INTRODUCTION

The European Union (EU) is a supranational economic and political organization of 27 member
states, located primarily in Europe. It was established by the Treaty of Maastricht, which was
signed in February 1992 and came into force in November 1993, on the foundations of the pre-
existing European Economic Community. With almost 500 million citizens, the EU combined
generates an estimated 30% share (US$16.8 trillion in 2007) of the world's nominal gross world
product.

The European Headquarter is at Brussels, Belgium. It is being selected as the headquarters of the
European Union because of its centralized location in Europe.

The EU has developed a single market through a standardized system of laws which apply in all
member states, guaranteeing the freedom of movement of people, goods, services and capital. It
maintains a Common Trade Policy, Agricultural and Fisheries Policies, and a Regional
Development Policy. Sixteen member states have adopted a common currency, the Euro.

HISTORY OF THE EUROPEAN UNION

The European Union is a geo-political entity covering a large portion of the European continent.
It is founded upon numerous treaties and has undergone expansions that has taken it from 6
member states to 27, a majority of states in Europe.
Its origins date back to the post-World War II era, in particular the foundation of the European
Coal and Steel Community in Paris 1951, following the "Schuman declaration", or the Treaties
of Rome establishing the European Economic Community. Both these bodies are now part of the
European Union, which was formed under that name in 1993.
Beginnings: War and Peace:
For centuries, Europe was the scene of frequent and bloody wars. In the period 1870 to 1945,
France and Germany fought each other three times, with terrible loss of life. A number of
European leaders became convinced that the only way to secure a lasting peace between their
countries was to unite them economically and politically.
So, in 1950, in a speech inspired by Jean Monnet, the French Foreign Minister Robert Schuman
proposed integrating the coal and steel industries of Western Europe. As a result, in 1951, the
European Coal and Steel Community (ECSC) was set up, with six members: Belgium, West
Germany, Luxembourg, France, Italy and the Netherlands. The power to take decisions about the
coal and steel industry in these countries was placed in the hands of an independent,
supranational body called the "High Authority". Jean Monnet was its first President.

The ECSC was such a success that, within a few years, these same six countries decided to go
further and integrate other sectors of their economies. In 1957 they signed the Treaties of Rome,
creating the European Atomic Energy Community (EURATOM) and the European Economic
Community (EEC). The member states set about removing trade barriers between them and
forming a "Common Market".
In 1967, the institutions of the three European communities were merged. From this point on,
there was a single Commission and a single Council of Ministers as well as the European
Parliament.

Originally, the members of the European Parliament were chosen by the national parliaments but
in 1979 the first direct elections were held, allowing the citizens of the member states to vote for
the candidate of their choice. Since then, direct elections have been held every five years.

The Treaty of Maastricht (1992) introduced new forms of co-operation between the member state
governments - For example on Defense, and in the area of "Justice and Affairs". By adding this
inter-governmental co-operation to the existing "Community" system, the Maastricht Treaty
created the European Union (EU).
1993–2004: European Union
The signing of the Maastricht Treaty which created the EU legally. On 1 November 1993, under
the third Delors Commission, the Maastricht Treaty (Treaty on the European Union) became
effective, creating the European Union The 1994 European elections were held resulting in the
Socialist group maintaining their position as the largest party in Parliament. The Council
proposed Jacques Santer as Commission President .

On 30 March 1994, accession negotiations concluded with Austria, Sweden, Finland and
Norway. Norway did participate with Iceland and Liechtenstein in the European Economic
Association (entered into force on 1 January 1994), which allowed European Free Trade
Association states to enter the Single European Market, created in 1993.The following year, the
Schengen Agreement would come into force between seven members, expanding to include
nearly all others by the end of 1996. The 1990s also saw the further development of the euro.
The 1 January 1994 saw the second stage of EMU begin with the establishment of the European
Monetary Institute and at the break of 1999 the euro as a currency was launched and the
European Central Bank was established. On 1 January 2002 notes and coins were put into
circulation, replacing the old currencies entirely.
2004–Present: Recent History
On the 10-13 June 2004, the 25 member states participated in the largest trans-national election
in history (with the second largest democratic electorate in the world).

OBJECTIVES OF THE EUROPIAN UNION

 Elimination of custom duties among member states.

