European Union, Multinational Corporations and the Eurozone

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European Union, Multinational Corporations and the Eurozone

The European Union

The European Union (EU) is a supranational and intergovernmental union of 27 states. It was established in 1992 by the Maastricht Treaty. The EU is the 5th stage (Currently at the economic and monetary union stage) of a continuing open-ended process of economic integration. Considered as a single entity, the European Union has the largest economy in the world; it has grown at around 2.8% per annum so far this century. In 2006, it was estimated that 3.5 million jobs were created in the Eurozone.

Multinational Corporations

Multinational Corporations are seen as stateless organizations that enforce the process of globalization and lead to the emergence of a more universal business culture (which may be to the EU′s advantage). The multinational corporations rise above the traditions of a given nation state and its culture. This would effectively render the national identity of the MNC useless, as they are considered stateless. When operating within Europe, it is considered a Eurocompany albeit its origins. Multinational corporations are seen as inter-organizational networks that enable the transfer of knowledge and best practices across national and functional boundaries. It is assumed that in MNCs, functional structures are transformed into networking relations which are less centralized and not simply coordinated from the headquarters. They are also said to instigate changes in the external environment (i.e. the market).

Despite widespread criticism of multinational companies, they have made an unparalleled contribution to the development of Eastern Europe over the last 15 years. They have brought opportunities to the young, improved working conditions, saved communities from destitution, rehabilitated corrupt banking systems and laid a modern telecommunications network. Their exports have driven economic growth; their presence has boosted civil society. The impact has not always been positive, but their power and dynamism, if effectively harnessed, can help defeat poverty elsewhere too.

The Eurozone

The Eurozone is the subset of European Union member states which have adopted the euro, creating a currency union. The monetary policy is controlled by the European Central Bank. The introduction of a single currency within a given region generally has economic benefits as well as economic costs. A single currency eliminates the ability to adjust prices between different economic regions through changes in the exchange rate. Previously, countries were able to adjust the prices in order to negate any economic shock. However, freedom of movement of labour has been adopted so people are able to move from different areas within a region that is suffering from economic recession to one that is more preferable. Also, a single currency reduces the transaction costs of buying and selling goods as there is no need for the exchange of currency. Multinational corporations (or a eurocompany for that matter, which is essentially a European multinational corporation), which operate in an array of different currencies, would see a substantial decrease in the cost of managing revenues and general costs would be reduced dramatically. Foreign exchange risks and the cost of equivocation of these risks are also considered a major cost of multinational corporations; this is eliminated at the adoption of a single currency. Finally, the European Central Bank can focus on its primary objectives; to control prices and to regulate inflation, as the central bank generally has no political influences.

Tahseen Rostom,

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