European Union, Multinational Corporations and the Euro Zone

May 7, 2021 by No Comments

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 fifth stage (currently in the economic and monetary union stage) of a continuous and open process of economic integration. Considered as a single entity, the European Union has the largest economy in the world; it has grown around 2.8% annually so far this century. In 2006, an estimated 3.5 million jobs were created in the euro zone.

Multinational corporations

Multinational corporations are seen as stateless organizations that reinforce the globalization process and lead to the emergence of a more universal corporate culture (which can be advantageous for the EU). Multinational corporations rise above the traditions of a particular national state and its culture. This would effectively render the national identity of multinationals useless, as they are considered stateless. When it operates within Europe, it is considered a Euro-company despite its origins. Multinational companies are considered interorganizational networks that allow the transfer of knowledge and best practices across national and functional borders. It is assumed that in multinational companies, functional structures are transformed into less centralized networking relationships and not simply coordinated from headquarters. They are also said to cause 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 past 15 years. They have provided opportunities for young people, improved working conditions, saved communities from destitution, rehabilitated corrupt banking systems, and established a modern telecommunications network. Its exports have fueled economic growth; their presence has boosted civil society. The impact has not always been positive, but its power and dynamism, if harnessed effectively, can also help defeat poverty elsewhere.

The eurozone

The euro zone is the subset of member states of the European Union that have adopted the euro, creating a monetary union. Monetary policy is controlled by the European Central Bank. The introduction of a single currency within a given region generally has both economic benefits and economic costs. A single currency eliminates the possibility of adjusting prices between different economic regions through changes in the exchange rate. Previously, countries could adjust prices to counteract any economic shock. However, freedom of movement for labor has been adopted so that people can move from different areas within a region that is experiencing an economic recession to one that is more preferable. Furthermore, a single currency reduces the transaction costs of buying and selling goods, since there is no need for currency exchange. Multinational corporations (or a Eurocompany for that matter, which is essentially a European multinational corporation), operating in a variety of different currencies, would see a substantial decrease in the cost of managing revenue, and overall costs would be drastically reduced. Currency risks and the cost of misunderstanding these risks are also considered a significant cost for multinational corporations; this is eliminated with the adoption of a single currency. Finally, the European Central Bank can focus on its main objectives; to control prices and regulate inflation, as the central bank generally has no political influence.

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