Economics for Managers G.M. AGIOMIRGIANAKIS VOLUME 3 European Business
To Myrona, Yanni and Manoli
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ECONOMICS FOR MANAGERS European Business Note The Hellenic Open University is responsible for the editing of this publication and the development of the text in accordance with the Methodology of Distance Learning. The scientific accuracy and completeness of the written materials are the exclusive responsibility of the authors, scientific reviewers, and academic supervisors who undertook this project.
Copyright 2005 For Greece and the world HELLENIC OPEN UNIVERSITY 16, Sahtouri Str. & Ag. Andreou Str., 26222 Patras el: (2610) 367336, 367355 / Fax: (2610) 361420 PREPARATION OF THE TEACHING MATERIAL of the Volume European Business Academic Supervisor for the Development of the Program and the Textbooks George M. Agiomirgianakis Author Scientific Reviewer George M. Agiomirgianakis.......... Panagiotis Liargovas Supervision of the Methodology of Distance Learning Antonia-Maria Chartofilaka Language Editing Joan Stefan Artistic Layout Artemis Glarou Layout / Production Artemis Glarou Coordination of the development of the educational material and overall supervision of the publications HOU PROJECT TEAM /1997-2005 ISBN: 960-538-578-3 In accordance with Law 2121/1993, the partial or total republishing, or reproduction by any means, of this book is prohibited without the permission of the publisher.
SCHOOL OF SOCIAL SCIENCES PROGRAM OF STUDIES Masters in Business Administration (MBA) MODULE Economics for Managers VOLUME 3 EUROPEAN BUSINESS PATRAS 2005
CONTENTS Preface 14 Introduction 15 CHAPTER 1 The European business environment and the steps toward European integration 19 The Scope of the Chapter...19 Learning Objectives...19 Key Words...19 Introductory Comments...19 1.1 The European business environment...20 1.1.1 Definition of European business and the business environment...20 1.1.2 Political...21 1.1.3 Economic...21 1.1.4 Social...22 1.1.5 Technological...22 1.1.6 Legal...23 1.2 Setting the scene for European Integration...24 1.2.1 The integration process...24 1.2.2 The stability of the divided Europe in the aftermath of World War II...24 1.2.3 Changing the scene...25 1.2.4 Economic integration...25 1.2.5 Global institutions...25 1.2.6 A brief history of the European Union...29 7
Synopsis Conclusions...32 Appendix...33 Bibliography...35 Recommended Reading...35 CHAPTER 2 A new Europe the way toward the European Union 37 The Scope of the Chapter...37 Learning Objectives...37 Key Words...37 Introductory Comments...37 2.1 Toward an integrated Europe...39 2.1.1 A historical review...39 2.1.2 Benelux...39 2.1.3 The Council of Europe...39 2.1.4 The Western European Union...39 2.1.5 The European Coal and Steel Community...39 2.1.6 The Treaty of Rome...40 2.1.7 The Merger Treaty...41 2.1.8 Eurosclerosis from the 1970s to mid 1980s...41 2.1.9 The Single European Act of 1987...41 2.1.10 The Treaty of Maastricht The Treaty on European Union (TEU)...41 2.1.11 The Treaty of Amsterdam...42 2.2 The main institutional bodies in the EU...44 2.2.1 The Council of Ministers...44 2.2.2 The European Council...44 2.2.3 The European Commission...44 2.2.4 The Court of Justice...45 2.2.5 The Court of Auditors...45 2.2.6 ECOFIN...45 2.2.7 The Economic and Social Committee (ECOSOC)...45 2.2.8 The Committee of the Regions...46 8
2.2.9 The European Central Bank...46 2.2.10 The European Investment Bank...46 2.3 EU enlargement - A historic opportunity...48 2.3.1 European enlargement he way to the future...48 Synopsis Conclusions...50 Appendix...51 Bibliography...53 Recommended Reading...53 CHAPTER 3 EU competition policy 55 The Scope of the Chapter...55 Learning Objectives...55 Key Words...55 Introductory Comments...55 3.1 Competition policy...56 3.1.1 What is competition policy in the EU?...56 3.1.2 What is competition?...56 3.1.3 Market structure...56 3.1.4 Perfect competition...57 3.1.5 Monopoly...58 3.1.6 Oligopoly...58 3.1.7 Monopolistic competition...58 3.2 Laws and regulations...60 3.2.1 The legislation...60 3.2.2 The Single European Act...60 3.2.3 Article 85 (81): Restrictive practices...60 3.2.4 Article 86 (82): Dominant positions...61 3.2.5 Articles 90, 92, 93: State aids...61 3.2.6 The new merger legislation: Regulation EC - 4064/89...62 3.2.7 Public procurement...63 Synopsis Conclusions...63 9
