European Union (EU) was founded as the European Economic Community (EEC) and its
original goals were focused upon making the European economy more open and
effective. The Treaty of Rome (1957)
set out four economic freedoms that it wanted to create in Europe: free
movement of goods, free movement to provide services, free movement of capital
and free movement of people. This model
envisaged one day transforming the national economies of European states into a
single economy. Pursuit of these goals
has produced integration in many areas of the economy including internal and
external trade, taxation, currency and competition. However, the process has often been slow, as member states have
disagreed over which powers should be given to the EU and which they should
Internal Trade and Competition
EU operates a single market designed to allow the free trading of goods and
services across the national boundaries of member states by the removal of protectionist
barriers. Tariffs were
removed with the European Customs Union in 1968, but the single market was not
officially considered to exist until 1992, when most of the remaining barriers
had been taken down. This created a
zone where member states are free to trade goods and some services, although
others remained controlled by national governments. The EU Commission acts as the regulator of the free market. It also has a significant role in ensuring
fair competition between European companies.
This involves the EU Commission and the European Court of Justice (ECJ)
engaging in active investigation and court cases against businesses suspected
of engaging in illegal practices.
Currency and managing money
EU plays a significant role in member states' monetary policy. All member states are part of the Economic
and Monetary Union (EMU), a project that began in the early 1980s as a way of
moving towards a single monetary policy for the European Community.
have been three stages to EMU: first, countries agreed to keep their exchange
rates stable and to remove obstacles to the free movement of
capital. Secondly, the European Central
Bank was created and conversion rates were established between
national currencies and the Euro. Although not one of the official EMU stages, the Stability and Growth
Pact (SGP) was also created in 1997 to promote good economic management. Finally, in 1999, 11 member
states agreed to fix their exchange rates and handed over the power to set interest
rates to the European Central Bank (ECB), thus creating a single currency
area. Euro notes and coins finally
replaced national currencies in January 2002 and are currently used by 17 member
states. Three old member states - Britain,
Sweden and Denmark decided to stay out of this final stage of EMU. However, Greece
joined in 2001, followed by Slovenia in 2007, Malta and Cyprus in 2008 and Slovakia in 2009.
easier trade between Europe and the rest of the world has been one of the most
significant roles of the EU Commission.
The EU has the authority to represent all EU member states in World
Trade Organisation (WTO) negotiations and has a responsibility for promoting free
trade. All member states must agree
to the same tariff rates on imports coming into the EU from other parts
of the world. This was seen as an
important part of creating a single market. However, the EU has recently been accused of
blocking free trade because of protectionist policies that it
imposes, such as the Common Agricultural Policy (CAP).
a joined-up tax system across the EU is central to the operation of an
effective single market. This is needed
to make a level playing field for businesses to operate and to encourage EU
citizens to move between member states.
Value-added tax (VAT) is already regulated at an EU level. However, most members have resisted giving up more control over tax because they see it as an important power of a sovereign government.
From 2000 to 2010, EU leaders attempted to modernise the European economy through a programme called the Lisbon Strategy. This tried to make the European economy more competitive by improving research and development skills and calling for economic reforms to help member states prepare for challenges resulting from new technology. In particular, it aimed to open up the single market for services, a sector in which about 70% of Europeans are employed. The Lisbon Strategy was a limited success and it was replaced with the Europe 2020 strategy in June 2010. The new strategy aims to create an inclusive society by reducing youth unemployment. It also aims to increase investment in research and to develop environmentally-friendly technologies.
Protectionist: restriction of free trade
in an attempt to protect domestic producers and markets.
Tariffs: a type of tax imposed on imports or exports.
Monetary Policy: the policies employed by
Governments or Central Banks to control money supply and interest rates to
achieve economic goals.
Exchange Rates: the ratio in which one
country's currency is valued against another.
Conversion Rates: the ratio by which one
country's currency value would be replaced by the Euro (e.g. how many Euros
would replace 1 Franc etc.)
Free Trade: international trade where there is no
restriction on the import or export of goods.
Value-added tax (VAT): an indirect tax on most sales of goods and services.
Europe 2020 strategy: underpins all EU policy regarding the Single Market. It particularly aims to create jobs and an inclusive society.