 Elimination of obstacles to the free flow of import and export of goods and services
among member nations.
 Establishment of common custom duties and united industrial/commercial policies
regarding countries outside the community.
 Free movement of capital and people within the block.
 Acceptance of common agricultural policies ,transportation policies ,technical standards
health and safety regulations.
 Common measures for consumer protection.
  Common laws to maintain competition throughout the community and to fight
monopolies or illegal cartels.
 Regional fund to encourage economic development of certain regions.
 Greater monetary and fiscal coordination among member states and certain common
fiscal policies.

MEMBERS OF THE EUROPEAN UNION

There are 27 member of the European Union.

1. Austria 15. Sweden

2. Belgium 16. Cyprus

3. UK 17. Czech Republic

4. Denmark 18. Estonia

5. Germany 19. Hungary

6. Greece 20. Latvia

7. Ireland 21. Lithuania

8. Spain 22. Malta

9. Italy 23. Poland

10. Luxembourg 24. Slovakia

11. Netherlands 25. Slovenia

12. Portugal 26. Bulgaria

13. Finland 27. Romania

14. France
 EUROPEAN UNION CURRENCY - EURO

The euro (sign: €;code: EUR;plural: euros) is the official currency of the eurozone: 16 of the 27
Member States of the European Union (EU). It is also the currency used by the EU institutions.
The eurozone consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain Estonia is
due to join the eurozone on 1 January 2011 The currency is also used in a further five European
countries, with and without formal agreements, and is consequently used daily by some
327 million Europeans. Over 175 million people worldwide use currencies which are pegged to
the euro, including more than 150 million people in Africa.

The euro is the second largest reserve currency (a status it inherited from the German mark) as
well as the second most traded currency in the world after the U.S. dollar. As of June 2010, with
more than €800 billion in circulation, the euro is the currency with the highest combined value of
banknotes and coins in circulation in the world, having surpassed the U.S. dollar. Based on IMF
estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone
is the second largest economy in the world.

The name euro was officially adopted on 16 December 1995. The euro was introduced to world
financial markets as an accounting currency on 1 January 1999, replacing the former European
Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes entered circulation on 1 January
2002.
All euro coins have a common side, and a national side chosen by the issuing bank.

euro coins

euro banknotes
The coins are issued in €2, €1, 50c, 20c, 10c, 5c, 2c, and 1c denominations. In order to avoid the
use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the
Netherlands (by voluntary agreement) and in Finland (by law) This practice is discourage

Commemorative coins with €2 face value have been issued with changes to the design of the
national side of the coin. These include both commonly issued coins, such as the €2
commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, and
nationally issued coins, such as the coin to commemorate the 2004 Summer Olympics issued by
Greece. These coins are legal tender throughout the eurozone. Collector's coins with various
other denominations have been issued as well, but these are not intended for general circulation,
and they are legal tender only in the Member State that issued them

The design for the euro banknotes have common designs on both sides. The design was created
by the Austrian designer Robert Kalina Notes are issued in €500, €200, €100, €50, €20, €10,
The euro was established by the provisions in the 1992 Maastricht Treaty. To participate in the
currency, Member States are meant to meet strict criteria, such as a budget deficit of less than
three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and
interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and
Denmark were granted exemptions per their request from moving to the stage of monetary union
which would result in the introduction of the euro.

HISTORY OF ADOPTING EURO

The European Economic and Monetary Union (EMU) is an agreement between participating
European nations to share a single currency, the euro, and a single economic policy with set
conditions of fiscal responsibility. There are currently 27 member-states of varying degrees of
integration with the EMU. Sixteen member states have adopted the euro: Austria, Belgium,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Slovenia, Spain, from 1 January 2008 Cyprus and Malta, and, from 1 January 2009, Slovakia.
Three other member states, the United Kingdom, Denmark and Sweden, have no immediate
plans to adopt the euro. Other member states are in various stages of euro adoption and are
expected to join the Eurozone within the next ten years.
In the wake of the Second World War, most currencies of the industrialised world were tied
closely to the US-Dollar under the so-called ‘gold standard’ under the Bretton Woods System.
The de facto supremacy of the Dollar and forced devaluations of several European currencies led
European politicians to seek to redress this imbalance through greater economic integration
between European nations.

