Labour and Capital Mobilising Within the EU - Essay Example

To what extent are labour and capital really mobile within the EU? Table of Contents Part Introduction Part 2 - Free movement of persons within the EU 2.1 Movement of labour within the EU Part 3 - Movement/ transfer of capital in EU area Part 4 - Are labour and capital mobile in the EU zone? – issues for consideration Part 5 – Conclusion References Part 1 - Introduction The main reason for the creation of European Union has been the development of the conditions of living of the populations of the member states. In this context, the establishment of European Union was combined with the declaration of a series of fundamental principles or freedoms. These freedoms are provided to the citizens of all member states. It should be noticed that it is possible for these freedoms to be limited under certain terms related either with the national security or the political/ social stability of member states. In accordance with Archick (2005, 4) European Union would be rather considered as a ‘treaty-based, institutional framework that defines and manages political and economic cooperation among its 25 member states (Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom)’. On the other hand, it has been found that all member states tend to be influenced by specific social and financial phenomena like the following ones: ‘market globalization, the European single market, and European supranational institutions’ (Verdier, 2001, 227). The reference to the above phenomena is made by Verdier (2001) because these phenomena are mostly related with the following sectors of European Union: ‘labour market, capital market, electoral competition, and centre-local government relations’ (Verdier, 2001, 227). In accordance with the above the freedoms provided to the citizens of the member states can be limited under the influence of specific factors that can be related not only with the public sector but also with the private one (as it is represented by the multinational firms that participate in the development of globalization internationally). With a reference especially to the movement of persons and capital across the EU, it is stated by Malone (1999, 54) that ‘right from the outset, two of the fundamental objectives of the European Union (as it is called today) have been to facilitate the free movement of labour and the free movement of capital across member states’. On the other hand, the study of Donaghey et al. (2006) refers especially to the movement of persons (especially of workers) within the European Union. More specifically, it is noticed by the above researchers that ‘citizens of the EU have the right to work in another Member State and the right to reside there for that purpose; for their part, each Member State is required to facilitate the full domestic integration of a worker and his/her family from another Member State’ (Donaghey et al., 2006, 652). In the same context, the freedom of movement of capital offers to the citizens of the member states the right to transfer money or other financial assets across the European Union zone without any restriction. Both the above freedoms are subject of specific restrictions under the influence of the national laws that are considered to be of higher importance of the law established within the Union – especially when the security or the social/ political stability of a member state is considered to be under threat. Under these terms, it could be stated that movement of labour and capital within the European Union is not actually mobile; instead because of the restrictions that tend to be imposed on these freedoms (these restrictions present an incremental trend) the relevant freedoms have been limited today and for this reason the Court of Justice has been called to intervene in order to resolve the relevant disputes. Part 2 - Free movement of persons within the EU The free of movement of persons within the European Union can be based on the following articles of the Treaty of Amsterdam (the number within the parentheses represent the previous numbering): ‘1. Article 14 (7a) ECT: establishing the internal market, which includes the free movement of persons; 2. Article 18 (8a) ECT: Union citizens have the right to move and reside freely within the territory of the Member States and 3. Article 61 (73i) et seq: new Title IV, ‘Visas, asylum, immigration and other policies related to free movement of persons’ (European Parliament Fact Sheets, 2001). In order to understand the freedom of movement of persons within the European Union zone, it would be necessary to identify primarily the main aspects of the European citizenship (which grants the right to the citizens of the member states to travel across the Union with no restrictions). In this context, it is noticed by Muller (1999, 35) that ‘citizenship means the right to hold the common format European passport, to live and work anywhere on EU territory and to vote in and stand for local and European Parliament elections in other member states’. When the European citizenship exists, the freedom of movement is applied to the relevant person. The freedom of movement of persons within the European Union has been described in many ways. In accordance with a report published by the European Small Business Alliance (2004) the freedom of movement of persons ‘derives from the provisions on European Citizenship which provides that all citizens of the Union have the right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down by the EC Treaty and the provisions taken for its application’ (European Small Business Alliance, 2004). In other words, the relevant freedom is closely related with the European Citizenship (which is a prerequisite for the application of the above freedom). However, it should be noticed that this freedom is not recognized as applicable across all countries of the European Union (at least at the same level) but it is arranged that the full application of this freedom will take place gradually (within specifically defined time limits). The relevant arrangement refers to ‘a three-stage process covering a maximum of seven years, which became known as the ‘2 3 2’ formula, for the removal of barriers to labour mobility; thus, by 30 April 2011, all restrictions on the free movement of workers from the EU-8 must be removed’ (Donaghey et al., 2006, 653). European Union has offered to its member states the chance to smoothly integrate with the new ‘social environment’. More specifically, in accordance with a 2 – years plan (between May of 2004 and April of 2006) ‘member States were permitted to either open domestic labour markets or use national legislation that was in place at April 2003 to control the number of migrants from the EU-8’ (Donaghey et al., 2006, 653). After the above period and for the three years that follow (2006-2009) member states have the option to retain the restrictions related with the free movement of persons (citizens of member states) within their territory but they should take into account that they would have to lift any of these restrictions by the end of 2009 and in any case by the 30th of April of 2011 (as mentioned before). 