The European Economy

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The European Economy

• 28th February 2007 Monika tenglová

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• Table of Content
• EUs Population
• Euro-zone
• GDP (Gross Domestic Product)
• Labour market unemployment
• Trade Balance of payments

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EU27 - Population
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EU27 - Population

• Maastrich Treaty (1992) created the EU
• - Belgium, France, Germany, Italy, Luxembourg,
  the Netherlands
• 1973 ? Denmark, Ireland, UK acceded
• 1981 ? Greece acceded
• 1986 ? Spain and Portugal
• 1995 ? Austria, Finland, Sweden
• 2004 ? Cyprus, the Czech Republic, Estonia,
  Hungary, Latvia, Lithuania, Malta, Poland,
  Slovakia, Slovenia
• 2007 ? Bulgaria, Romania
• STATES 1. big ? big5 more than 45mio
• 2. small 5-35 mio
• 3. tiny less than 5 mio

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Euro-zone

• also called Euro Area, Eurosystem
• the subset of EU member states which have
  adopted the euro, creating a currency union
• Eurozone came into existence with the official
  launch of the euro on 1.January 1999
• coins and banknotes introduced on 1.1. 2002
• - European Central Bank responsible for the
  monetary policy within the zone

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Euro-zone

• 1.January 1999 ? launching of the Euro
• ? Austria, France, Italy, Belgium, Germany,
  Luxembourg, Finland, Ireland, the Netherlands,
  Portugal, Spain
• 1.January 2001 ? Greece was admitted
• 1.January 2007 ? Slovenia was admitted
• DenmarkUK - obtained special derogation -
  opting out

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European Union

• the biggest economy in the world with 492 mio
  Europeans in 27 countries
• the vast majority of the EUs population lives in
  just few big countries
• first agricultural, industrial and service power
• the largest exporter in the world, second largest
  importer
• economic performance varies from state to state
• great regional economic disparities, reflacting
  the different historical backgrounds of its
  member states

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Gross Domestic Product(GDP)

• GDP is an indicator for nations economic
  situation
• defined for a particular geographic area
  usually a country or group of countries (European
  Union)
• defined over a time interval ? flow variable

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Gross Domestic Product(GDP)

• Definitions of GDP
• sum of all net final sales within a geographic
  location during a period of time, usually a year
• - refers to final sales (goods and services sold
  to consumer or firm that will ultimately use
  them, e.g.purchase of loaf of bread by a
  household
• - intermediate sales excluded from GDP to avoid
  double counting
• sum of value added occuring within a given
  geographic location during a period of time
• - firm creates value added by transforming raw
  materials and unfinished goods into products it
  can sell in the market place
• sum of factor incomes earned from economic
  activities within a geographic location during a
  period of time
• - consistent definition with the first one
  persons final spending someone elses income

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Gross Domestic Product ? Gross National Product

• GDP total value of final goods and services
  produced within a countrys borders in a year
• - e.g.profits from Mercedes-Benz in USA ? US GDP
• GNP total value of all final goods and services
  produced by a countrys factors of production and
  sold on the market in a given time period
• - e.g. profits from Mercedes-Benz in USA ?
  German GNP
• GNP GDP net property income from abroad

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Disaggregation of GDP

• GDP can be derived in three ways
• by finding the total expenditure
• by value added
• by factor incomes in an economy
• Each approach helps reveal different aspects of
• the economic structure of an economy.

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Expenditure approach

• GDPexpenditure CIG?S(X-M)
• private consumption C
• - household expenditure on food, clothing,
  housing, services, transport,
• Government consumption G
• - expenditure on health, education, defence, and
  social security payments
• Investment I
• - expenditure on machinery, transport equipment,
  and building construction
• Balance of trade (X-M)
• - export of goods and services - import

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GDP by sectoral value added

• total value added in an economy may be found by
  the summation of the value added of each economic
  sector
• GDPvalue added
• VA Services
• VA Industry
• VA Agriculture

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Income approach

• GDP is calculated this way by adding up the
  factor incomes to the factor of production in the
  society
• GDP
• wages and salaries (factor - labour)
• interest payments (factor - capital)
• business profits (factor - enterprise)
• rent (factor - land)
• taxes less subsidies
• depreciation

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Gross Domestic ProductGDPMP
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GDP per Capita in PPS

• GDP per Capita in PPS (Purchasing Power
  Standards)
• ? expressed in relation to the EU25 average set
  to equal 100
• index of a country gt 100 gt GDP per head is
  higher than the EU average
• PPP currency conversion rates that convert
  national currencies to a common currency called
  Purchasing Power Standards (PPS), eliminating the
  differences in price levels between countries in
  the process of conversion and thus allowing
  meaningful volume comparisons of GDP and its
  aggregates between countries.