Plans for a single European currency began in 1969 with the Barre Report, issued by the then
six-member European Economic Community (EEC). This was followed later that year by a
meeting of the Heads of State or Governments in The Hague to plan the creation of an economic
and monetary union. The process was delayed by the collapse of the Bretton Woods System in
1971 after President Nixon's unilateral decision to make the dollar inconvertible to gold and by
the oil crisis of 1972. Meanwhile, the EEC grew to include nine states, many of which were
hesitant to give up their national currencies.

Currently, participating European countries can be integrated into three different economic
stages, which correspond to the historical stages of EMU development.

Stage I

In 1979 the European Monetary System (EMS) was established to link European currencies and
prevent large fluctuations between their respective values. It created the European Exchange
Rate Mechanism (ERM) under which the exchange rates of each member state’s currency was to
be restricted to narrow fluctuations (+/-2.25%) on either side of a reference value. This reference
value was established in an aggregated basket of all the participating currencies called the
European Currency Unit (ECU), which was weighted according to the size of the member state's
economies.

In the late 1980s the market of each member state grew closer to its neighbours, shaping what
would eventually be called the European Single Market. International trade in the Single Market
could be hindered by exchange-rate risk – despite the relative stability introduced by ERM – and
the increased transaction costs that this brought. The creation of a single currency for the Single
Market seemed a logical solution, and thus the idea of a single currency was brought back to the
fore.
The European Commission of Jacques Delors passed the Single European Act in February 1986,
which aimed to remove institutional and economic barriers between EC member states and
established the goal of a common European market. In 1989, plans were drawn up to realize the
EMU in three stages. Although the processes of Stage I began with the EMS in 1979, the first
stage officially began in 1990, when exchange rate controls were abolished, thus freeing capital
movements within the EEC. In 1992, the three-stages envisioned by the Delors Commission
were formalized in the Maastricht Treaty, including economic convergence criteria for adoption
of the common currency. In effect, this transformed the EEC into the European Union. Criteria
for membership in the European Union and adoption of the euro are set out by three documents.
The 1st is the Maastricht Treaty of 1992, which entered force on 1 November 1993. Later that
year, the 2nd was created by the European Council in Copenhagen and the creation of the
“Copenhagen Criteria,” which clarified the general goals of the Maastricht Treaty. The 3rd is the
Framework contract negotiated with each accession country before joining the EU. The criteria
have also been clarified by EU legislation and by decisions of the European judiciary over the
years.

The 1st Stage of EMU development can be correlated to a current candidate country first
meeting the Copenhagen Criteria and then joining the EU.

Stage II

At the December 1995 summit in Madrid, Germany successfully argued to change the name of
the ECU to the “euro,” The so called “Madrid scenario” also set out a transition period between
the introduction of the euro in accounting and later as a cash currency.

In the second stage of the EMU, the European Monetary Institute (EMI) was established as a
forerunner of the European Central Bank (ECB). In June of 1997, the European Council in
Amsterdam agreed to the Stability and Growth Pact and set up the ERM II, which would succeed
the European Monetary System and the ERM after the launch of the euro. The following year the
European Council in Brussels selected eleven countries to adopt the euro in 1999 and the ECB
came into being, tasked with establishing monetary policy for the European Union and with
overseeing the activities of the European System of Central Banks -- national banks which would
implement the decisions of the ECB, print money and mint coins and assist the initial euro
countries in meeting the convergence criteria.

The 2nd Stage of EMU development can be correlated to a recently acceded member state
entering the ERM-II, where it must stay for at least two years before adopting the euro.

Stage III

On 1 January 1999 the euro was adopted in non-physical form, with the exchange rates for 11 of
the then 15 member states' currencies fixed on the last day of 1998. The Exchange Rate
Mechanism (ERM) was succeeded by the ERM-II, which functioned similarly to the original
ERM but within the context of an extant euro currency. The ECB began enforcing a single,
monetary policy with the assistance of the Central Banks of each member state, and the three-
year transition period set out in Madrid began, to last until 1 January 2002. In mid-2000 the
Commission announced that Greece could formally join the single currency’s 3rd stage on 1
January 2001.

The euro was a virtual currency for the 12 countries of the so-called ´Eurozone´– Austria,
Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Spain
and Portugal. It was used in accounting, and firms could conduct euro-denominated transactions
safe in the knowledge that the exchange rates among the member-states were fixed. Euro-values
appeared on bank accounts next to national currencies to acclimate the populace to the new
currency.

