European Union: Basic Facts

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European Union Basic Facts

• Jan Fidrmuc
• Brunel University

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History

• 1951 European Coal and Steel Community
• Motivation preventing another war in Europe
• Coal/steel critical inputs for industry and
  military
• 1957 (Treaty of Rome) European Economic
  Community (EEC) and European Atomic Energy
  Community (Euratom)
• Members F, D, I, NL, B, LUX
• Aims customs union and CET by 1969
• CET set as average of national tariffs CET
  revenue to accrue to European Commission

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History

• 1960 European Free Trade Association (EFTA)
• Response to formation of EEC and to threat of
  trade discrimination
• Members UK, S, N, DK, P, CH, A
• Aim free-trade area, not customs union
• No tariffs or quotas on intra-EFTA trade
• But no CET
• Agricultural products excluded from
  liberalization

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Non-overlapping circles 1960-1973
IS
EFTA-7
NL
D
B
L
N
FIN
S
F
I
DK
UK
EEC-6
IRL
A
P
CH
E
GR
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History

• Domino Effect
• Customs union ? intra-EEC trade rose
• Imports from non-EEC Europe stagnant
• GDP of EEC6 double that of EFTA7
• EEC6 faster growth than EFTA7
• Integration with EEC more attractive than EFTA
• 1973 1st enlargement (UK, DK and IE)
• Staying out even less attractive
• 1973 Free trade area between EEC EFTA

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Market Size (GDP) EEC vs EFTA, 1960-70.
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Concentric circles from 1973
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History

• Non-tariff barriers to trade despite customs
  union
• Technical standards and regulations, capital
  controls, rules for public procurement, border
  formalities, etc.
• Single European Act of 1987
• To create "an area without internal frontiers in
  which the free movement of goods, persons,
  services and capital is ensured".
• Single Market Programme effective from 1992
• Decision making QMV instead of unanimity

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History

• Domino Effect II
• Deeper integration in the EEC strengthened the
  incentive to join
• This incentive rose with further enlargements

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History

• 1992 Maastricht Treaty
• EEC ? European Union (EU)
• Monetary union and ECB by 1999
• Single currency by 2002
• Three pillar structure division of power
  between national governments and EU
• 1st Economics Single Market, Competition
  Policy, Common Agricultural Policy, EMU/ECB
• 2nd Security and Foreign Policy
• 3rd Justice and Home Affairs
• EC law applies to 1st pillar

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History

• Attempts at reform of EU institutions
• Motivation streamlining decision making before
  further enlargements
• Amsterdam Treaty (1997) minor changes
• Nice Treaty (2001)
• Paved way for enlargement by assigning new votes
  for EU members and candidate countries
• Failed to implement significant reform of
  institutions

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History

• Constitutional Treaty (2004)
• Reformed QMV with expanded application
• Introduced President and Foreign Minister
• Reduced European Commission to 15 members
• EU would become a legal entity
• Rejected in referenda in France and the
  Netherlands in 2005

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History

• Lisbon Treaty (2007)
• Reforms QMV and expands its application
• Introduces President and High Representative for
  Foreign Affairs
• Reduced European Commission to 18 members
• EU to become a legal entity
• Rejected in referendum in Ireland in 2008
• 2nd vote due on 2 Oct 2009

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Founder Countries of EEC
1958
15
1st enlargement 1973
1973
1958
16
2nd Enlargement 1981
1973
1958
1981
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3rd Enlargement 1986
1973
1958
1986
1981
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4th Enlargement 1995
1995
1973
1958
1986
1981
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5th Enlargement 2004
1995
1973
2004
1958
Cyprus
1986
Malta
1981
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6th Enlargement 2007
1995
1973
2004
1958
2007
Cyprus
1986
Malta
1981
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Facts Population
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Facts Income per capita
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Facts Size of Economies
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Elements of EU Integration

