Mr Hamilton’s class blogs

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• 1.    Mr Hamilton  |  November 25th, 2008 at 9:30 am

  The Social Chapter:

  • What it is – a legal mechanism whereby member states can develop common social and employment polices – covers issues such as Working Time Regulations, Works Council Directive, part-time workers, minimum wage.

  • Its effects may be general or specific depending on the issue concerned and the extent to which the effects are beneficial or adverse will vary between issues – examples of issues of benefit or otherwise?

  • It may impose additional costs and bureaucracy on firms – in particular some firms fear higher labour costs through the minimum wage, paid holidays etc and feel they may be unable to compete against countries which do not have such requirements.

  • Regulations may inhibit labour market flexibility – although this effect is likely to be less severe with regulations that apply to all firms.

  • Benefits are that workers’ rights may be protected, which may improve motivation and productivity. May also encourage worker participation which could enhance commitment to decision making process in firms.

  The Single European Market:

  • What it is – extended the EU’s basic principles of free trade and covers issues like removal of frontier controls and customs duties, harmonisation of product standards, free trade in services like insurance and the lifting of restrictions limiting public procurement to suppliers from the home country.

  • Benefits to firms are that the existing benefits of common market will be enhanced eg lower costs of doing business (eg because of common standards, free movement of goods across borders); opening up of markets may lead to new opportunities, especially in industries like energy which were previously heavily regulated; increased economies of scale will benefit firms which do get new business.

  • However, some countries have adopted delaying tactics and continue to protect domestic markets in services and to favour local suppliers in public contracts; services are less easy to trade than goods and are often more culturally dependent eg different types of insurance are popular in different countries, language may be more important in services and language differences remain.

  European Monetary Union:

  • What it is – EMU is the framework for the euro (the single currency used with the Eurozone) which has not been adopted by the UK. Issues thus revolve around the case for and against the euro.

  • If the UK joins the euro there may be a number of benefits eg lower transaction costs because of the ending of the need to exchange currencies; the ability of companies to invest in Europe more easily because of the common currency; stable exchange rates may help trading by removing the risk of adverse currency movements; comparing prices of suppliers would be easier (transparency), which may help firms source cheaper supplies or gain contracts with other firms (as all prices would be in euros).

  • There may also be costs if the UK joins the euro eg change-over costs of conversion; less flexibility in monetary policy which may affect interest rates and thus the cost of borrowing; competition may increase because price comparisons would be easier for customers; the euro has not been stable since its inception and this may affect trade outwith the eurozone.

  • If the UK continues to stay out of the eurozone, then the benefits above may be lost but costs will be avoided. UK manufacturing industry is generally in favour of joining to gain the benefits of transparent pricing and no conversion costs (many companies already operate in euros). Opinion among other firms is divided. However, uncertainty over UK position may itself have an effect.

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