European Union economic: Issues and Policies - Essay Example

?Running Head: IMPLICATIONS OF THE NEW ECONOMIC POWERS ON THE EU European Union: Economic Issues and Policies College: Introduction European policy has faced multiple challenges due to the requirement for the changing or varying international approaches to such issues as health, economic management, migration, global warming and climate change, and international security among others (Richerzhagen & Scholz 2008). Similarly, the escalating international interconnectedness has generated novel opportunities, as well as threats for EU economy. For instance, the elimination of trade barriers, investment, as well as monetary flows has allowed EU to amplify its competition, although it has given rise to novel opportunities for EU businesses (Wilson & Purushothaman 2003). With this background, the emerging economic global powers, especially from Asia, have become a novel observable fact worth consideration. Policy makers in EU are correctly centering their attention towards the inferences of this trend for the regional goals. These goals are upholding or growing prosperity within EU, ensuring sustainability of this prosperity, as well as shoring up and advancing multilateralism as global governance foundations (Humphrey & Messner 2008). According to Zurn (2007), the appreciation of the significance of the emerging global economies for realization of the above objectives is a novel phenomenon in the EU. Until recently, these nations were not ranked among the chief actors within responses’ formulation towards globalisation challenges. Infact, OECD, and European nations considered themselves as the bona fide global centres of power in terms of global politics and economy. In 1990s, deliberations about the global economic future, as well as the architecture of international governance turned around an OECD-championed international order (Wilson & Purushothaman 2003). Soviet Union’s fall intensified this viewpoint about the European-US-Japan power axis as the universal initiatives’ central point. Both tactical frameworks and psychological maps were outlined by the thought of a globe controlled by the West, as well as founded upon the transatlantic associations as the principles in international economy and politics (Altenburg et al. 2008). This has changed in the last few years, whereby the perceptions about Chinese and Indian’s role and significance in international economy and politics have changed drastically. Presently, it is apparent that an epochal political and economic power shift from the western axis to the eastern one is happening. The Indians and Chinese economic growth have altered the drivers of international economy and politics, and this maybe an essential moment of global history for most of the 21st century. Undeniably, the growing economic power in both China and India is palpable for all to witness (Rodrik & Subramanian 2004). Therefore, the emerging global economic powerhouses pose a number of challenges to the EU. This paper will seek to establish whether the further emergence of such international competitors, such as China and India, pose any threat to the EU economic competitiveness. Emergence of New Global Economic Powers The Economist has been a fundamental barometer for measuring perceptions’ transformations. Economist (1999) observed that the United States and Europe bestrode the universe like a colossus. They both controlled business, communication, as well as commerce; the US had (and still has) the most successful global economy and military. The Economist (2006), on the other hand, was accentuating the significance of the emerging global economies. The emerging economies are shaping international growth, as well as having a huge influence upon developed nations’ rates of interest, inflation, profits, as well as wages. Further, the Economist reports that the increased integration of these newcomers into the international economy, as well as their proceeds has overtaken their wealthier western counterparts to a remarkable degree. Undeniably, the emerging economic powers will supply the largest boost towards global economy since the historic industrial revolution (Leadbeater & Wilsdon 2007). Wilson and Purushothaman (2003) makes a sensational claim that the extrapolations of the contemporary trends of growth can be employed in illustrating that China and India will be ranking first, and third biggest global economies, respectively, by 2050. The surfacing of both India and China onto the international platform generates copious novel challenges for the EU policy. With regard to the aim of upholding and escalating prosperity, these novel international economic players are concurrently market threats and competitive threats to the EU (Altenburg et al. 2008). This assertion is supported by Wilson and Purushothaman (2003), who argue that global competition has growing, and EU is facing a myriad of challenges emanating from the US and Asia. The prospective speedy Chinese economic growth will generate a novel competitor to the EU, as well as a cosmic and increasing market. Humphrey and Messner (2008) argues that Europe must have an effective economic base that recognises competitiveness in the coming years, especially in the manufacturing