Discuss whether Britain would benefit more from the continued expansion of the EU, or, by the adoption of a single euro currency

A-Level: Economics

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Europe has enlarge several time since the “common market” was set up with just 6 member states in 1957. The four main waves of EU enlargement were in 1973 when UK, Ireland and Denmark joined. Then 1981 with Greece, 1986 Portugal and Spain and 1995 when Austria, Finland and Sweden joined. In the May of 2004 a further 10 countries joined the European union bringing the total figure to 25 member states. Mainly ex-communist eastern European nations, the new members have major difference in both culture and their economies with existing members states.
This can lead to difficulties such as an inability to comply with EU rules and regulations and an influx of peoples from eastern parts of Europe to the more prosperous nations of the west with a possible impact on wage levels in both east and west. In the case of Britain there is now an increase in “social dumping” with a large movement of people from the east coming to Britain in search of higher benefits. This has lead to a degree of social unrest Also a greater imbalance in income levels within the community with a consequent need to shift EU expenditure eastwards may mean that Britain will lose out on EU money.
However the increase in member states can lead to trade creation, a lager market for European firms and greater economies of scale. The removal of trade barriers will lead to greater specialisation according to the principles of comparative advantage and without tariffs and other trade barriers Britain is able to export more goods to those nations than before. Another possible benefit to Britain is trade diversion as consumption of new members states shifts from lower cost producers outside the EU to higher cost producers inside. The introduction of the common external tariff on non-EU goods making them more expensive could mean that the new EU firms now has to trade within the EU therefore an increase in potential consumers and exports of British products.
On the other hand Japanese and US firms wishing to invest in Europe may now switch their investment to lower wage economies in Eastern Europe with Britain losing out. Continued expansion can also lead to possible diseconomies of scale due to over expansion and problems within firms such as control, communication and coordination. As well as that continued expansion could lead to unemployment within Britain. Less efficient firms or high-cost regions such as the southeast will suffer as competition increase and firms relocate to new members states such as Latvia and Estonia where land, labour and capital are all cheaper.
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