The European Union, or EU, is known formally as the European Economic and Monetary Union. It establishes a common market among its 28 member countries. This means that all border controls between members have been eliminated, allowing the free flow of goods and people (except for random spot checks for crime and drugs). Public contracts are open to bidders from any member country.
The EU common market also means that any product legally manufactured in one member state can be sold in any other member, without tariffs or duties. Taxes have been standardized. Practitioners of most services (law, medicine, tourism, banking, insurance, etc.) can operate in all member countries. The cost of airfares, the internet and phone calls have fallen dramatically.
What Does the EU Do?:
The EU makes sure members act consistently in regional, agricultural and social policies. It also transmits state-of-the-art technologies to its members in environmental protection, research and development, and energy. The EU is funded by contributions of €120 billion a year from member states.
What Countries Are European Union Members?:
Its 28 members are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.
Who Runs the European Union?:
The EU is run by three bodies: the EU Council, representing national governments, the Parliament (elected by the people) and the European Commission (the EU staff). They uphold the laws governing the EU, which are spelled out in a series of treaties and supporting regulations. Here's how they work together:
- The EU Council sets the policies and proposes new laws. The political leadership, or Presidency of the EU, is held by a different leader every six months.
- The European Parliament debates and approves the laws proposed by the Council. Its members are elected every five years.
- The European Commission staffs and executes the laws. José Manuel Barroso is the President who serves under 27 Commissioners.
EU Now World's Largest Economy:
In 2007, the U.S. lost its seat to the EU as the world's largest economy. In 2010, the EU's economy produced $14.82 trillion in goods and services, while U.S. GDP came in at $14.66 trillion. Combined, the two produced 39.5% of the world's economic output, which totaled $74.54 trillion. (Source: CIA World Factbook, Rank Order GDP)
History of the EU:
The concept of an European trade area was first established in 1951, with the European Coal and Steel Community, which had six founding members (Belgium, France, Germany, Italy, Luxembourg and the Netherlands). In 1957, the Treaty of Rome established a common market, which meant customs duties were eliminated (in 1968) and common policies, particularly in trade and agriculture, were put in place. It expanded to nine members in 1973 (Denmark, Ireland and the UK), and created its first Parliament in 1979. Greece joined in 1981, followed by Spain and Portugal in 1986.
In 1993, the Treaty of Maastricht established the European Union common market. Two years later, the EU expanded to 15 members (Austrian, Sweden and Finland), and then to 25 in 2004 (Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania and Slovakia and Slovenia).
The Importance of the Euro and the Eurozone:
The euro is the common currency for the EU area, replacing many foreign currencies such as the lira, franc and deutchmark. It is the second most commonly held currency in the world, after the dollar. All EU members pledge to convert to the euro, but only 13 have so far: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, and Spain. These countries are commonly referred to as the eurozone, which was created in 2005.
The Role of the European Central Bank:
The European Central Bank (ECB) is the EU's central bank. It sets monetary policy and manages bank lending rates and foreign-exchange reserves. Its target inflation rate is less than 2%. In July 2008, the ECB disastrously increased rates to 4.25% to combat 4% inflation thanks to high oil prices. The euro strengthened, weakening EU exports. Factory orders plummeted 4.4%, the biggest decrease since 2003.(Source: WSJ, Euro-Zone Factory Orders Fall as Outlook Dims, July 24, 2008)
The ECB switched to recession-fighting in October, when Lehman Brothers went bankrupt. By May 2009, it had lowered the rate to 1%. However, it began raising rates again too soon. By July 2011, the rate was 1.5%, aggravating a credit crunch caused by the Greek debt crisis. In December, it lowered the rate back down to 15.(Source: ECB Website)
The Recession Hit the EU Area Hard:
The value of the euro continued to rise until the credit crisis in 2008. At that time, there was a flight to safety to the dollar, which strengthened the dollar. Although the euro is now weaker, exports have not picked up because of lower worldwide demand.
The Eurozone Crisis:
In 2011, the EU was faced with its greatest economic threat. The Greece debt crisis escalated into potential sovereign debt crises in Portugal, Italy, Ireland and Spain. EU leaders needed to address the immediate issue of assuring investors that it would stand behind its members debts. At the same time, they wanted to impose austerity measures to make sure these countries didn't continue to spend beyond the Maastricht Treaty requirements. The crisis threatened the concept of the eurozone, if not the EU itself. Article updated October 21, 2013