European Union

European Union (EU)

European Union

Fig. 39 EU Budget 2004.

European Union (EU)

In January 1999 the EU put into place a further major step towards integrating the economies of member countries. Under the ECONOMIC and MONETARY UNION (EMU) programme a new single currency, the EURO, was introduced to replace the individual domestic currencies of EMU participants by the end of 2002. The introduction of EMU has meant the end of the EUROPEAN MONETARY SYSTEM and the European Currency Unit. (For further details of this landmark development see ECONOMIC AND MONETARY UNION, EURO, and EUROPEAN CENTRAL BANK entries).

The deeper integration of member countries implied by EMU has already accentuated a number of underlying difficulties, particularly that of applying ‘one fit’ policies throughout the EMU-zone despite substantial differences in the industrial structures and extent of economic maturity of members (contrast relatively economically ‘advanced’ Germany with that of less-developed Greece). Many economists fear that harmonization will become untenable as more and more countries, most of them possessing weak industrial sectors and thus in need of massive structural funding, join the EU.

The EU has a total population of some 450 million and accounts for around 44% of the world production and world exports.

There were six founding countries of the EU: (West) Germany, France, Italy, Netherlands, Belgium and Luxembourg. Nineteen more countries have since joined the EU bringing its current membership up to 25. The UK, Ireland and Denmark joined in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Sweden and Finland in 1995. In 2004 a further 10 countries joined the EU under an ‘Accession’ arrangement which required them to have undertaken major reforms of their economies to make them market-orientated: Poland, Hungary Czech Republic, Estonia, Slovenia, Slovakia, Latvia, Lithuania, Cyprus and Malta.

The strategic and operational policies of the EU are formulated by member country governments acting through the Council of Ministers (one appointed member per country) and the European Parliament (democratically elected). The European Commission is responsible for overseeing the day-to-day administration of the EU and in controlling its general budget finances while various other bodies are responsible for running specific programmes such as the Common Agricultural Policy Agricultural price support and structural operations (the EU's regional and social, programmes) currently account for around four fifths of the total EU Budget.

In 2004 the EU Budget totalled some 103 billion Euros. Contributions and receipts for the 15 member countries of the EU are listed in Fig 39. The budget is financed from four sources – a charge on each country proportional to their share of the EU's Gross National Product (GNP); a proportional charge on each countries value added tax (VAT) receipts; levies on agricultural imports and customs duties on other imports from non-EU countries.

The main economic developments within the EU down to EMU include:

1. the creation of a (‘single’) common market providing for free trade in goods and services and the free movement of labour and capital across national boundaries. (See TRADE INTEGRATION entry for details). Member countries are committed to removing TARIFFS, QUOTAS and other obstacles to trade within the EU and to maintaining the EU's ‘common external tariff against nonmember countries' imports. Import restrictions by the six original members against each other were dismantled and their external tariffs harmonized in stages between 1958 and 1968. The creation of an internal market was give further impetus by the SINGLE EUROPEAN ACT, 1986 which embodied some 400 ‘directives’ providing for the implementation of common technical standards, product specification, descriptions and labelling, road haulage regulations etc. In addition, the EU has concluded a number of trade preference agreements with non-member countries, including the multilateral LOME AGREEMENT with over 40 less-developed countries, most of them former colonies of EU members, and bilateral pacts with members of the EUROPEAN FREE TRADE ASSOCIATION. See also EUROPEAN ECONOMIC AREA.
2. a competition policy providing for the prohibition of price-fixing and market-sharing agreements between firms and the abuse of a dominant market position which have the effect of reducing or eliminating intra-EU trade (see COMPETITION POLICY EU)
3. Common Agricultural Policy providing for the subsidization and protection of the farm sector
4. a REGIONAL POLICY providing financial assistance for the removal of regional imbalances both within and between member countries.
5. the establishment of the EUROPEAN MONETARY SYSTEM to provide a close coordination of member countries' currency exchange rates and settlement of payment imbalances.

EU laws generally take precedence over the national laws of member countries but in some areas the principle of subsidiarity can be invoked which involves the devolvement of responsibility for decisionmaking from the European Commission to national administrations. See, for example, COMPETITION POLICY (EU).

In 2000 the Treaty of Nice introduced several changes to the administration of the EU in order to facilitate the enlargement of the EU, and enable the integration of members' economies to proceed more rapidly. Member countries vote allocations were re-weigh ted in favour of the larger states; qualified majority voting replaced the national veto on a range of issues; limits were introduced on the size of the European Commission (big nations lose their second Commissioner in 2005); groups of eight or more countries can push ahead with integration in agreed policy areas. However, tax and social security matters will remain subject to unanimity in voting.

European Union (EU)

European Union budget. (a) Breakdown, 1980 and 2003/4.

(b) Member country payments and receipts 2003/4.