• Free trade in goods
• No tariffs, quotas or any other barriers to trade
• Common trade policy vis-à-vis ROW
• Undistorted competition
• State aid regulated by Commission and
  anti-competitive behaviour regulated by
  Commission
• Approximation of laws (i.e. harmonisation)
• Taxes weak restrictions aimed at preventing
  subsidies via lower tax rates for some firms no
  explicit harmonisation

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Elements of EU Integration

• Unrestricted trade in services
• Single European Act, 2006 EU Services Directive
• Some barriers persist (e.g. banking regulation
  may raise barriers to foreign banks)
• Labour and capital market integration
• Free movement of workers (not people)
• Free movement of capital (but many loopholes
  initially, until Single Market implemented)

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Elements of EU Integration

• Exchange rate and macroeconomic policy
  coordination
• Matter of common interest but only informal
  coordination
• Common agricultural policy (CAP)
• Set up only in 1962
• Social policies
• No explicit coordination
• Exception equal pay and prohibition of
  labor-market discrimination

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Elements of EU Integration

• Single currency
• First (failed) attempts in 1970
• Maastricht Treaty commitment to common EU-wide
  currency
• Opt-outs for UK and Denmark

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Institutions

• European Council
• Prime minister or president of each EU member
  plus the President of the European Commission
• Sets broad guidelines for EU policy
• Meets at least twice a year (June and December)
• No active role in EU law-making decisions must
  be translated into action via Treaty changes or
  secondary legislation

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Institutions

• Council of Ministers
• Representatives at ministerial level from each
  Member State minister for the relevant area, e.g
  finance ministers on budget issues
• EUs main decision-making body
• Two main decision-making rules
• Unanimity (most important issues), e.g. Treaty
  changes, enlargement, multi-year budget plan
• Qualified majority voting (QMV) most issues
  (about 80 of all Council decisions)

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Institutions

• European Commission (EU government)
• Proposes legislation to the Council Parliament
• Administers and implement EU policies
• Monitors and enforces EU law
• Represents EU at international negotiations
• Nice Treaty each member one Commissioner
• Lisbon Treaty 2/3 of members get rotating
  Commissioners
• May be amended
• Commissioners not intended as national
  representatives but in charge of specific area of
  EU policy

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Institutions

• European Parliament
• Oversees EU institutions, especially Commission
• Formulates legislation and proposes budget,
  together with Council of Ministers and Commission
• 785 members (MEPs), directly elected in special
  elections every 5 years
• Number of MEPs per nation varies with population
  but rises less than proportionally
• MEPs represent local constituencies, organized
  along the left-right dimension, not national lines

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Institutions

• EC Law
• Autonomous Independent of national law
• Directly applicable has the force of law in
  member states
• Supranational EC law takes precedence over
  national law

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Institutions

• EC Law Sources
• Primary legislation EU Treaties
• Secondary legislation (EU Law) Regulations,
  decisions, directives, recommendations and
  opinions
• Case law ECJ decisions

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Institutions

• European Court of Justice
• ECJ settles disputes between Member States,
  between EU and a Member State, between different
  EU institutions, and between individuals and the
  EU
• Supranational power ECJ rulings cannot be
  overturned by national courts

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The Budget Expenditure (2009)
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Evolution of Spending Priorities
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Evolution of Spending, Level
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Evolution of Spending, Level
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Funding of EU Budget

• EUs budget must balance every year.
• Financing sources four main types
• Tariff revenue and Agricultural levies (tariffs
  on agricultural goods)
• VAT resource (in essence 1 per cent value added
  tax)
• GNP based (tax paid by members based on their
  GNP).
• Miscellaneous (e.g. taxes paid by EU employees)

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Evolution of Funding Sources
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Contribution vs GDP
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Funding of EU Budget

• Members contributions approximately 1 of GDP
  regardless of per-capita income.
• EU contributions not progressive
• e.g. richest nation, (L) pays less of its GDP
  than the poorest nation (P).
• Net contributions more in line with economic
  development of countries
• Not perfectly so
• E.g. Ireland.

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Net Contribution by Member