sector, will be formidable in order to enjoy this new opportunity. Infact, the Chinese industrialisation, as well as her increasing foreign direct investment stock, and her own scientific foundation, has started competing in both low and high value-added commodities. India’s challenge is also notable, especially in the service sector in which the nation ranks first as being the single largest recipient of outsourcing and offshoring of the service sector roles. India enjoys a large pool of learned, inexpensive, English-speaking workers and thus competes with the leading English-speaking nations in provision of vital services. Therefore, the collective presence of Asia in the global business system has become increasingly apparent (Humphrey & Messner 2008). The Resultant Economic Problems on the EU Since 2007, Humphrey and Messner (2008) observed that the European Union has endured a fading economic condition, especially for such Eurozone southern members as Greece, Spain, Portugal, and Italy. This change has been attributed to the intensifying global competitiveness, and the changing business operation mechanisms. Some economists fear that the contemporary economic problems facing the EU would result into a lost decade characterised by low economic growth, weakening social conditions, and high levels of unemployment. This section will look into some of the key challenges facing the UE due to the increasing global competitiveness attributed to the emerging economic powerhouses. Unemployment The unemployment levels within the EU have reached a crucial stage. For instance, Spain has recorded a very high unemployment level standing at over twenty-five percent, while her unmployment rates among the youths stand at 50 percent. The contemporary increase in unemployment in the EU has primarily been associated with the protracted recession, but global competitiveness cannot be understimated. Long-term structural unemployment across the EU is also a challenge. The graph below captures this information: Source: http://econ.economicshelp.org/2007/03/economic-problems-of-european-union.html Prolonged Decline in GDP Following the earnest depression since 1930s, EU has struggled to recover. Asceticism measures and a feeble international economy contributed towards the re-surfacing of recession in the EU (Humphrey & Messner 2008). Europe had enjoyed many years of global market dominance, but the entry of the US, and now the emerging Asian economic powerhouses, have led to a protracted fall in the regional GDP. Analysts and economists are concerned that the structural problems, as well as the contemporary fiscal and financial policies will generate many years of unfavourable trends of economic growth (Wilson & Purushothaman 2003). The map below summarises the declining levels of GDP in the US, and three other European nations: Source: http://econ.economicshelp.org/2007/03/economic-problems-of-european-union.html Competitiveness Problem The EU’s Euro has resulted into a competitiveness discrepancy. Nations with higher costs of labour cannot recover competitiveness in an ordinary way via depreciation, since prices become so uncompetitive resulting into lower local demand, as well as high deficits in current account (Humphrey & Messner 2008). Economics (2013) reports that since 2011, the deficits in current accounts have fallen in such nations as Spain and Ireland, although it has been attributed to the elevated outlays of minimising local demand and intensifying joblessness. Most European nations are in quest of reclaiming global competitiveness via such internal devaluation initiatives as lower demand and reviewing prices downwards. However, this is relatively more damaging towards the EU economy in comparison to the conventional approach of devaluing the rates of exchange. Less Concerned with Low Inflation European Commission Board (ECB) has been criticised for its too much priority towards low inflation objective. Some critics argue that the commision has sought to uphold low inflation rates at the cost of inferior growth. Infact, the commission has inflexibly fastened to 2 percent inflation target, notwithstanding the increase in joblessness, and poor nominal GDP performance (Richerzhagen & Scholz 2008). Bond Yields Euro membership has generated a trend for speed rise in bond yields. After some concerns over Greece, the market fears shortly stretched to such other Eurozone nations as Spain, Portugal, and Ireland. This amplified costs of borrowing, as well as put nations under pressure to trail austerity measures in order to minimise their budget deficits. Nevertheless, the implementation of such austerity measures has occurred when the EU financial system is already feeble, resulting into huge unfavourable multiplier effect and economic slump. Nations with their currency, as well as capacity of printing money enjoy their ability of maintaining low bond yields. These minimises costs of borrowing and give such economies time to minimise their budget deficits (Humphrey & Messner 2008). Economics (2013) observed that the fall in bond yields in the latter half of 2012 did not translate into the ability of the ECB to stop future rise in bond yields. The map below is a summary of bond yields in the EU: Source: