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JEAN MONNET MODULES, project " Good governance,
strong democratic institutions, rule of law: prerequisites for
investing in innovation"
INVESTMENT
CLIMATE IN EUROPE
Analysis of the European Union
The project has been funded with support from the European Commission. This
presentation reflects the views only of the author, and the Commission cannot be held
responsible for any use which may be made of the information contained therein.
Structure of the presentation
1.
What do we mean for investment climate (IC)?
2.
Why the European Union for IC?
3.
Analysis of the main features of the European Union
 EU governance (European Institutions)
 Common currency
 EU Single Market
Definition of Investment Climate
Investment climate are the
economic and financial
conditions in a country that
affect whether individuals
and businesses are willing to
lend money and acquire a
stake in the businesses
operating there
Factors affecting Investment climate
government transparency and
accountability
poverty
education
crime
property rights
Factors
workforce
rule of law
national
security
political
instability
taxes
regime
uncertainty
Why Europe for IC?
 One of the biggest market in the world
 Geographic proximity to Russia
 Strong economic links EU-Russia
 Higher level of innovation
 Some good practices can be learnt?
Key indicators - G20
 First Market in terms of GDP
 About 25% of World GDP in
EU-27
 Third lagest market in the
world in terms of number of
consumers (population)
Population
(million)
GDP (EUR
million)
EU-27
12 260 495
China
1 341.3
United States
10 897 714
India
1 224.6
China
4 329 304
EU-27
501.8
Japan
4 117 729
United States
310.4
Brazil
1 575 745
Indonesia
239.9
India
1 299 184
Brazil
194.9
Russia
1 116 258
Russia
143.0
World
47 570 320
World
6 895.9
Source: Eurostat (2013)
Share of world GDP
• About 25% of World GDP in
EU-27
Source: Eurostat (2013)
Share of world GDP, 2000 and 2010
Source: Eurostat (2013)
Main G20 trading partners for EU-27 exports and
imports of goods, 2011
• Russia is the 3rd commercial partner of
the EU for exports
• Russia is the 2nd commercial partner of
the EU for imports
Source: Eurostat (2013)
Main features of the European Union
Political and
Economic
integration
Single
Market
Common
Currency (€)
EU
Governance
EU governance – Key aspects
 28 EU Member States
 Supranational bodies and Insitutiions (ex. European Parliament, European
Commission, European Central Bank and European Court of Justice)
 Supremacy of the EU law
 EU competences (enlarged since the EU was established)
 An ongoing process
The EU enlargments
1951
Founding Members
 Belgium
 France
 Germany
 Italy
 Luxembourg
 Netherlands
The EU enlargments
1973
First enlargment
 Denmark
 Ireland
 United Kingdom
The EU enlargments
1981
Second enlargment
 Greece
The EU enlargments
1986
Third enlargment
 Spain
 Portugal
The EU enlargments
1995
Forth enlargment
 Austria
 Finland
 Sweden
The EU enlargments
2004
Fifth enlargment

