The EUs policy in the past has been strongly orientated towards market liberalisation
This topic was chosen, because everybody normally thinks that state interventionism is good and sometimes really necessary to support a country. Nobody would directly know that it could also have dangers, this is the reason for this topic to get more information’s about it and what for dangers it has. This topic would show some examples to highlight the disadvantages and advantages. An overview about the financial and economic crisis The finance crisis has his beginning in the US-American subprime market.
Subprime-credits” are credits, which are consciously giving to consumers with lower reliability. Although the finance givers have to book regular failures, so-called “lame credits”, these losses are contra financed calculated and budgeted with dear interests and other liquidation methods. The problem was that too much mortgages have been given out to people with no money. The outputs of subprime credits have extended because of a low interest rate. By the step by step raising of the prime rate in 2004 from 1 % to 5. 25 % the mortgage interest level increased, whereby the real estate prices stagnate.
The matching from the variable mortgage credits reached to an unexpected payment shock, which can not be anymore financed by a boost of
Need essay sample on "The EUs policy in the past has been strongly orientated towards market liberalisation"? We will write a custom essay sample specifically for you for only $ 13.90/page
The US real estate crisis is then the beginning of the finance crisis, because this subprime credits have been contra financed by identifying revolving funds. The requirements of the source against the finance slave have been bundled to bond packets and as asset packed bond sold to especially investment banks and hedge-funds. After the illiquidity of the debtors the buyers have to available high write offs. Many banks have investigated into the subprime bonds from the US building funder. With the shortfall of the lame credits the banks have to make high write-offs which operated into a threatening of the existence crisis.
So the countries have to give cash infusions but this reached to a high interest rate level so that the consumers do not want to waste so much money so the economy stocked and it comes to an economic crisis and recover plans were made (TYPELOG, 2008). The market liberalisation model Market liberalization seeks to remove administrative and regulatory burdens that are related to business start-up, operation, trade, payment of taxes, closure and capital flows and profit repatriation by reducing the time and cost associated with various government and other requirements. The liberalisation of markets is influenced by globalisation.
Globalisation force companies to compete at global standards of efficiency, productivity and quality. Liberalisation and globalization are driven by developments in technology, which companies leverage in three ways. First, to improve internal business processes in a company. Second, they apply the lessons to the supply chain, which technology makes possible and finally investment in technology is used to expand customer base. Liberalization means the opening of a monopolistic market to competitive provision of facilities and services. Liberalisation has taken the form of privatization, deregulation and competition (Canto, 2010). Post, 2009)
A good and well known example for market liberalisation is the postal market. For many years, the European postal market has been in a state of considerable change. The goal of European decision makers has been to achieve a full scale market liberalisation in the postal sector whilst ensuring that high-quality universal postal services continue to be maintained. The EU Commission is committed to adhering to the scheduled postal market liberalisation plan, and proposes complete market liberalisation on the 1st January 2009 (Post, 2009). From market regulation to market deregulation
Regulations are rules designed to control certain actions by people. They are an individual statement by the government against the people, more often a specific industry, although they are represented as a protection for the people. Since the effects of regulation cannot easily be quantified in terms of cost of goods or quality of life, it is difficult to assess whether the regulation is causing more harm than good. That is one of the inherent dangers of any form of regulation. During the 19th and early 20th century, the common government attitude was to leave businesses alone.
The belief was that as long as markets were free and competitive, private individuals and corporations would work together for the common good of society. Economic regulation exists in the form of price controls to protect the consumer from price gouging and tax breaks to theoretically stimulate growth and subsidies to protect American products from price-cutting by foreign markets. In general, the more restrictive a government is in regulating an economy, the lower the growth rate.
In the 1990s, the U. S. economy grew at an average rate of 4. 3%, while Germany, France and Italy, which have a much higher rate of regulation, grew at 2. %. The United States and Great Britain started the process of removing many regulations in the 1970s, while the three European countries have been relatively stagnant. The deregulation has taken place in four primary industries: Power, telecommunications, auto insurance and the airlines. The Airline Deregulation Act of 1976 opened up the U. S. airline business to free market principles, which incentive a dramatically larger, more accessible and, some say, a more affordable industry. On the positive side, deregulation opened the market to many competitors and low-cost airlines often with less frills than existed under regulation.
