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Issues in international business - Essay Example

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At midnight on the 1st of May 2004 the celebrations were already well underway across Europe and ten of its neighbours to the east. The occasion was worthy. Ten new countries-the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia-had joined the European Union…
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Download file to see previous pages Political stability would be ensured by abiding by the EUs political standards. Borders would finally be opened, reducing international barriers to the flow of goods and services, and products would now have access to all European markets. Tax policy changes would be controlled and property rights would be guaranteed, allowing foreign companies to invest on their soil, bringing jobs to the masses of unemployed.
But there would be challenges ahead too. Would they be able to meet up to the standards expected of them Could they control the inflation rate Hold prices stable Grow GDP Avoid currency devaluation And minimize deficit No one had the answers, but certainly all ten of the new EU Member States were willing to try. Thus, their first step was to gather up their top economists to strategize. Optimal macroeconomic policies must be put into place as soon as possible to achieve the high standards expected as a new European nation.
Each country would have their own strategy, but macroeconomic policies, in general, are adopted to avoid major economic upheavals, with the primary example being The Great Depression. These policies are set and controlled by a nation's government and central bank and include such challenges as stabilising the business cycle, facilitating long-term growth, reducing unemployment, controlling inflation and lowering the current account deficit (Parkin 534). Policy tools to achieve these goals are divided into two categories: fiscal policy and monetary policy. The powers of fiscal policy lie in the hands of the government which tries to influence the state of the economy by such measures as changing tax rates, and altering government spending and debt. On the other hand, monetary policy is steered by the central banks, which are able to adjust interest rates and alter the amount of money in circulation. These are the tools which have been used in a myriad of scenarios by the ten Member States inducted into the EU on 1 May 2004. Their actions have been made in an attempt to maintain a stable economy, allowing GDP to grow, deficit to decline and all the while keeping an eye on the golden ring, that is, to adopt the euro as their trading currency.
In order to evaluate success of the governments and central banks of the ten new EU countries, one must first set a standard of measure. In other words, what are the goals to be met Is there a particular timeline set for these goals And then ask, how far along have they come in achieving these goals
As previously mentioned, one of the major goals for the new countries is to adopt the euro as their own currency. Unlike Denmark and the United Kingdom, the new EU Member States would not have the option of voting out the single currency; but none would have chosen to anyway. Adopting the euro would probably do more alone in the first year towards achieving economic stabilization for these countries than any of the macroeconomic policies described could do in ten years. The euro essentially removes the previous risks involved with currency exchange rates and hedges against sudden inflationary impacts (Frequently Asked QuestionsECB). This results in lowering the interest rates and allows for price stability. However, to protect the current nations utilizing the euro from devaluation, the new EU Member States must be truly ready to adopt the new currency. This readiness is assessed by certain factors called the Maastricht convergence criteria established in ...Download file to see next pagesRead More
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