Cyprus

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Slovakia

Slovenia
The EU enlargments
2008
Sixth Enlargment
Croatia
Candidate Countries
Former Yugoslav
Macedonia
Republic of
Turkey
Potential
Candidate Countries
Albania
Bosnia & Herzegovina
Montenegro
Serbia including Kosovo under UN
Security Council Resolution 1244
EU Multi-level governance
EU level
Member state level
Local level / citizens
The EU Institutions
The EU Institutions
European Commission
• 27 Commissioners, representing the European
perspective, each responsible for a specific policy
area.
• EU’s executive branch proposes legislation, manages
Union’s day-to-day business and budget, and
enforces rules.
• Negotiates trade agreements and manages Europe’s
multilateral development cooperation.
European Commission President
José Manuel Barroso
The EU Institutions
Council of the European Union
•
It is part of the essentially bicameral EU legislature,
representing the executives of EU member states
•
The Council is composed of several configurations of
twenty-eight national ministers (one per state)
•
Council presidency rotates among Member States every six
months.
•
The Foreign Affairs Council (national foreign ministers) is
however chaired by the Union's High Representative
The EU Institutions
European Parliament
• Voice of European citizens – members elected for
five-year terms.
• It holds, together with the Council, the legislative
power.
• With the Council, passes EU laws and adopts EU
budgets.
• Approves EU Commissioners.
The EU Institutions
European Council
• It comprises the heads of state or heads of
government of the EU member states
• It defines the general political directions and priorities
of the Union
• It has no formal legislative power
• It has a permanent President
European Council President
Herman Van Rompuy
European Union competences
The common currency
The €uro
• In 1999, the euro area was established as a currency
in eleven of the then fifteen EU Member States.
• Of the 28 EU Member States today, eighteen have
adopted the euro.
• The countries of the Euro area gave their sovereignty
in the monetary policy to the European Central Bank
The common currency
European Central Bank
• The European Central Bank (ECB) is the central bank
for Europe's single currency, the euro.
• The ECB’s main task is to maintain the euro's
purchasing power and thus price stability in the euro
area.
• The euro area comprises the 15 European Union
countries that have introduced the euro since 1999.
• The ECB operates independently from Member State
governments.
European Central Bank President
Mario Draghi
Three stages to Economic and Monetary Union
Convergence criteria
Countries must fulfill the convergence (or “Maastricht”) criteria
Price Stability
(low inflation)
Public finance
discipline
(low government
debt and deficit)
Interest rate
convergence
Exchange rate
stability
%
Convergence
facilitates the
task of monetary
policy, which is to
maintain price
stability in the
euro area and
thereby to
contribute to
non-inflationary
growth
Convergence criteria
Economic and Monetary Union (EMU) or Euro zone
Not all the EU
countries
belong to the
Euro zone or are
expected to join
it (UK and
Denmark have a
special status)
Benefits and Costs of Adopting the Euro
Price stability and
security of
purchasing power
Price transparency 1€
across countries
Elimination of
transaction costs
2€
Elimination of
exchange rate risks
Countries cannot have an independent monetary policy
If labour is not fully mobile and business cycles synchronised between
nations, the same monetary policy may not suit all nations
Economic policy making: the euro area and the US
US
Monetary
policy
Federal Reserve Chairman
Janet Yellen
Euro area
ECB President
Mario Draghi
Fiscal
policy
Treasury Secretary
Jack Lew
Eurogroup Finance Ministers
 Economic policy co-ordination is required for this
complicated set-up to function!
EU Single Market
• The Single Market was launched at the beginning of
1993
• Jacques Delors, President of the European
Commission (1985-95) called it: ‘one of the main
engines of the EU’
The core goal of the European integration
Main goals of the EU as set in Article 2 of Treaty of Rome (1957/58):
"The Community shall have as its task, by establishing a common
market and progressively approximating the economic policies of
MS, to promote throughout the community a harmonious
development of economic activities, a continuous and balanced
expansion, an increase in stability, an accelerated raising of the
standard of living and closer relations between the MS belonging to
it".
EU Single Market – main features
• One of the biggest market in the world (3rd for
population and 1st for GDP)
• It is based on 4 freedoms: the free movement
of people, goods, services and capital
• Both internal and external dimension
• Last stage of trade/economic integration after freetrade area and custom unions
• Important to know it to make business in Europe
• It enhances competition and innovation
• It is still not yet completed
Different stages of its implementation
1968 - customs union is established
removing all tariffs on intra-EC trade and adopting a common external tariff
1993 - Internal market introduced
• 1985 White Paper – starting the preparation for introduction of Internal market
• 1986/1987 – Single European Act – provided for the adaptations required for
introduction of the Internal Market
1999 - Economic and Monetary Union (EMU)
started to work for initial 11 members fulfilling the 5 nominal (Maastricht)
convergence criteria.
Treaty on European Union, signed in Maastricht (1992/1993)
Towards the political union - ?
Different stages of its implementation
Establishment of the EU Single Market
How was it Created?
• Removal of barriers to the four freedoms of movement (people, goods,
services, capital) within the EU
• Barriers were: regulatory, technical, legal, bureaucratic, cultural
and protectionist
• EU Directives telling member states’ governments to put changes into effect
The Single Market – the internal dimension
Free trade of goods
The Single Market Programme → abolition of the following
types of barriers in goods markets:
1. Physical frontiers:
elimination of border formalities
2. Technical standards:
Harmonisation and mutual recognition of technical standards in
production, packaging and marketing (positive and negative
harmonization)
3. Fiscal differences:
Government reluctant to forego the right to alter rates
Slow progress in harmonisation of VAT rates
Minimum standard rate of 15% with reduced rates of 5% agreed, but no
agreement on Commission proposal to set a maximum of 25%
Free movement of workers
• A worker on the territory of another MS is entitled to the same priority
as the nationals of that MS as regards access to available
employment and to the same assistance
Non-discriminatory principle: recruitment may not be dependent on
medical, occupational or other criteria which discriminate on the
grounds of nationality.
• Prohibition of any-discrimination based on nationality as regards
- working and employment conditions entitlement to occupational
- training and retraining measures.
- social and tax advantages
- equal treatment in respect of the exercise of trade union rights
• Need for recognition of professional qualifications.
Free movement of services
• Services trade integration has been slower and more difficult than
product market integration
• Services trade not restricted by tariffs but by domestic regulatory
regimes
• EU Treaties distinguish between:
Establishment - the professional has an infrastructure in the host
member state; either he wants to transfer his main establishment in
the host member state or he wants to have a secondary
establishment.
Cross-border provision of services - services are provided on a
temporary and occasional basis (assessed in relation to duration,
frequency, regularity and continuity of services).
Case of not completion of the Single Market
• EU Electricity regions, islands
Free movement of capital
• from 1 July 1990: full liberalisation of capital movements
between MC
- Capital movements include direct investments, investments in
real estate, operations in securities and in current and deposit
accounts, and financial loans and credits.
• "safeguard clause“: protective measures to ensure liquidity
of local banks and temporary restrictions in case of major
disruptions in foreign exchange markets
- shall not exceed six months period.
The Single Market – the external dimension
The Internal Market is not merely an inward-looking exercise
Many European companies and financial institutions operates at global scale. Therefore,
they need support
The main external dimensions of the EU Single market are:
EU-Enlargement (for candidate or associate countries)
European Neighbourhood Policy (privileged relations with neighbours)
Regulatory Dialogues (with third countries as USA, China, India and Russia)
Multilateral Work: trade negotiations at a multilateral level (i.e. World Trade
Organization (WTO) and in DOHA-Development Round)
• Trade negotiations (bilateral or regional international agreements)
•
•
•
•
The Single Market – Who Benefits?
Who Benefits?
• Consumers: lower prices, greater choice of
goods and services, work within EU
• Businesses: fair competition, economies of
scale, expand to global markets