http://econ.economicshelp.org/2007/03/economic-problems-of-european-union.html Stability and Growth Pact Emergence of novel powerhouse has placed some constraint upon expansionary monetary policies on the EU since, in theory, it hinders governmental borrowing to three percent of the GDP. During a recession, European governments lack the power of utilising monetary policy, and reflating their economy via higher borrowing and spending (Economics 2013). Inflexible Labour Markets Zurn (2007) asserts that this is habitually considered as a hinderance to economic growth, as well as a leading stuctural joblessness cause. Specifically, labour market rigidities depress foreign investments. For instance, French employers find it hard to dismiss their staff due to the existing laws. This results into lack of expansion and investment among firms. Therefore, Humphrey and Messner (2008) supports OECD and IMF voice for further liberalisation of labour market to reclaim competitiveness. Several European leaders have also supported these reforms although they encounter stiff antagonism from influential groups that seek to safeguard their members’ interests. Consequently, reform in the EU markets has proven an uphill task. Implications of the further Emergence of Global Competitors on EU Economic Competitiveness Diverse and contradictory perceptions exist concerning the importance of Asian economic drivers on the EU. Presently, a minimum of three diverse viewpoints on the effects of the emergence of India and China for EU can be identified. First, Zurn (2007) accentuates the ongoing weakness and poverty across India and China, ruling out any authentic power transfer and that concerning both international governance and competitiveness and inventiveness, the prospective influence of India and China is outrageously overrated. The defining relationship will persist being so between the EU and the US. Hutton (2007) asserts that China has multiple weaknesses, and thus a huge potential of falling into an economic predicament. On the contrary, Mearsheimer (2001) accentuates the size, as well as the prospective future effect of the emerging economies, and perceives their synchronized rise as typfying a deep-seated shift of power from the European-US-Japan axis. Together with other noe-realists, Susbielle (2006) and Mearshimer (2001) argue that Chinese rise, in particular, will result into conflicts, cutthroat competitiveness, global economic fragmentation, as well as an international failure of responding to such issues as global warming. Furthermore, the Mearsheimer’s “tragedy of great power politics” (2001, p. 35) and the challenges of shifting from the contemporary US international supremo into a multipolar universe will paralyse international authority. Contrasting these two situations, Kupchan et al (2001) acknowledges the rise of the novel international powers, but do not relate their growth to any challenges or problems to the countries whose domination is threatened. However, the scholars argue that amplifying interdependence between countries increases the likelihood of mutual solutions, despite the cultural difference between EU and emerging Asian powers generates particular challenges. This underscores the need for more understanding, as well as exchange of perceptions between the established and emerging powers. Furthermore, there is an urgent need of developing strategies for generating peaceful power transition preconditions. The strategies should also assist the established and rising powers to consider each other as benevolent. Emerging Global Competitors as Threats to EU Economic Competitiveness The world is passing via an exceedingly special global change period. With their size and dynamic advancements, both India and China remain the exclusive global actors with the potential of challenging western supremacy in international affairs, or even American authority. On establishment of their international role, the emerging economic powerhouses’ probability of advancing their global power transitional extent will decline radically (Altenburg et al. 2008). This generates fundamentally novel challenges for the EU. These challenges involve the formulation of novel strategies to counter the emerging world order, as well as increasing the aptitude of making informed choices (Wilson & Purushothaman 2003). Primarily, no one should underestimate the emerging economic powerhouses at all. They, particularly China and India, have vast reserves of foreign exchange and surplus of trade. Therefore, their colossal manufacturing capacities could propel them towards being the leading global economies. At her current GDP growth rate, China would shortly overtake the US. The emerging economies are swiftly obtaining vital resources across the globe in order to whet their appetite for setting up their massive infrastructure. Zurn (2007) adds that these nations are working towards their currencies entry among the global reserve currencies hence targeting the dollar and the Euro which are US and EU’s pillars of strength. China is working towards this by allowing more foreign investments into its monetary sectors, and gradually empowering yuan to become an exchangeable currency though countless hurdles have met this (Altenburg et al. 2008). In their view, Gu et