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GDP per Capita in PPS
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Labour Market

• Definition
• place where employers, companies and
  industries, who need labour, come together with
  workers, who supply labour
• to analyse the basic features of the labour
  market, we need to distinguish the population of
  working age from the total population
• population of working age
• - unemployed
• - persons in employment
• - inactice

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Labour market- employment rate comparison of EU
states -
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Employment rate- comparison between the sectors
- 2005 -

• Services
• 2/3 of jobs in EU25 in services (in no country
  less than 50)
• services accounted for 56,3 of jobs for men and
  81,9 for women
• Luxembourg 81
• United Kingdom 76,5 ?
• The Netherlands 76,1

• Poland 53,4
• Slovenia 53,8
• Slovakia 56,4

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Employment rate- comparison between the sectors
- 2005 -

• Industry
• industry provided jobs for 27,5 of the employed
  in the EU25
• 38 jobs were for men and 14,2 for woman
• Czech Republic 39,5
• Slovakia 38,8 ?
• Slovenia 37,1

• Luxembourg 17,3
• The Netherlands 20,5
• Sweden 21,9

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Employment rate- comparison between the sectors
- 2005 -

• Agriculture
• on average in the EU25, agriculture war the main
  activity of 4,9 of workers
• Poland 17,4
• Lithuania 14,0 ?
• Latvia 11,8
• Portugal 11,8

• United Kingdom 1,4
• Luxembourg 1,7
• Belgium 2,0

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Unemployment rate

• the number of unemployed workers divided by
  the total civilian labour force
• the number of people unemployed as a percentage
  of the labour force
• - labour force includes all those willing and
  able to work for pay
• ? both employed unemployed
• - people in labour force suppliers of labour

number of people unemployment Unemployment rate
x 100 labor force
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Unemployment rate

• Types of unemployment
• Frictional
• when we move from one job to another or look
  for a new job, we experience temporarily the
  unemployment
• Structural
• caused by a mismatch between the location of
  jobs and the location of job-seekers
• - location may be geographical, or in terms of
  skills
• - mismatch comes because unemployed are
  unwilling or unable to change geography or
  skills
• Cyclical
• there is not enough aggregate demand for the
  labour
• - caused by a business cycle recession

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Unemployment rate

• Measuring of unemployment
• Administrative records
• Household survey

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Unemployment rate- Eurostat -

• Unemployed people
• age between 15 and 74
• follow the International Labour Organisation
  definition
• - without work
• - available to start work within the next two
  weeks
• - have actively sought employment at some time
  during the previous four weeks

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Unemployment diference between EU area and EU25
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Unemployment rate- total males and females -
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Unemployment rate- December 2006 - - diferences
between males and females -
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Unemployment rate- Males / Females -

• December 2005 December 2006

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Unemployment rate- under 25 years ? 25 years and
over -

• December 2005 December 2006

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Unemployment rate- under 25 years -

• The highest unemployment rates in December 2006
• Poland with 25,9
• Slovakia with 24,9
• Greece with 24,7
• The lowest unemployment rates in December 2006
• The Netherlands with 6,6
• Denmark with 6,7
• Austria with 8,9
• The biggest changes from December 2005 to
  December 2006
• Poland 34,3 ? 25,9
• Bulgaria 21,5 ? 16,3
• Slovenia 15,7 ? 10,8

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Unemployment- 25 years and over -

• The highes unemployment rates in December 2006
• Poland with 11,1
• Slovakia with 10,4
• Greece with 7,3
• Belgium with 7,3
• The lowest unemployment rates in December 2006
• Denmark with 2,6
• The Netherlands with 3,1
• Ireland with 3,3
• The biggest changes from December 2005 to
  December 2006
• Poland 14,5 ? 11,1
• Slovakia 13,7 ? 10,4
• Estonia 6,2 ? 3,7

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Balance of payments

• Definition
• Balance of trade (also net exports,NX)
  difference between the monetary value of exports
  and imports in an economy over a certain period
  of time
• a positive balance of trade trade surplus
• - trade surplus consists of exporting more than
  your imports
• a negative balance of trade trade deficit
• - informally also called trade gap

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Balance of payments

• The balance of payments obeys the
• following simple rules
• transactions involving outflows of our money are
  recorded as deficit items
• items leasing to inflows of our money are
  considered as surplus items

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Balance of payments- commercial transaction -
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Balance of payments- commercial transaction -

• The importance of the current account is best
  seen by this
• relation
• CA Y- (CIG) Y-A
• - A CIG total domestic spending on goods
  and services, both domestic and foreign, by
  households, firms, and government agencies
• CA excess of income (GDP) over spending
• CA signals whether the country is a net borrower
  or a net lender
• - CA gt 0 ? country earns more than it spends ?
  net lender
• - CA lt 0 ? country earns less than it spends ?
  net borrower

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Balance of payments- financial transaction -
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Balance of payments

• All items in the balance of payments must add up
  to zero
• - current account surpluses must be matched by
  net financial outflows
• - current account deficits imply borrowing from
  abroad ? financial capital is flowing into the
  country
• The official account captures the fact that the
  monetary authorities contribute to the balancing
  process
• - deficit account (residets have sent more money
  abroad than they received)
• ? monetary authorities absorb the difference,
  bringing domestic money back
• - positive surplus entry ? monetary authorities
  sell some of their foreign exchange reserves
• ? actions called foreign exchange market
  interventions

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Balance of payments- EU25 trade (bn euro) -
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Balance of payments- EA12 trade (bn euro) -
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Balance of payments- main products (bn euro) -
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Balance of payments- main trading partners -
EU25 (bn euro) -
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• Thank you for your attention!!!