For each state to adopt the new currency on 1 January 2002, they had to meet the “Convergence
Criteria“ set out by the Maastricht Treaty. The criteria include four requirements.

 Currencies has to stay within the bands set by the ERM for at least two years

Long-term interest rates could not be more than two percentage points higher than those of the
three, best-performing member states
 Introduction of the euro
Currency Code Rate Fixed on Yielded

Austrian schilling ATS 13.7603 31 December 1998 2002

Belgian franc BEF 40.3399 31 December 1998 2002

Dutch guilder NLG 2.20371 31 December 1998 2002

Finnish markka FIM 5.94573 31 December 1998 2002

French franc FRF 6.55957 31 December 1998 2002

German mark DEM 1.95583 31 December 1998 2002

Irish pound IEP 0.787564 31 December 1998 2002

Italian lira ITL 1,936.27 31 December 1998 2002

Luxembourgian franc LUF 40.3399 31 December 1998 2002

Monegasque franc MCF 6.55957 31 December 1998 2002

Portuguese escudo PTE 200.482 31 December 1998 2002

Sammarinese lira SML 1,936.27 31 December 1998 2002

Spanish peseta ESP 166.386 31 December 1998 2002

Vatican lira VAL 1,936.27 31 December 1998 2002

Greek drachma GRD 340.75 19 June 2000 2002

Slovenian tolar SIT 239.64 11 July 2006 2007

Cypriot pound CYP 0.585274 10 July 2007 2008

Maltese lira MTL 0.4293 10 July 2007 2008

Slovak koruna SKK 30.126 8 July 2008 2009

 TRADE WITH REST OF THE WORLD

The European Union is the world’s biggest trader, accounting for nearly 20% of global exports
and imports. The United States is the EU’s largest trading partner, followed by China and Russia.
Two-way trade flows across the Atlantic are worth close to €400 billion a year.

Open trade among members of the EU has led to the single European market with freedom of
movement for people, goods, services and capital. The Union therefore takes a lead in pushing
for further trade liberalization at world level for the benefit of rich and poor countries alike.
Trade sanctions - e.g. removing trade preferences or limiting or freezing trade with a partner in
breach of human rights or other international standards of behaviour - are also a tool of European
foreign policy.
India ranked fourth in terms of its imports to the EU. The EU's imports from Russia and China
grew by 32 percent and 23 percent respectively.

The EU recorded a deficit of 106.4 billion euro in its external trade in 2005, compared with a
deficit of 62.9 billion euro in 2004.

Rules Followed to do trade:-

To benefit all players, trade has to be free and fair, with the same transparent and mutually-
agreed rules applied to everyone. The EU firmly supports the World Trade Organisation which
lays down a set of rules to help open up global trade and ensure fair treatment for all participants.
The system, although imperfect, offers a degree of transparency and legal certainty in the
conduct of international trade.Selling goods on foreign markets below cost or domestic price in
order, for example, to force producers in these countries out of their home market — so called
‘dumping’.
 Paying subsidies from the state budget to companies, including to ‘national champions’,
to give them an unfair advantage in export or domestic markets.
 Reserving public contracts for local firms, even though foreign bidders submit better
offers.
 Disregarding intellectual property rights (trade marks and copyrights) by producing
pirated or counterfeit goods which are sold cheaply to undercut the original manufacturer.

In parallel with its WTO membership, the EU has developed a network of bilateral trade
agreements with individual countries and regions across the world. These agreements
complement moves at the WTO to remove barriers to trade internationally and help us move
more quickly to secure mutual advantage with key commercial partners. There are clear WTO
rules establishing conditions for these agreements to prevent them being used to discriminate
against other trade partners, and all EU agreements are compatible with these rules..

The special trade and aid relationship between the EU and the 79 countries of the African-
Caribbean-Pacific (ACP) group dates from the Lome Agreements of 1975. This relationship is
being further developed through so-called 'economic partnership agreements' (EPA). These
agreements will combine EU trade and aid in a new way. The ACP countries are encouraged to
foster economic integration with regional neighbours as a step towards their global integration,
while more aid is focused on institution-building and good governance. Under the EPA the
development dimension becomes the cornerstone of the EU-ACP relationship.