al (2008) assert that the EU has numerous reasons of feeling exposed. The emerging nations are underpricing EU in manufacturing products and investing their resources in various European nations and threatening EU African development objectives. They are also encroaching such fields as research, sustainable growth, and expertise in which Europeans supposed of having a competitive advantage. In addition, there is also a cultural facet. In 2020, a solitary province in China will have an equivalent of Canada’s GDP and this will result into colossal challenges towards European culture, identity, and lifestyle by trendy entertainment means, business dealings, and foreign direct investment among others. Politicians in the entire EU are wary of the rising global economic powerhouses and competitors. They frequently talk about China as a violator of human rights or as a trade and industry threat (Humphrey & Messner 2008). This shows that China and India are posing significant market threats to the EU. Consequently, the EU is working hard to establish a prolific collaboration with China and India in order to venture into their markets. Wilson and Purushothaman (2003) advises the EU to drop its prejudices, endeavor at understanding the culture of Chinese people, as well as foster effective interactions with them. Some Europeans have cited the emerging powers as sufficient basis for the deepening of the EU integration. According to Altenburg et al (2008), the EU should work hard to foster the acceptance of the Euro across the world. Bearing in mind that Volvo, Port of Piraeus, etc are Chinese, and they are performing exceedingly well in the automobile industry, the EU should not just sit and see their products and currency being overtaken by the Chinese and Indian ones in the global markets. Therefore, the EU is at a vital crossroad, but has an excellent opportunity of coaching the Euro as a substitute to the Dollar in order to muscle the growing economies’ currencies. Due to the rising popularity of these nations, the time for action is simply now or never. Europe will never represent 10 percent of the global population, and thus must make the Euro their trump card if EU wishes to retain its role as a chief global player. Emerging Global Competitors are Non-Threats to EU Economic Competitiveness According to Richerzhagen and Scholz (2008), the current foreign policy of China draws inspiration from the three world’s theory propounded in the 1970s. Zurn (2007) claims that China perceives Europe as one of its key strategic allies; therefore, the emergence of China as a global competitor does not threaten the EU, but rather challenges the region. However, it is vital for the EU to fix the faults and cracks evident in their system in order to deny the rising competitors an opportunity of exploiting them. Gu et al (2008) claims that China is a threat to Americans due to their want all attitude. Therefore, EU should compose its effective foreign policies, as well as its dealings with China, and these could prove to be valuable if EU galvanise its own structures and enhance its strength. Former Nigerian president, Olusegun Obasanjo claimed that the EU and other global powers have no reason to panic due to the rising economic powerhouses. However, he added that India’s population would have surpassed that of China by 2050, and the two nations will be formidable across the globe (Wilson & Purushothaman 2003). Gu et al (2008) observed that the emerging nations’ firms have already profoundly routed into the EU fabric, with both respect and success, but this has not raised any remarkable alarm among the EU member states. Instead of fading into an in-house aggression catapulted by national interests as opposed to the EU project, the EU should join hands, even if this calls for breakdown of national autonomy and encounter the globe with a single security policy of a single currency and a foreign policy. Conclusion In conclusion, the distinctiveness of the rising ‘poor but influential’ novel international powers lies specifically in the idiosyncrasy of the cultural and economically varied situations, but gradually more significant for the EU. Undoubtedly, the EU is wary of the competitive threat posed by the rising economic powers. Therefore, understanding of the location of such emerging powers within the international economy and politics, as well as the speedily changing medley of local and external factors affecting such positioning, remain imperative factors. This is especially the case if the EU is to connect with these novel powers in a constructive way. Given the attributes of such nations as both comparatively poor and later entrants into the international market play, the diverse experience and tools of the development studies and development survies remain principally relevant to this task. References Altenburg, T., Schmitz, H. & Stamm, A. (2008). Breakthrough? China and India’s Transition from Production to Innovation. World Development, Vol. 36, No. 2, pp. 325–344. Economics. (2013). Problems with the Euro. Viewed 13 May 2013, Economist (1999). America's World, 23. Oct. 1999. Economist (2006). The New Titans, 16. Sept. 2006. Gu, J., Humphrey, J. & Messner, D. (2008). 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