Appendix...64 Bibliography...66 Recommended Reading...66 CHAPTER 4 EU Social Policy 67 The Scope of the Chapter...67 Learning Objectives...67 Key Words...67 Introductory Comments...67 4.1 What is EU Social Policy?...68 4.1.1 The aims of EU Social Policy...68 4.1.2 History and development of European Union Social Policy...69 4.1.3 The Social Charter...70 4.2 The changing nature of work...73 4.2.1 Declining number of workers...73 4.2.2 The flexible firm...74 4.2.3 The Japanization of production methods...76 4.2.4 Other developments in the EU labor markets...77 4.2.5 The issue of minimum wage...78 4.2.6 How the EU is responding to the changing nature of work...80 Synopsis Conclusions...82 Appendix...83 Bibliography...86 Recommended Reading...86 CHAPTER 5 The Single Market and the European Single Currency 87 The Scope of the Chapter...87 Learning Objectives...87 Key Words...87 10
Introductory Comments...87 5.1 The need for a Single European Market...88 5.1.1 Inflation in Europe...88 5.1.2 Economic Integration in the EU...88 5.1.3 A Single European Market (SEM): What was the need for SEM?...89 5.1.4 The Single European Act (1987)...89 5.1.5 The Cecchini Report (1989)...90 5.2 The Economic and Monetary Union...92 5.2.1 The European Monetary System (EMS)...92 5.2.2 The Delors Report (1989)...92 5.2.3 The convergence criteria...93 5.2.4 The Treaty of Maastricht (1991-1993)...93 5.3 The Single European Currency (SEC)...96 5.3.1 What is the SEC to the EU?...96 5.3.2 Life in a single currency...96 5.3.3 A single currency for Europe The case of Euroland...96 5.3.4 The benefits of the euro...97 5.3.5 The advantages and disadvantages of the EMU operating in a single currency...97 Synopsis Conclusions...99 Appendix/Answers to Activities...100 Appendix of macroeconomic concepts...102 Bibliography...112 Recommended Reading...112 CHAPTER 6 Foreign Direct Investment in the EU 113 The Scope of the Chapter...113 Learning Objectives...113 Key Words...113 Introductory Comments...113 6.1 Multinational companies and Foreign Direct Investment...114 11
6.1.1 Motives for undertaking FDI...114 6.1.2 Alternatives to FDI...115 6.1.3 The growth of FDI in the EU...116 6.2 Theories explaining FDI...119 6.3 Determinants of FDI in the EU...121 6.3.1 Labor market conditions...121 6.3.2 Real exchange rate and its variability...121 6.3.3 Output in the origin and the host country...122 6.3.4 Distance between the origin and the host country...123 6.3.5 Cultural and language differences...123 6.3.6 European Integration...123 6.3.7 Government policies...123 6.3.8 The size of the parent firm...125 6.4 The importance of FDI for the EU...126 6.4.1 Capital accumulation...126 6.4.2 Diffusion of knowledge and Research & Development (R&D)...126 6.4.3 Economic growth...127 6.4.4 Unemployment...127 Synopsis Conclusions...129 Appendix...130 Bibliography...134 Recommended Reading...134 CHAPTER 7 The case of the Central and Eastern European Countries toward the EU and the effects of the enlargement on the Union s policies 135 The Scope of the Chapter...135 Learning Objectives...135 Key Words...135 Introductory Comments...135 7.1 The applicant countries and their own state of reform...136 12
7.1.1 A brief history of the candidate countries toward EU membership...136 7.1.2 Central and Eastern European Countries in the 21st century...136 7.1.3 The accession requirements...137 7.1.4 Smoothing the integration process...137 7.1.5 What do the EU s current members fear from enlargement?...138 7.1.6 Reforming the EU s institutions to prepare for enlargement...138 7.2 The effects of the enlargement on the Unions s policies...140 7.2.1 The economic impact of the enlargement...140 7.2.2 Agriculture...140 7.2.3 Economic and Monetary Union...141 7.2.4 Horizontal policies...141 7.2.5 Sectoral policies...143 7.2.6 Justice and home affairs...144 Synopsis Conclusions...145 Appendix...146 Bibliography...148 Recommended Reading...148 13