European Business

European Business

Introduction

This assignment has been split into two parts, Part A and Part B.

Part A of the assignment I have been asked to produce a report for Eurotown on the general trading conditions that exist between the UK and France, Germany and Italy.

Part B of the assignment I have been asked to write a report on one of the new countries joining the European Union about its economic profile, the impact of enlargement on UK businesses and the implications for the EU Single Market.

Part A

As a local industrial journalist I feel I have invaluable information in which I can offer to Eurotown involving the general trading conditions that exist between the UK, France, Germany and Italy.

When a company from the UK or any other country, is thinking off trading with another company from another country, there are many factors that are too be considered. These factors are the balance of payment of their own country and off the country they are trading with, the exchange rate of their own country compared to the country they are trading with, the interest rates between the companies and countries and the current account of each country.

As we are aware, the countries we are dealing with are the UK and France, Germany and Italy. As all four countries are in the European Union, there is a free trade area for importing and exporting that exists between each of the four countries. A free trade area exists when there is no restriction on the movement of goods and services between the four countries. This also applies to the remaining eleven countries in the European Union. However, if one of the four countries decided to operate with another country that was outside the European Union, say the USA, and then there would be International Trade Barriers.

We need to take into consideration the balance of payment of each of the four countries. The balance of payment is a measure of whether the country is selling (exporting) more abroad than it is buying (importing) from abroad (a surplus) or the other way round (a deficit). If the UK has a surplus, this will tend to make the pound worth more to the Euro, so that imports become cheaper, for example a UK dealer in German cars. A deficit will have the reverse effect. Basically if a company wishes to operate with another company in a different country they will have to look at the balance of payment very carefully. This can be done by looking at the exchange rate. Even though the UK is in the European Union, it still operates by using the Ј Stirling. Unlike France, Germany and Italy who have all now adopted the single currency the Euro. This means France, Germany and Italy do not have their own balance of payment. When looking at the exchange rates of the four countries, France, Germany and Italy have a distinct advantage over the UK when deciding to operate with each other. This is because they all use the same currency so there is no exchange rate between them. Companies in the UK will have to evaluate the exchange rate between the Ј Stirling and the Euro. Factors that will affect a country's exchange rate are importing and exporting and supply and demand. For example the more the country exports the stronger the currency becomes and vice versa.

Part B

I have decided to write my report on the Czech Republic

Czech Republic

Political System: Republic

Capital City: Prague

Total Area: 79,000 km2

Population: 10.3 million

Currency: Czech Koruna

Over the past decade, the Czech society has undergone dramatic changes. After the political changeover in November 1989, the Czech Republic quickly became a pluralist democracy, the centrally planned economy was turned into a functioning free-market economy. Almost 75 years after its foundation, former Czechoslovakia split up peacefully in 1992 and gave birth to an independent Czech Republic.

After 1989, the EU has become Czech Republic's largest trading partner with more than 65% share of its foreign trade and EU member states are now the largest investors in the country. Czech Republic's proximity to the Union is clearly shown not only by the fact that the country shares its longest part of the border with EU member states. More importantly, the Czechs have always shared the European civilisation and cultural values, they have been a substantial part of European history. It is therefore no surprise that since 1989, the accession to the EC (later EU) has been perceived by a majority of the Czech population as a historic necessity and full integration into the EU is supported by all parliamentary parties in the Czech Republic.

Economic Overview: Basically one of the most stable and prosperous of the post-Communist states, the Czech Republic has been recovering from recession since mid-1999. Growth in 2000-02 was led by exports to the EU, especially Germany, and foreign investment, while domestic demand is reviving. Uncomfortably high fiscal and current account deficits could be future problems. Unemployment is gradually declining as job creation continues in the rebounding economy. Inflation is moderate. The EU put the Czech Republic just behind Poland and Hungary in preparations for accession, which will give further impetus and direction to structural reform. Moves to complete banking, telecommunications, and energy privatisation will encourage additional foreign investment, while intensified restructuring among large enterprises and banks and improvements in the financial sector should strengthen output growth.

The national economy has been going through many positive structural reforms, which is reflected by the increasing volume of FDI inflow (over 7 bil. EURO in 2002), low inflation at just over at less than 1% (July 2003) and growing GDP (despite the downturn in the world economy).

The table below shows the economic profile of the Czech Republic

Agriculture - products:

Wheat, potatoes, sugar beets, hops, fruit; pigs, poultry

Agriculture - value added:

4.27%

Aid (% of GDP):

0.9%