry distribution
– Newly emerging production sites in “non-traditional” sites
• Flexible accumulation
• Just-in-time production
European Industrial Policy
What does the EU do about these geographic patterns
of production?
• General Policies
• General measures for the internal market
• External commercial policy
– Bilateral and multilateral trade agreements with implications for individual
industrial sectors
• Social and regional policy
• Competition policy
– legal instruments for intervention in market mechanisms
– monitoring state aid
• Research and development policy
• The strengthening of cooperation among European enterprises
European Industrial Policy
What does the EU do about these geographic patterns
of production?
• Regional policies
• Structural and Cohesion Funds
• Cohesion Funds
European Integration Policies
• Reality Check: European Integration
• European goals for trade (and) integration
• European tools for trade (and) integration
– Industry-specific tools
• CAP
• Industrial policy
• EMU and EURO
– Regional tools
• Structural Funds
• Cohesion Funds
• Project examples
Reality Check
Reality of Integration
• Often dramatic differences in economic indicators
• Significant divide in economic development between
and within EU nation states
• Particularly visible differences in economic
development between EU 15 and new Eastern
European member states
Reality Check
Reality of Integration
• Prior to the EU, a system of national markets,
networks and supply chains existed
• The EU integrated these markets significantly
• Core/Periphery relations still exist in
European markets
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development Stats
Economic Development
Stats
Regional Tools for Trade and
Integration
Goals
• Reduce the differences in economic development
between “poor” and “wealthy” regions and
countries
• Provide matching funds for economic development
projects
• Key tool to counteract recession and to stimulate
equality across a geographically diverse area
Regional Tools for Trade and
Integration
Structural Funds
• Four different types of funds
–
–
–
–
ERDF = European Regional development fund
ESF = European Social Fund
EAGGF = European Agricultural Guidance and Guarantee Fund
FIFG = Financial Instrument for Fisheries Guidance
• Three different types of objectives and area classifications
– Objective 1
– Objective 2
– Objective 3
• Regions qualify for different pots of money
Regional Tools for Trade and
Integration
Structural Funds
• Four different types of funds
– ERDF goals
– Improve economic prosperity and social inclusion
• High unemployment
• High ethnic diversity
– Investing in projects to promote development
• Public and Private organizations
– Encourage the diversification of industry into other sectors
• Traditional rural regions
• Traditional industrial regions
• Development of service industry and high tech sector
– Areas lagging behind
– Available in Objective 1 and 2 areas
ERDF Project Example
• Birmingham Examples:
–
–
–
–
Metro System
Convention Center
Parks
Business Corridor Infrastructure
Regional Tools for Trade and
Integration
Structural Funds
• Four different types of funds
– ESF goals
– Funds training, human resources and equal opportunities
schemes
• Job-training of the unemployed
• Job-placement programs
• Programs to encourage women to enter the workforce
– Employability of people in both Objective 1 and 3 areas
• Additional training an schooling
– Objective 2 areas: ESF may be used to complement the ERDF
activities
ESF Project Example
• ESF Projects of good practice
–
–
–
–
–
Unemployment
Youth
Social Exclusion
Equal opportunity
Industrial change
Regional Tools for Trade and
Integration
Structural Funds
• Four different types of funds
– EAGGF goals
– Encourage the restructuring and diversification of rural areas
• Funding supported by CAP goals
– Promote economic prosperity and social inclusion
• Reintegration of unemployed farmers
• Protection of rural migrant population
– Protecting and maintaining the environment and rural heritage
• Local heritage museums
• Local history projects
• Tourism
– Rural Objective 1 areas
EAGGF Project Examples
Regional Tools for Trade and
Integration
Structural Funds
• Four different types of funds
– FIFG goals
– Modernize the structure of the fisheries sector
– Encourage diversification of the workforce
• Tourism
• Security and rescue
• Trade and transport
– Ensure the future of the industry through achieving a balance
between fisheries resources and their exploitation
• Research facilities
• Volunteer program grants
FIFG Project example
• Projects
– Scotland
Regional Tools for Trade and
Integration
Structural Funds
• Three different objectives and areas
– Objective 1: Areas with less than 75% of EU average GDP.
Promotes the development and structural adjustment of
the EU regions most lagging behind in development
– Objective 2: Supports the economic and social conversion
of areas facing structural difficulties. Areas qualify under
four strands - industrial, rural, urban and fisheries
– Objective 3: European Social Fund. Develops labor markets
and human resources. Directed at long-term
unemployed and those facing barriers to finding
employment because of their disability, racial origin, or
sex.
