European Union: Basic Facts

Jan FidrmucBrunel University

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

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

Non-overlapping circles: 1960-1973

EGR

IRL

FIN

IS

EFTA-7

EEC-6

NS

PCH

A

UKI

D

F

BL

NL

DK

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

Market Size (GDP): EEC vs EFTA, 1960-70.

0

100

200

300

400

500

600

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970

$ bi

llion

s

EEC6EFTA

Concentric circles: from 1973

E GR

I

D

F

BL

NL

IRL

P

UK

CH

A

FINN

S

IS

DK

EEC-9

EFTA-6

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

History

Domino Effect II: Deeper integration in the EEC strengthened the

incentive to join This incentive rose with further enlargements

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

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

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

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

Founder Countries of EEC

1958

1st enlargement: 1973

1958

1973

2nd Enlargement: 1981

1958

1973

19811981

3rd Enlargement: 1986

1958

1973

198619811981

4th Enlargement: 1995

1958

1973

1995

198619811981

5th Enlargement: 2004

Cyprus

Malta

1958

1973

1995

2004

198619811981

6th Enlargement: 2007

Cyprus

Malta

1958

1973

1995

2004

198619811981

2007

Facts: Population

Facts: Income per capita

Facts: Size of Economies

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

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)

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

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

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

Institutions

Council of Ministers Representatives at ministerial level from each

Member State: minister for the relevant area, e.g finance ministers on budget issues

EU’s 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)

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

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

Germany 99

France 78

Italy 78

United Kingdom 78

Spain 54

Poland 54

Romania 35

Netherlands 27

Belgium 24

Czech Republic 24

Greece 24

Hungary 24

Portugal 24

Sweden 19

Austria 18

Bulgaria 18

Finland 14

Denmark 14

Slovakia 14

Ireland 13

Lithuania 13

Latvia 9

Slovenia 7

Cyprus 6

Estonia 6

Luxembourg 6

Malta 5

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

Institutions

EC Law: Sources1. Primary legislation: EU Treaties2. Secondary legislation (EU Law): Regulations,

decisions, directives, recommendations and opinions

3. Case law: ECJ decisions

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

The Budget: Expenditure (2009)

Evolution of Spending Priorities

0.0

0.2

0.4

0.6

0.8

1.0

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006%

of B

udge

t

AdministrationExternalOther InternalCohesionCAP

Evolution of Spending, Level

Evolution of Spending, Level

Funding of EU Budget EU’s 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)

Evolution of Funding Sources

0%

20%

40%

60%

80%

100%

1971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001

Shar

e of

tota

l rev

enue

GNPVATMiscellaneousCustoms DutiesAgricultural Duties

Source: “The Community Budget: The facts in figures” European Commission, 2000. Downloadable from http://eurpoa.eu.int/budget/

Contribution vs GDP

Funding of EU Budget

Member’s 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.

Net Contribution by Member