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TASK 4b

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EUROPEAN UNION POLICIES

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TASK 4B

Sources: BPP Business Environment Coursebook

a. Monetary policy-EMS (page 300)b. Common agriculture policy (page 300)

c. Social policy (page 307)

d. Regional policy (page 309)

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a. Monetary system (EMS)

European Monetary system was set up in 1979.Its purpose is to establish greater monetary

stability in the European Union. The exchange

rates between currencies can fluctuate

considerably. ( BBP Professional education,2004)

In Europe, EMS is playing a very important role to

recognize change in relative prices, avoid

inflation risk premium, reduce the distortionary

impact of tax and social security systems and

maintain social cohesion and stability.

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a. Monetary system (EMS) European Monetary System (EMS) was an arrangement

established in 1979 under the Jenkins European Commissionwhere most nations of the European Economic Community(EEC) linked their currencies to prevent large fluctuations relativeto one another.

After the collapse of the Bretton Woods system in 1971, most of

the EEC countries agreed in 1972 to maintain stable exchangerates by preventing exchange fluctuations of more than 2.25%(the European "currency snake"). In March 1979, this systemwas replaced by the European Monetary System, and theEuropean Currency Unit (ECU) was defined.

The basic elements of the arrangement were: The ECU: A basket of currencies, preventing movements above

2.25% (6% for Italy) around parity in bilateral exchange rateswith other member countries.

An Exchange Rate Mechanism (ERM)

An extension of European credit facilities.

The European Monetary Cooperation Fund: created in October1972 and allocates ECUs to members' central banks in

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b. Common Agricultural Policy (CAP) The Common Agricultural Policy (CAP) is a system of European

Union agricultural subsidies and programmes. It represents 48% of the

EU's budget, 49.8 billion in 2006 (up from 48.5 billion in 2005).

The CAP combines a direct subsidy payment for crops and land which

may be cultivated with price support mechanisms, including guaranteed

minimum prices, import tariffs and quotas on certain goods from outside

the EU. Reforms of the system are currently underway reducing import

controls and transferring subsidy to land stewardship rather than

specific crop production (phased from 2004 to 2012). Detailed

implementation of the scheme varies in different member countries of

the EU.

Until 1992 the agriculture expenditure of the European Unionrepresented nearly 49% of the EU's budget. By 2013, the share of

traditional CAP spending is projected to decrease significantly to 32%,

following a decrease in real terms in the current financing period. In

contrast, the amounts for the EU's Regional Policy represented 17% of

the EU budget in 1988. They will more than double to reach almost 36%

in 2013.

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c. Social Policy

Promoted close co-operation between memberstates, particularly in matters relating to training,

employment, working conditions, social security &

collective bargaining, equal pay principle and

make provision for the harmonisation of socialsecurity measures to accommodate migrant

workers.

See more on page 307

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d. Regional Policy The Regional policy of the European Union (EU) is a

policy with the stated aim of improving the economic well-being of certain regions in the EU. Around one third of theEU's budget is devoted to this policy, the aim of which hasbeen stated to be to remove the disparities in wealthacross the EU, restructure declining industrial areas and todiversify rural areas which have declining agriculture.

The most significant enlargement of the European Uniontook place in May 2004 with ten new member states,mostly from eastern or central Europe, followed byaccession of Bulgaria and Romania in January 2007. Most

of these states are poorer than the existing members andthe impact of this means that the EU's average GDP percapita has been reduced leading to some regions in theearlier EU-15 no longer qualifying for extra financial help.On the other hand, most regions in the new member statesdo qualify.

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Task 4b

Analyse the impact of two policies of the European Union

on Trung Nguyen Corporation

To answer this task, follow this guideline:

CHOOSE only two (2) policies.

1. Define the policy.

2. Discuss the importance.3. Discuss the impact on Trung Nguyen Coffee

(Write a Business Report)