is a group of twenty-seven countries that have eliminated trade
barriers among themselves (see the map in
Figure 3.9 "The Nations of the European
Union"
).
36. Association of European
countries that joined together
to eliminate trade barriers
among themselves.
Chapter 3 Business in a Global Environment
3.5 Reducing International Trade Barriers
162
Figure 3.9
The Nations of the European Union
At first glance, the EU looks similar to NAFTA. Both, for instance, allow unrestricted
trade among member nations. But the provisions of the EU go beyond those of
NAFTA in several important ways. Most importantly, the EU is more than a trading
organization: it also enhances political and social cooperation and binds its
members into a single entity with authority to require them to follow common
rules and regulations. It is much like a federation of states with a weak central
government, with the effect not only of eliminating internal barriers but also of
enforcing common tariffs on trade from outside the EU. In addition, while NAFTA
allows goods and services as well as capital to pass between borders, the EU also
allows
people
to come and go freely: if you possess an EU passport, you can work in
any EU nation.
The Euro
A key step toward unification occurred in 1999, when most (but not all) EU
members agreed to abandon their own currencies and adopt a joint currency. The
actual conversion occurred in 2002, when a common currency called the
euro
replaced the separate currencies of participating EU countries. The common
currency facilitates trade and finance because exchange-rate differences no longer
Chapter 3 Business in a Global Environment
3.5 Reducing International Trade Barriers
163
complicate transactions.See “The Euro: The Basis for an Undeniable Competitive
Advantage,”
(accessed
May 25, 2006).
Its proponents argued that the EU would not only unite economically and politically
distinct countries but also create an economic power that could compete against
the dominant players in the global marketplace. Individually, each European
country has limited economic power, but as a group, they could be an economic
superpower.“Why the Euro?” European Commission, Economic, and Financial
Affairs,
(accessed
August 26, 2011). But, over time, the value of the euro has been questioned. Just as
is true with the United States today, many of the “euro” countries (Spain, Italy,
Greece, Portugal, and Ireland in particular) have been financially irresponsible,
piling up huge debts and experiencing high unemployment and problems in the
housing market. But because these troubled countries share a common currency
with the other “euro” countries, they are less able to correct their economic
woes.“Paul Krugman: The Economic Failure of the Euro,” NPR (National Public
Radio), January 25, 2011,
-
krugman-the-economic-failure-of-the-euro
(accessed August 26, 2011). Many
economists fear that the financial crisis precipitated by these financially
irresponsible countries threaten the very survival of the euro.Willem Buiter, “Three