Structural Fund Objective Areas for the
UK
RED + PINK - Obj. 1
BLUE - Obj. 2
Regional Tools for Trade and
Integration
Cohesion Funds
• Why was it set up?
• Single European Act 1987
• Aimed at countries, not regions
• Convergence criteria
• Aimed at improving infrastructure
• Environment
• Transport
• Reformulated policy due to Enlargement to EU-25
Regional Tools for Trade and
Integration
Cohesion Funds
• Who benefits?
• Spain
• Portugal
• Greece
• New Member states
• Seven year funding periods
• Website
Regional Tools for Trade and
Integration
Cohesion Funds
• What is it exactly?
•
•
•
•
•
•
•
Member States whose GNP is less than 90% of the Community
average
Economic convergence program
Beneficiary State must limit their deficit (no more than 3% of its
GDP)
The maximum rate of aid granted is between 80% and 85% of
expenditure
Projects are selected and implemented by the country concerned,
which is also responsible for management and financial
monitoring.
Projects are also regularly monitored by the Commission
THE IRISH EXAMPLE
European Finance
Why study the European Monetary Union?
•
•
•
•
New geographic unit of currency use
New global financial force
Challenge to national fiscal policies
Benefits and drawbacks of new system
Legacies of Inflation
Legacies of Inflation
Legacies of Inflation
Legacies of Inflation
Legacies of Inflation
•
•
•
•
•
World War I (1914-18)
German Central Bank
Gold, Currency and Taxes
War financing
Loans
Four-fold increase of currency volume
Price Index increase
Legacies of Inflation
•
•
•
•
After World War I (1918-21)
Reparation payments
Currency depreciation
Social democratic government
Increased wages
Social and educational benefits
Legacies of Inflation
• After World War I (1922-23)
• Hyperinflation
• Ruhr conflict between Germany and France
Passive resistance
Wages could not keep up with inflation
Hunger/malnutrition
Bartering economy
Legacies of Inflation
•
•
•
•
•
•
After World War I (1923-24)
Rentenmark introduction
1 RM = 1 trillion Mark
Confidence in currency
Currency backed by property
New Reichsmark introduction 1924
Legacies of Inflation
•
•
•
•
•
•
•
•
•
Young Plan 1928
Reparation payments until 1988
Rise of unemployment
Rise of National Socialist Party
1931 World Economic Crisis
Debt repayment
1933 Elections: Hitler takes over
1938 Conference in Munich
1939 World War II begins
The Historical Geography of the
European Monetary Union
The Bretton Woods Agreement
• 1944/46
• Post-WWII instrument of global economy stabilization
• 50 countries tied their currency to the US Dollar, and the
Dollar value was tied to gold prices
• “Fixed” exchange rates
• Regionalization of money
• Transparent, low risk markets
• Growth of industrial economies
The Historical Geography of the
European Monetary Union
After the Bretton Woods Agreement
•
•
•
•
•
•
•
1971
End of BWA
Shift to fluctuating exchange rates
Era of global finance
Global geography of money
Currencies were traded globally
Control issues
The Historical Geography of the
European Monetary Union
After the Bretton Woods Agreement
•
•
•
•
•
•
Risk
Instability of financial markets
Growth of multinational banking
Loans
Debt Crisis of early 1980s
National focus on currency stability
The Historical Geography of the
European Monetary Union
History of the EURO
• Treaty of Rome (1957)
– Common Market
• Single European Act (1986)
• Treaty on the European
Union
– Economic and Monetary
Union (EMU)
Steps of Introduction
• Jan. 1999
– Fixing of Exchange rates
– Common Monetary Policy
• Jan 2002
– Introduction of new coins and
currency
• July 2002
– Complete conversion to new
currency
History of European Monetary Union Video
Aspects of the European Monetary
Union
Benefits of the EURO
• Stability
Drawbacks of the EURO
• Austerity measures
– Economic and cultural bonds
• Corporate benefits
– Transaction costs
– Efficiency of resource allocation •
• Price transparency
– Competition
• Consumer benefits
– Tourism
• EU aid distribution
– Standardized, transparent
distribution of EU resources
– Curbing debt, inflation and
interest rates
– Curbing subsidies
Transformation costs
– Public
– Private
• Bureaucracy
– Administration of new currency
– Short-term lack of transparency