European Union: Basic Facts
Jan Fidrmuc
Brunel 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
N
S
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
$ b
illio
ns
EEC6
EFTA
Concentric circles: from 1973
EGR
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 Treaties
2. 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
Administration
External
Other Internal
Cohesion
CAP
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%
197119721973197419751976
19771978197919801981
19821983198419851986198719881989199019911992199319941995199619971998199920002001
Shar
e of
tota
l rev
enue
GNP
VAT
Miscellaneous
Customs Duties
Agricultural 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
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