The EU's Regional Policy and external aid policy

Abstract

This paper aims to analyze the effect of the EU's regional policy and the external aid policy toward the neighbour nations in terms of the development of the trade and direct investment between the Euro area and neighbour nations. One of the conditions to be an international currency is that the nation plays a central part of the economic area in the trade and investment. The UK was the central part of the world economy in the gold standard era when the starling pound used to be an international currency, and so has been the USA when the ES dollar is the international currency. Thus, the Euro area also would be a pivotal part of the international economy in order for the Euro to grow as an international currency.As the EU continues to enlarge not only toward the central and eastern Europe and south eastern Europe but also toward Mediterranean nations, the EU has been expanding its trade and foreign direct investment with its new EU members and neighbour nations. Several factors contribute to the development of its international transactions, such as the EU's higher productivity than the neighghbour nations, the non-Euro area nation's open door policy and the free trade policy between the two. This paper focuses the EU's regional policy and foreign neighbour policy as the means to promote trade and FID between the Euro area and its neighbour nations. These EU's policies contribute to funding of social infrastructure, the development of the human capital and to promoting the structure policies to liberalize the goods and service market, capital market and labour market. This paper argues that these economic effects would enhance inflow of FDI from the Euro area, which shapes the intra and extra trade between the Euro area and neighbour nations.In this paper, section 2 examines the 2004 regional policy reform on the structural funds and Cohesion fund to find out the characteristics of the EU's regional policy toward the southeastern European nations. Section 3 reviews the EU's foreign neighbour policy with the Western Balkan Peninsula and analyzes the international division of labour between the Euro area and the neighbour nations. Finally, section 4 concludes the prospect of the role of the Euro as an international currency.