European Union

The European Union (EU) is an economic and political union of 27 member states, located
primarily in Europe. It was established by the Treaty of Maastricht on 1 November 1993, upon
the foundations of the pre-existing European Economic Community. With a population of almost
500 million.
The EU has developed a single market through a standardized system of laws which apply in all
member states, ensuring the freedom of movement of people, goods, services and capital. It
maintains common policies on trade, agriculture, fisheries, and regional development. A common
currency, the euro, has been adopted by sixteen member states constituting the Euro zone.
 The Entry Barriers to EU

1. Economies of Scale
As an entrant must either enter at a suboptimal scale with a cost disadvantage or
at an efficient scale with a depressing effect on price. The firm could not befit
from economies of scale because they can’t produce in large scale if they don’t
have a favorable mark share
2. Product Differentiation
By allowing incumbents to change higher price than entrants and thus to sell
profitably when potential entrants could not. Even though the entrants sell their
products for a lower cost in order to capture the market, the customers will
hesitate to buy their products because they don’t know the quality and other
factors of the product.
3. Absolute Cost Advantage.

By allowing incumbents to sell profitably at prices below the cost of potential

entrants. Eventually the existing firms will have the absolute cost advantage.

4. The Currency Problem

The entrants should either change their currency to euro or the exchange rate
could be a problem when coming up with a price for the product because the
exchange rate varies.

5. Ethical Problems
When doing business in European Union your firm exposes itself into a whole
new market. So definitely there can be different kinds of ethic groups with
different ideas. In order to capture the market you should recognize their needs
and wants and should be able to supply.
6. Technical Problems

When the firm is doing business in EU the firm should have required Technology
to compete with the existing companies. If the firms don’t have updated
technology it would fail to capture the market.
 Economic and Monetary Union

The European Union has formed Economic and Monitory union (EMU) to create stable
economic growth and common monitory policy among European country. The EU adopted new
currency Euro for all member country of European Union. EMU consists of three stages.
The objectives of EMU includes
• price and currency stability;
• lower costs of financial transactions, especially across borders;
• equal access to financial instruments and services by all citizens and other borrowers and
lenders within the Community

Why UK is not Euro Zone?

UK refusesto accept Euro as their currency. UK government is analyzing consequences
on the following main 5 points for accepting euro as its currency,

✔ Sustainable convergence between Britain and Euro-land

✔ Whether there is sufficient flexibility to cope with economic change
✔ The effect on investment
✔ The impact on our financial services industry
✔ Whether it is good for growth and employment
UK has independent monetary policy which is controlled by Monetary Policy Committee
(MPC). MPC takes all the decision independently by setting up interest rate to control Inflation
in the United Kingdom. UK will loose its independent policy if it joins the European Union. All
the decision then would be taken by European Central Bank.These decision would be in view of
all the European Union not in particular benefit of the United Kingdom. According to Treasury,
UK is not much flexible in labor market to cope the problems generated by merging with EURO.
The structural difference between EU and UK is wide. UK is more relying on oil than Euro-land
and also it is dollar oriented trade. Housing Market is in the UK is well structured. The UK
Householder has taken their house in mortgage. They have taken high mortgage then their
income. Minor fall in the interest rate reflects higher saving in the income. If UK accepts Euro it
will further decrease rate by 2%. Following that rate means boom in the housing market and it
will lead to high inflation in United Kingdom. Also, UK government can not devaluate the
Exchange rate to maintain Balance of payments problem. Further more, there is uncertainty
about business cycle of United Kingdom to compatible with Euro area. The housing market at
the macroeconomic level is the one of the major risk factor to join the EU. Major changes and
economic reform is required to get the long term stability in the Housing Market to create
suitable condition in form of convergence with the EU.
If UK accepts euro UK will lose some independence on Fiscal Policy. The EU will not allow
borrowing more than 3% of its GDP to maintain growth and stability pact. That means UK has to
maintain growth similar to other country. The latest poll reveals that 64 % people are against to
join EURO as a single currency. Also, many people in the UK fear due to poor performance of
EURO since 1999.