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Europe: is your business geared up for May Day change?
Are you ready for May Day, aka May 1st? This year it is not just a Bank Holiday, but a major marker in history as the European Union will take on an additional ten member countries - increasing its size by 34% - and a massive 75 million extra people.
Whatever your opinion of the European super state, it's hard to ignore the fact that this expansion will bring huge changes to markets, customers and competition. But what are the subsequent ramifications for business? Are you sufficiently knowledgeable to take advantage of the benefits, and beware of the possible pitfalls?
Perhaps unsurprisingly, many business owners feel they aren't. A recent Close survey suggests that many haven't been provided with enough information about the arguments for and against EU expansion: in the manufacturing sector alone, more than two-thirds of respondents did not even know what Gordon Brown's Five Economic Tests were. A shocking 88% of respondents felt the government had not provided them with enough information to help them make a decision about the Euro, even though 40% already felt the impact of the Euro on their day-to-day business.
Close customers aren't alone: research by Grant Thornton shows that only one-fifth of UK businesses expect to increase their access to larger markets after May 1, specifically fearing less inward investment.
Given the entrenched views of those on either side of the arguments, it's difficult for business owners to see through the hype and hyperbole to form their own judgements, so realising the outcome may be simply the waiting game that business owners expect it to be.
On the 'for' side, the enlargement should mean the transport of goods, capital and people will be easier after the elimination of the old trade and customs border barriers - just as travel became easier for tourists with the harmonisation of European passports, and the Euro.
Much of the pro argument is based upon such standardisation and unity - trading with a single currency and the same VAT regulations simplifies deals. And the markets we are gaining are younger and more bullish than our own, if recent performance continues: overall, the economies of the new entrants have expanded up to 90 per cent faster than the EU's, with GDP growth often outstripping the traditional western European economies by the same factor.
The increased size of the market suggests opportunities though not without pitfalls. First of all, the market may be much bigger, but the expansion opportunities may not be viable for many businesses, as Daniel Gros, director of the Centre for European Policy Studies (CEPS) in Brussels, suggests: "Many East European markets are too small to justify set-up costs." Despite their promising growth levels - and their boost to the EU population - the new economies are much smaller than the mass they are joining, their GDP adding only 5% to the EU total. And will East European consumers bring their problems with organised crime and exploited labour with them?
Even without such lurid expectations, UK businesses can expect increased competition and much lower labour costs from their new European partners. The wider pool will not just mean increased competition for customers, but for any subsidies on offer as well.
No matter the predictions, the CEPS has cautioned against expecting too much from the region's expansion, at least right away. The new members are expected to give an initial boost to overall EU output and bring down long-term interest rates. However, most also have higher budget deficits than those countries already in the EU, and there is some concern that close ties with Russia's economy could leave some states vulnerable.
These are all predictions, however, and businesses can only prepare for what they see as the most likely outcome of European expansion. Perhaps that is why the government has not better prepared us - they too may be unsure what will happen.
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