2.1 Movement of labour within the EU In accordance with the issues developed above, the movement of workers within the European Union is primarily free; however restrictions may be imposed by governments of the member states where there is a high chance that the social or financial stability of the country will be under threat or if there is an issue of national security. In order to promote the movement of workers within its territory European Union has created a series of policies (called active labour market policies, ALM) which ‘are a critical part of the European Employment Strategy (EES)’ (Franzese, 2006, 167). The above issue has been extensively examined by Franzese (2006) who came to the conclusion that ‘the national best-response functions for ALM spending (worker-training programs in particular) are indeed downward sloping; stronger enforcement procedures may be necessary if the European Union is to achieve its EES objectives (Franzese, 2006, 167). However, the improvement of the plans related with the promotion of movement of workers within the EU cannot guarantee the success of these plans in the long term; problems seem to appear constantly regarding the financial strength of the host state in order to respond to the work of foreigners (work positions for citizens are very likely to be decreased). On the other hand, the study of Casey et al. (2005, 23) showed that ‘member states are encouraged to host visits from other countries to review policy approaches and policy measures whose success they wish to publicize’. The ‘exchange’ of policies regarding the foreign labour (originated from member states) would be valuable for all states within the European Union. It should be noticed that in accordance with the views stated in the literature, no specific answer can be given regarding the appropriateness of increase of foreign (referring to workers – citizens of EU) workers within member states; there are cases where labour from member states is welcomed by a member state but there are also cases where the entry of foreign workers (even if originated from the EU) is regarded as a threat to the existed workforce (citizens of the member state). The review of the case law related with the European Court of Justice can verify the above assumption. Part 3 - Movement/ transfer of capital in EU area The freedom for movement/ transfer of capital within the European Union zone is clearly stated in the Treaty of Amsterdam (articles 56 and 57). More specifically, in accordance with the article 56 (ex Article 73b) ‘1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited. 2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited’ (Treaty of Amsterdam, 1997). Moreover, the article 57 (ex article 73c) also states a series of terms related the movement of capital within the European Union. Apart from these artlicles the existence of the above freedom can be derived by the general framework within which the EU operates and its principles as they are included in the relevant orders and the rules applied on the various issues related with the Union. Towards this direction, it is noticed by Gerven (2005, 37) that ‘the Union exercises its power within a defined geographic space, which coincides with the territory of the Member States; the Union enjoys full authority without regard for any external actor (other than the Member States acting within their own territories), and is empowered, within its sphere of competence, to regulate movements across and within its borders’. In accordance with the above the supervision over the capital being moved within the European Union belongs to the responsibilities/ powers of the Union which should establish the appropriate framework for the effective monitoring of the financial transactions taking place within the Union’s territory. Regarding this issue, it is noticed by the European Small Business Alliance (2007) that ‘in connection with the free movement of capital, the Treaty prohibits all restrictions on capital movements (investments) and all restrictions on payments (payment for goods or services); member States are, however, authorised to take any measure justified by the wish to prevent infringements of their own legislation, specifically relating to fiscal provisions or prudential supervision of financial institutions’ (European Small Business Alliance, 2004). However, it should be noticed that the restrictions imposed by member states are also limited under the rules stated by the European Union (see also the case of the restrictions imposed on the movement of persons, developed in previous section). Generally, it could be stated that the movement of capital within the European Union is totally free (apart from the potential restrictions applied on the transactions made within certain member states, as explained above) and is regarded as a major tool for the financial development of all member states. The particular issue has been examined by Fischer (2000, 37) who noticed that ‘EU is a legitimate customs union, with minimal internal barriers and a common external tariff; it is not uncommon for it to use standards or subsidies to protect or aid its own products and to exclude foreign products’. In other words, the movement of capital within the European Union is free but it is possible for some restrictions to be imposed – this is a common case where suspicions for criminal activities exist in relation with particular financial transactions being attempted within the European Union. Part 4 - Are labour and capital mobile in the EU zone? – issues for consideration In practice, the application of both the freedoms presented above is not always achievable. In accordance with a relatively