European business Essay Example | Topics and Well Written Essays - 2500 words

European business - Essay Example The term is used for defining the concept of a single federation of states. Fiscal federalism means a more centralized economic order within the new European Economic Community. The European Community progress towards an economic and monetary union based on a common currency will create new demands for the design of fiscal policy. With a common currency and thus, a common monetary policy, member states will no longer be able to influence their local economies through exchange rate or monetary policies when state specific economic shocks occur. (Inman & Rubinfeld 1992, p.1-2) The economic situation in one province does not imply a sectarian policy to take any action or decision regarding exchange rate, interest rates and tax basis. The classical concept of federalism refers not only to an indestructible union of indestructible states but is also the method of dividing powers so that the general and regional governments are each, within a sphere, coordinate and independent. A major rea son for the existence of relatively centralized fiscal systems in developing and transitional countries is the adoption of planned development strategy. (Ahmad & Brosio 2008, p.225) A respected journalist argues that the expanding European Union is becoming a second, and potentially superior, superpower to the United States, and outlines what the new Union will mean to world trade, politics, and power (Reid, 2005). Fiscal federalism involves the handling of fiscal and monetary policy tools by a centralized body. It prevents regional financial inequalities by providing a balanced level of support to all the sectors. It is also criticized in terms of sharing prosperity and crisis. If one of the sectors is making huge revenues and they are effortlessly shared by others because of being members of a union is unjustified. Therefore detailed policy orientations are to be prepared for managing such systems is highly essential. Members of the European Community signed a treaty in 1992 and i t is called Treaty of Maastricht. It is more commonly known as treaty of Europe. This same treaty was the origin of a common currency in Europe called euro. Once the treaty was signed many amendments were made as the need for more detailed orientations rises. The 1992, French Referendum on the Maastricht Treaty, The Treaty on European Union was signed at the Dutch town of Maastricht by the foreign ministers of the twelve European Community members on February 7, 1992 (LeDuch 2003, p.83). The Maastricht Treaty established three so-called pillars of EU: the first being the pillar of Community; the second pillar relating to foreign and security policy; and the third pillar on justice and home affairs (Obokata 2006, p.87). Exploring the politics of European integration, Michael Baun argues that the end of the Cold War and German unification have created a new set of geopolitical realities in Europe (Baun 1996, p.2). European Union is an example of free trade unions like Mercosur, NAFTA, SAFTA and others. It is different to the extent that it has reduced national boundaries to a large extent as compared to other free trade zones. Member countries have wide range of agreements in terms of business, transportation, import and export, tourism, agriculture and so on. The strongest part is the common currency i.e. euro being operational in all member countries. The Treaty of Lisbon or