On the negative side, many carriers disappeared through mergers, acquisitions and bankruptcy. But in reality, that is the essence of the free market economy. The strong survive and the weak perish as in the animal kingdom. According to the General Accounting Office (GAO), airline fares decreased by 21% from 1990 to 1998. Average airfares declined and quality of service improved at 168 of the 171 airports examined generally because of competing service from a low-fare carrier (ApatheticVoter, 2010).
The deregulation has finally thereby enabled the liberalisation and privatisation, the role of the state in the economy has been reduced, state or rather public monopoly has been limited and state public interventions into the economic process at all bounded and limited. Why did the EU states support the market liberalisation model? The primarily EU target for the co-operation is to abolish the existing trade barriers by a general market liberalisation and to allocate as much as possible public goods, to support the trade interests (Bieling H. J. and Lerch M. , 2006).
The Liberalisation enabled a fair competition between the efficient EU-companies and their competitors in other countries. To help developing countries, the EU is ready to open its market to their exports even if they cannot give in return. The disappearance of trade barriers within the EU made a significant contribution to its wealthy and has reinforced its commitment to global Liberalisation. As EU countries removed tariffs on trade between them, they also integrated their tariffs on goods imported from outside. This means that products pay the same tariff whether they enter the EU via the ports of Genoa or Hamburg.
As a result, a car from Japan which pays import duty on arrival in Germany can be shipped to Belgium or Poland and sold there in the same way as a German car. No further duty is charged (European Commission, 2010). Markets which have opened their markets have had an averaged economic growth rate of 3. 5 % in the 80’s and 5 % in the 90’s and the so called “not globalised countries” have only had an average of 0. 8 % and 1. 4 % in the same times (Mildner S. , 2002). An open market has the result that their will be a better economy, because their will be more working places for people.
The danger of greater intervention The industrial and competition policy (ICP) can be distinct as acts and policies of the state designed to improve countries economic performance. The industrial policy provides a framework in which private sector flexibility is encouraged and adjustment to shocks is helped and disapproval is expressed of industrial policy which might try to lead the private sector through a more or less opened planning procedure, because it would take the form of picking winners, predicting the emergence of sunrise sectors and charting the rationalization of sunset sectors.
ICP today would also be distinct which include policies to provide industry with appropriate resources such as an educated and trained labour force, an appropriate research base and infrastructure. ICP could be defined as acts and policies of government designed to improve economic performance by ornamentally the effectiveness of market pressures and providing resources and infrastructure (EL-Agraa, 2007 p. 261).
The current financial difficulties are the result of a series of government actions that has ended in greatly expanded government intervention in the credit markets, which may provide short-term relief but is dangerous in the long run. This happened in the fact of Fannie Mae’s government sponsorship, the Community Reinvestment Act of 1977, the creation of the secondary mortgage market and imposition of government accounting rules (Wolfram G. , 2008). The following examples are two examples to describe interventionism and his impact in the past. Automobile industry
Is the one which have been hit most by the recession as a consequence of the finance crisis. The demand for cars fell sharply, emphasizing the difficulties of extra production capacity already faced before the crisis and deepening the economic downturn in major car-production countries. Relative to the downturn, the decline in car sales was nonetheless not deeper than what was observed in the past. The Government support (Interventionism) to the car industry has been offered in a variety of forms, including financial assistance to the firms and direct involvement in industry restructuring plans.
These ways are likely to block the structural changes the industry will need to go through in the years to come. Many countries have introduced car scrapping schemes to reduce the overall downturn in economic activity, boosting sales in the short term. However the effect was that the demand for new cars reduced the demand for other products, so this lowered their final impact on economic activity. But as soon as the schemes end, there was no demand for cars any more, the demand is covered. These schemes also do not appear to be cost-effective instruments to reduce greenhouse gas emissions (OECD, 2009 p. -2).
The automobile industry is central to Europe’s prosperity, because the EU is the world’s largest producer if motor vehicles. It is a huge employer of skilled workforce and a key driver of knowledge and innovation. It represents Europe’s largest private investor in research and development. It also makes a major contribute to EUs Gross Domestic Product and exports far more than imports. That is the reason why the EU especially supported the automobile industry (European Commission, 2010).