SHARE OF WORLD TRADE IN GOODS (2009)

 EU
17%

Others United States

51% 16%

Japan
7%
China
10%

SHARE OF WORLD TRADE IN SERVICES (2009)

EU
26%

Others
45%

United States
18%

China Japan
4% 7%

BUS
INESS PERFORMANCE WITHIN EUROPEAN UNION
 Business performance in the European Union is done by the formation of company. The
way in which a company is formed is shown.

1. Merger.

2. Formation of a holding company.

3. Formation of a joint subsidiary.

4. Conversion of a public limited company previously formed under national law.

1. Handling of Accounts: This is a process to coordinate members for the content of annual
accounts and annual reports. It is also for adopting the method of fair methods of accounting.
All the above actions led to a fair method of business system which has the following
characteristics.

• All EU consumers will have the right to the same information in their country or other
EU Member State.
• It will be easier to calculate the total cost of production.
• Protect consumers against taking on too much debt.

ECONOMY

EU has established a single economic market across the territory of all its members. Currently, a
single currency is in use between the 16 members of the eurozone. If considered as a single
economy, the EU generated an estimated nominal gross domestic product (GDP) of
US$16.45 trillion (14.794 trillion international dollars based on purchasing powerparity) in 2009,
amounting to over 21% of the world's total economic output in terms of purchasing power parity,
which makes it the largest economy in the world by nominal GDP and the second largest trade
bloc economy in the world by PPP valuation of GDP. It is also the largest exporter, and largest
importer of goods and services, and the biggest trading partner to several large countries such as
China and India.
161 of the top 500 largest corporations measured by revenue (Fortune Global 500 in 2010) have
their headquarters in the EU.

In May 2007 unemployment in the EU stood at 7% while investment was at 21.4% of GDP,
inflation at 2.2% and public deficit at −0.9% of GDP. There is a great deal of variance for annual
per capita income within individual EU states, these range from US$7,000 to US$69,000.

Market in the European union

EU executive seeks to streamline single market with overhaul of tax and patent laws to boost
cross-border trade

Michel Barnier, European commissioner for the single market, wants to promote economic
growth in the EU. Photograph: The EU executive is to announce a battery of measures to
strengthen and streamline Europe's single market tomorrow in its quest for new sources of
economic growth at a time of relative decline.

The package of 172 measures, entailing dozens of legislative and regulatory changes and dubbed
"the Single Market Act", is to be disclosed by Michel Barnier, the European commissioner for
the single market. The campaign for legislative and regulatory change is also aimed at warding
off the risks of protectionism heightened by the recent financial crisis.

Speaking to the Guardian, Barnier said: "How is it possible that the single market is more and
more necessary, yet less and less popular? The single market is fragile for reasons of
protectionism, populism and nationalism."

Barnier and his fellow commissioners are calling for an overhaul of the various VAT systems
and corporate tax bases across the EU, for European patent and trademark innovation, the
abolition of cross-border obstacles to e-commerce – which currently comprises only 2-4% of
European trade – help for venture capital to operate across national borders in the EU, and action
to counter piracy, which is said to have cost Europe's creative industries €10bn and 185,000 jobs
in 2008.
The paper being released and obtained by the Guardian, says: "The absence of a single EU-wide
patent is striking. Obtaining a patent protection for all 27 EU member states is currently at least
15 times more expensive than obtaining patent protection in the US."

Policymakers in Brussels argue that further opening up the eight-year-old single market could
add up to 4% to economic growth in Europe at a time of gloom and anaemic performance
relative to other parts of the world.

They contend that the single market generated 2.75m jobs and 2.15% of extra growth between its
creation in 1992 and 2006, but that the financial collapse and recession have wiped out those
gains. "Our production levels have been reset to 1990 levels. Almost 10% of our active
population – 23 million people – is currently unemployed."

The call to overhaul VAT systems and corporate tax bases could run into resistance among some
European governments, who will fear an attempt to equalise or harmonise tax policies. But a
senior official said that the aim was to make life easier for small and medium-sized enterprises –
99% of EU firms – being penalised by contradictory tax regimes when operating cross-border.

This will affect dozens of areas, from pension and retirement rights to health cover, social
insurance, getting car registration taxes refunded, or issues of property and inheritance taxes.