recent report (Press Releases, 2006) ‘the European Commission has decided to ask Spain formally to modify the legislation that extends the powers of the Comisión Nacional de Energía (CNE), the Spanish electricity and gas regulator; the legislation requires the authorisation of the CNE for the acquisition of over 10% of share capital; yhe Commission considers that these provisions may unduly restrict the free movement of capital and the right of establishment as enshrined in EC Treaty rules (Article 56 and 43 respectively)’. In order for Spain to adapt its policies towards the legal rules of the European Union, the latter issued a ‘formal notice’ in 2006 (May). The failure of Spain to meet the standards set by the European Union can have as a result the referral of the issue to the ECJ. The problems related with the application in practice of the two freedoms mentioned above are many. Specifically regarding the freedom of movement of capital it is stated by Lousa (2006, 309) that ‘the increase of economic internationalisation has caused the increase of international direct inversions; this has caused an increase in international double tax problems’. Within the European Union territory the phenomena of ‘double taxing’ are many and the European Court of Justice is usually called to decide on the disputes appeared. At a next level, the application of the free movement of persons within the European Union territory also faces significant obstacles mainly because the entrance of foreign workers (even if they are citizens of other member states) is often related with the decrease in the remuneration and the working positions of a country’s citizens. However, the efforts made towards the resolution of the relevant disputes are many. In this context, Malone (1999) mentions that ‘some progress may be expected over the next few years, because initiatives have recently emerged; the first is from DGV1 – responsible for employment, industrial relations and social affairs; the other is from DGXV – responsible for, among other things, completion of the single market in financial services, including insurance and pension funds’ (Malone, 1999, 54). All these efforts should be considered as significant regarding the increase of applicability of the principles of European Union; however it would be necessary for appropriate methods of monitoring to be included in the relevant plans in order to increase their effectiveness. Part 6 - Conclusion The issues developed above prove that the freedoms of movement of persons and capital as recognized and applied by the European Union are applicable across all member states; there can be no excuses for the member states that avoid applying these principles (or they apply them partially). Regarding this issue it is noticed by Donaghey et al. (2006, 653) that ‘although obliged by EU law not to place restrictions on workers moving from other Member States and, even though they may benefit economically from an influx of new workers many of these countries have moved to limit the numbers entering their domestic labour markets’. In fact, until 2009 all member states have the right to impose restrictions on the movement of persons/ workers within their territory; however after 2011 all these restrictions will be not acceptable by the European Union (as explained above in the relevant section). On the other hand, the research of Kelemen et al. (2007) showed that ‘greater market efficiency, lower consumer costs and further employment growth all remain goals of an expanded single European market – and all are threatened by a resurgence of "economic patriotism"’. In accordance with the above, the movement of persons and capital within the European Union cannot be considered as ‘mobile’ because many member states avoid to apply the above two freedoms (at least at the required level). The differentiation of this strategy in the future is quite possible – especially after 2011 when all relevant restrictions will have to be removed under the terms and the conditions described in the Treaty of Amsterdam and the orders that followed. References Archick, K. (2005). The European Union in 2005 and Beyond. The library of Congress Casey, B., Gold, M. (2005) Peer review of labour market programmes in the European Union: what can countries really learn from one another? Journal of European Public Policy, 12(1): 23-43 Donaghey, J., Teague, P. (2006) The free movement of workers and social Europe: maintaining the European ideal. Industrial Relations Journal, 37(6): 652-665 European Commission (2007) available at http://ec.europa.eu/trade/gentools/faqs_en.htm European Small Business Alliance (2004) Internal Market, [online], available at http://www.esba-europe.org/EF9CF/Services/Policy/Internal_Market.aspx European Parliament Fact Sheets (2001) Freedom of movement for persons, [online], available at http://www.europe-info.de/facts/en/2_3_0.htm Fischer, T. (2000) The United States, the European Union, and the "Globalization" of World Trade: Allies or Adversaries? Westport: Quorum Books Frarzese, R., Hays, J. (2006) Strategic Interaction among EU Governments in Active Labor Market Policy-making. European Union Politics, 7(2): 167-189 Kelemen, D., Menon, A. (2007) You thought we’ve got an EU single market? Think again! Europe’s World, [online], available at http://www.europesworld.org/EWSettings/Article/tabid/78/Default.aspx?Id=8b62a193-08c7-496e-b090-f377494b310c Lousa, M. (2006) Some considerations on capital mobility in the European Union: mechanisms to avoid the fiscal distortions. International Journal of Public Policy, 1(3): 309-319 Malone, R. (1999) Pensions Regulation from Brussels. Pensions, an International Journal, 5: 54-58 Muller, K. (1999) Problems of European Union Citizenship Rights at the Periphery. The Australian Journal of Politics and History, 45(1): 35-48 Press Releases (2006) EU: Free movement of capital: Commission calls on Spain to modify the law amending the functions of the Spanish electricity and gas regulator, [online], available at http://www.pressreleases.info/EN/archive/2006/200609/20060926/20060926_115913.shtm Treaty of Amsterdam, [online], available at http://www.interreg3c.net/sixcms/media.php/5/EC+Treaty.6806.pdf Van Gerven, W. (2005) The European Union: a Polity of States and Peoples. Standord: Stanford University Press Verdier, D., Breen, R. (2001) Europeanization and Globalization. Comparative Political Studies, 34(3): 227-262 Read More