All these costs are going to affect Zeus and it might be a good idea for Zeus to look into these costs now, if they want to stay trading in years to come. Moving Production Many multi-national companies have expressed misgivings of Britain staying out of the Euro and state it could affect investments in British jobs. Companies want to know the value of the goods they sell from the UK will not decrease due to fluctuations in the exchange rate between Britain and the European countries and the cost of British labour will not rise significantly due to a strengthening pound.
However, American, Asian and other foreign companies favour the UK as a base for their European operations because of factors such as culture, language, a de-regulated, business friendly environment, and low levels of taxation and corruption. EMU entry could reduce the cost of capital for UK firms if long-term interest rates fell within the EU and if membership of a larger financial market reduced the cost of finance. These costs could fall for SMEs in particular if joining EMU lowers the barriers which prevent SMEs accessing EU financial markets and lowers the cost of bank lending.
Over time, EMU is likely to boost cross-border investment flows and foreign direct investment (FDI) in the Eurozone. The UK’s share of total EU FDI flows has fallen, coinciding with the start of EMU, and a corresponding increase in the share of the Eurozone. But against the backdrop of many other influences on FDI flows, it’s difficult to say EMU has boosted FDI within the Eurozone. Successfully operating EMU and UK membership of it on the right basis, would boost FDI over the longer-term. The longer membership of the euro is delayed, gains of increased inward investment are postponed.
If sustainable and durable convergence is achieved, then the quantity and quality of investment would increase. How This Effects Zeus If Zeus was to relocate to Europe, there would be decreased production, transport and currency costs however the initial outlay moving into Europe will be costly but allow Zeus to be in the market they wish to operate in. The skills and expertise of the workforce of that county may not have what Zeus require and may cost more money training employees to the standard required.
Moving production into a different country may benefit the company as all countries have differing resources, like labour. Zeus will need to evaluate all the factors involved in moving production and decided wheather it would be beneficial for them. Expansion in Europe With more than half the UK’s trade with the EU and increasing integration of product, labour and capital markets, the UK’s economic interest is best pursued through a deepening cooperation with other European countries as part of the Government’s commitment to a strong EU and a successful EMU.
As the Prime Minister said in November 2002: “We should have more self-confidence because we are a leading European power, always have been and always will be. ” However, there are implications to expanding a businesses share in the European market. The Government’s objectives… These global and European trends are mirrored in the Government’s central economic objective for the UK to build a stronger, more enterprising economy and a fairer society, extending economic opportunity and supporting those most in need to ensure that rising national prosperity is shared by all. … and strategy
Stability, productivity and employment opportunity are the foundations of the Government’s economic strategy. Since 1997, the Government has taken tough decisions and introduced wide-ranging reforms to establish a platform of economic stability and to promote work and enterprise, tackle poverty and deliver sustained investment to modernise public services. The Government’s decision on UK membership of the single currency must contribute to these objectives. The benefits from adoption to the euro depend on trade integration between the UK and the Eurozone through the elimination of currency fluctuations and transaction costs.
The UK has increased trade within the EU since joining. Chart 5. 3 shows how UK trade with the EU has risen by 5%. The impact of EMU on UK trade, competition, productivity and growth thorugh substantial possible gains… EMU membership could enhance productivity in the medium-term by increasing trade and investment and stimulating competition, also helping to promote economic reform in the EU and encourage specialisation in the longer-term. Therefore, EMU could effect the five key drivers of productivity.
Based on broad-based evidence on the impact of trade, it seems reasonable to assume that each 1% increase of trade to GDP increases real GDP per head by at least 1/3 % in the long run and perhaps as much as 2/3 %. In a best case scenario, with stability through sustainable and durable convergence, a long-term increase in trade with the Eurozone at the top of the 5% to 50% range and increased investment spurring competition, UK output could be around 9% higher over 30 years within a successful EMU than outside. This could add around 1/4% a year to GDP growth. … but not without sustainable and durable convergence
Conditional on the achievement of sustainable and durable convergence between the UK and the euro area. Where it is not assured, the trade benefits from EMU would be likely to be at the lower end of the range, meaning gains to trade and competition from membership could be negligible. Estimates suggest a lack of flexibility and convergence in some EU countries. However, EMU has increased trade within the EU by 3% and 20% since 1999. Volatility and uncertainty resulting from EMU membership in the absence of sustainable and durable convergence could have a negative impact on the actual level of UK output in the long-term.
The Governments strategy to tackle the barriers to productivity growth and close the productivity gap, involves continued microeconomic reforms in the UK to target the five key drivers of productivity combined with support at the European level for policies to strengthen competition and the Single Market. How This Effects Zeus Expanding into the European market place has two major implications that Zeus will need to consider. Firstly that since EMU, there’s increased competitiveness within the EU and Zeus may find it hard to compete if their strategy and overall business is not strong.
And when the 10 new countries enter the EU and join the EMU, it could decrease sales and profits even production as their economies are weaker then the rest of the EU and would affect Zeus expansion into Europe. Political Implications There are as expected, political implications to expansion into the European marketplace. In the UK, taxation on businesses is not as high as other EU countries, as the UK government want to promote economic growth. If the EU were to set the level of interest and taxation for all Eurozone countries it may not be beneficial for all countries or their goals.
It could be seen as too much involvement and lack of sovereignty power and could cause bureaucracy and federalism. It could be argued that by joining the EMU the UK would lose its economic and political sovereignty; something the UK is not currently ready to give up for the euro and its benefits. To protect their own interests, countries can restrict imports by putting limitations, subsidies, quota or import duties to imports to protect industries. But this does nothing to protract free trade within the EU. Free trade was developed to increase political and economic stability within the EU.