Two of the original core objectives of the European Economic Community were the
development of a common market, subsequently renamed the single market, and a customs union
between its member states. The single market involves the free circulation of goods, capital,
people and services within the EU, and the customs union involves the application of a common
external tariff on all goods entering the market. Once goods have been admitted into the market
they cannot be subjected to customs duties, discriminatory taxes or import quotas, as they travel
internally. The non-EU member states of Iceland, Norway, Liechtenstein and Switzerland
participate in the single market but not in the customs union. Half the trade in the EU is covered
by legislation harmonised by the EU.

Free movement of capital is intended to permit movement of investments such as property

purchases and buying of shares between countries. Until the drive towards Economic and
Monetary Union the development of the capital provisions had been slow. Post-Maastricht there
has been a rapidly developing corpus of ECJ judgements regarding this initially neglected
freedom. The free movement of capital is unique insofar as it is granted equally to non-member
states.

The free movement of persons means citizens can move freely between member states to live,
work, study or retire in another country. This required the lowering of administrative formalities
and recognition of professional qualifications of other states.

The free movement of services and of establishment allows self-employed persons to move
between member states in order to provide services on a temporary or permanent basis. While
services account for between sixty and seventy percent of GDP, legislation in the area is not as
developed as in other areas. This lacuna has been addressed by the recently passed Directive on
services in the internal market which aims to liberalise the cross border provision of services.
According to the Treaty the provision of services is a residual freedom that only applies if no
other freedom is being exercised.

Monetary union

The creation of a European single currency became an official objective of the European
Economic Community in 1969. However, it was only with the advent of the Maastricht Treaty in
1993 that member states were legally bound to start the monetary union no later than 1 January
1999. On this date the euro was duly launched by eleven of the then fifteen member states of the
EU. It remained an accounting currency until 1 January 2002, when euro notes and coins were
issued and national currencies began to phase out in the eurozone, which by then consisted of
twelve member states. The eurozone has since grown to sixteen countries, the most recent being
Slovakia which joined on 1 January 2009.

All other EU member states, except Denmark and the United Kingdom, are legally bound to join
the euro when the convergence criteria are met, however only a few countries have set target
dates for accession. Sweden has circumvented the requirement to join the euro by not meeting
the membership criteria.

The euro is designed to help build a single market by, for example: easing travel of citizens and
goods, eliminating exchange rate problems, providing price transparency, creating a single
financial market, price stability and low interest rates, and providing a currency used
internationally and protected against shocks by the large amount of internal trade within the
eurozone. It is also intended as a political symbol of integration and stimulus for more. Since its
launch the euro has become the second reserve currency in the world with a quarter of foreign
exchanges reserves being in euro.

The euro, and the monetary policies of those who have adopted it in agreement with the EU, are
under the control of the European Central Bank (ECB). The President of the European Central
Bank is appointed by the European Council.

There are thirteen other currencies used in the EU, with all but four (Danish krone, Gibraltar
pound, Swiss franc, pound Sterling) legally obliged to be switched to the euro. A number of
other countries outside the EU use the euro, such as Montenegro, without formal agreement with
the ECB.

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.

Future Outlook

Many experts are very optimistic about the future of the Euro. With no end in sight for US
economic problems, and the considerable gap between EU productivity compared to other
leading and developing economies, the Euro will continue to climb. Equilibrium will eventually
stop the climb, but at what time and at what currency value is highly speculative.
The most pressing issue facing the value of the Euro is the individual economic performance of
member states. Various EU countries have not enjoyed the prosperity of others, leading to
inflation (among other things). Although leading countries such as Germany have managed to
keep inflation within a reasonable range, price erosion in less successful countries may effect the
Euro’s value. This has led some to claim that the Euro is overvalued.

Benefits of euro

 Savings from using only one currency.

 Easy to compare prices resulting in lower prices.
 Forces efficiency and slashing cost.
 Creates liquid pan-Europe capital market.
 Increases range of investments for individuals and institutions.

Costs of euro

 Countries lose monetary policy control.

 European Central bank controls policy for the “Euro zone”.
 Eu is not an “optimal currency area”.
 Country economies are different.
 Euro put the economics carts before the political

CONCLUSION

The EU has developed a single market through a standardized system of laws which apply in all
member states, guaranteeing the freedom of movement of people, goods, services and capital. It
maintains a Common Trade Policy, Agricultural and Fisheries Policies, and a Regional
Development Policy. Sixteen member states have adopted a common currency, the Euro.
 REFERENCE

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