Academic journal article Multinational Business Review

European Integration: Future of East Europe

Academic journal article Multinational Business Review

European Integration: Future of East Europe

Article excerpt

INTRODUCTION

After the crumbling of the Berlin wall, countries of Eastern Europe are continuously moving away from their centralized economic system. In the process, these countries are looking toward the West and especially to the European Community (EC). Four countries of Central Europe namely Poland, Czech, and Slovak Republics and Hungary have got associate status of EC and possibly get full membership around the year 2000. In the meantime these countries are concluding sweeping agreements that will gradually establish free trade between the EC and these countries. Other countries of Eastern Europe (Albania, Bulgaria, Rumania, former Yugoslavia)and Baltic States are also negotiating trade agreements with the EC. European Free Trade Area (EFTA) has also signed an agreement with EC, in October 1991, which will increase cooperation between these two economic blocs in Europe and eventually merge EC and EFTA. It is conceivable that a European economic bloc will be established by the year 2000 including about 30 countries and close to 500 million people (twice the size of the U.S.)(7). Emphasis of this paper is on the Economic relationship with the four most interested counties of Eastern Europe.

These states which formerly belonged to the Eastern European economic bloc CMEA, presently face a new challenge which is finding a shortcut to economic prosperity. While advanced industrial countries recognize that such a path implies considerable economic liberalization, this economic turn around also questions many of the political-economic ties which had been established during the Cold War. Beginning with detente, there arose voices questioning U.S. ideological and economic supremacy. At present the old alliance is breaking into a number of blocs with each one seeking economic dominance.

The response of EC members, themselves experiencing a period of deep economic recession, has been directed towards completing a fully-integrated West European market. January 1, 1993, although a milepost for the previously mentioned integration process, did not witness complete integration (Note 1)

At present it is difficult to estimate the impact of other measures such as taxation inequalities, a move which would create equal access in all countries by all firms, and harmonization of technical specifications. Experts assume, that as early as the first year of the unified market the twelve members of the EC can expect renewed growth (2).

Some of the most essential changes are expected to occur at the company level. To date there were limitations preventing the full utilization of domestic resources in foreign competition. By removing these limitations firms should expect positive results in the following areas:

1. Decrease in labor costs due to its more efficient utilization and an increase in production due to large-scale production;

2. Rationalization of industrial structures as well as cost-price levels. Also removal of super-profit protection due to a more competitive environment;

3. Increased importance on comparative advantage for those industries adapted to market integration; and

4. A quicker and more abundant supply of new products and processes encouraged by the internal market's new conditions.

The efforts for harmonizing the often differing interests and approaches of various EC members are found in what is commonly referred to as the Maastricht Treaty, named after the city where it was signed in February 2, 1992. The Maastricht Treaty is a collection of protocols, declaration and regulations. (Note 2). These various documents provide the framework for monetary, economic and political union. The Maastritch Treaty, often criticized for its numerous comprises, proves again that unification is an ongoing process. The treaty has tried to strengthen the cohesion among the EC member countries .

ECONOMIC BLOCS IN EUROPE

European Community (EC):

Twelve member European Community has emerged as one of the most important economic power in recent years. …

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