European Union

There were six founding countries of the EU: (West) Germany, France, Italy, Netherlands, Belgium and Luxembourg, which had previously cooperated (with the exception of the Netherlands) in the EUROPEAN COAL AND STEEL COMMUNITY. Nine more countries then joined the EU, bringing its membership up to 15. The UK, Ireland and Denmark joined in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Sweden and Finland in 1995. In April 2004 a further 10 countries joined the EU under a previously negotiated Accession’ arrangement that required these countries to undertake reforms of their institutions and policies to align them with EU practice. Eight of the new members are formerly centrally planned ‘socialist’ countries, which for them has meant a major transformation of their economies to meet the ‘market’ conditions prevailing in the EU: Poland, the Czech Republic, Estonia, Slovakia, Slovenia, Hungary, Latvia and Lithuania. The other two new members are Cyprus and Malta. Compared to the long-established members of the EU, the new entrants are mostly relatively economically undeveloped, with low levels of per capita income (see below), and this had led to concerns about how quickly they could meet the convergence criteria required for entry to the EURO-zone and their likely drain on the EU budget, with the richer members having to make further contributions to make ends meet.

Looking to the longer term, another 10 countries are lined up to join the EU from 2010 onwards.

The strategic and operational policies of the EU are formulated by member country governments acting through the Council of Ministers (one appointed member per country) and the European Parliament (democratically elected). The EUROPEAN COMMISSION is responsible for overseeing the day-to-day administration of the EU and in controlling its general budget finances while various bodies are responsible for running specific programmes such as the COMMON AGRICULTURAL POLICY (CAP). As Fig. 62 (a) shows, agricultural price support and structural operations (the EU's regional and social programmes) currently account for around four-fifths of the total EU Budget. Fig. 62 (b) shows member countries’ contributions to, and receipts from, the EU budget in 2003/4. As regards national BUDGETS, each member state at the present time is under an obligation to conform to certain budgetary restrictions as established by the ‘Stability and Growth Pact’, namely, that current budget deficits should not exceed more than 3% of GDP and accumulated total debts should not exceed 60% of GDP. These provisions are in the process of being ‘relaxed’ as a number of leading European economies (Germany, France, Italy) have gone over the prescribed 3% current budget deficit/GDP ratio as a result of having to cope with recessionary conditions.

The main economic developments within the EU down to 2004 are listed below:

1. the creation of a ‘single’ COMMON MARKET, providing for free trade in goods and services and the free movement of labour and capital across national boundaries. Member countries are committed to removing TARIFFS, QUOTAS and other obstacles to trade within the EU and to maintaining the EU's ‘common external tariff against nonmember countries’ imports. Import restrictions by the six original members against each other were dismantled and their external tariffs harmonized in stages between 1958 and 1968. The creation of an internal market was given further impetus by the SINGLE EUROPEAN ACT 1986, which embodied some 400 ‘directives’ providing for the implementation of common technical standards, product specification, descriptions and labelling, road haulage regulations, etc. In addition, the EU has concluded a number of trade preference agreements with nonmember countries, including the multilateral LOMÉ AGREEMENT with more than 40 less developed countries, most of them former colonies of EU members, and bilateral pacts with members of the EUROPEAN FREE TRADE ASSOCIATION (see GAINS FROM TRADE, TRADE CREATION, TRADE DIVERSION). See also EUROPEAN ECONOMIC AREA;
2. a competition policy providing for the prohibition of price-fixing and market-sharing agreements between firms and the abuse of a dominant market position, which have the effect of reducing or eliminating intra-EU trade (see COMPETITION POLICY EU);
3. a COMMON AGRICULTURAL POLICY providing for the subsidization and protection of the farming sector;
4. a regional policy providing financial assistance for the removal of regional imbalances both within and between member countries (see EUROPEAN REGIONAL DEVELOPMENT FUND, EUROPEAN INVESTMENT BANK);
5. the establishment of the EUROPEAN MONETARY SYSTEM to provide a close coordination of member countries’ currency exchange rates and settlement of payment imbalances;
6. the creation of a special monetary asset, the EUROPEAN CURRENCY UNIT, to provide a common basis for payments under the Common Agricultural Policy, European Monetary System, etc.

EU laws generally take precedence over the national laws of member countries, but in some areas the principle of subsidiarity can be invoked, which involves the devolvement of responsibilities for decision-making from the European Commission to national administrations. See, for example, COMPETITION POLICY (EU).

In January 1999, the EU put into place a further major step towards integrating the economies of member countries. Under the ECONOMIC and MONETARY UNION (EMU) programme, a new single currency, the EURO, was introduced, that replaced the individual domestic currencies of EMU participants by the end of 2002. The introduction of EMU has meant the end of the EUROPEAN MONETARY SYSTEM and the EUROPEAN CURRENCY UNIT. (For further details of this landmark development see ECONOMIC AND MONETARY UNION, EURO, EUROPEAN CENTRAL BANK and MAASTRICHT TREATY entries).

The deeper integration of member countries implied by EMU has already accentuated a number of underlying difficulties, particularly that of applying ‘one-fit’ policies throughout the EMU-zone despite substantial differences in the industrial structures and extent of economic maturity of members (contrast relatively economically ‘advanced’ Germany with that of less developed Greece). Many economists fear that harmonization will become untenable as more and more countries, most of them possessing weak industrial sectors and thus in need of massive structural funding, j oin the EU.