European Union: Basic Facts

1. European Union: Basic Facts Jan Fidrmuc Brunel University

2. 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

3. 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

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

5. 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

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

7. IS FIN N DK S NL UK D B IRL L EEC-9 A F I EFTA-6 CH P E GR Concentric circles: from 1973

8. 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

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

10. 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

11. 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

12. 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

13. 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

14. Founder Countries of EEC 1958

15. 1st enlargement: 1973 1973 1958

16. 2nd Enlargement: 1981 1973 1958 1981

17. 3rd Enlargement: 1986 1973 1958 1986 1981

18. 4th Enlargement: 1995 1995 1973 1958 1986 1981

19. 5th Enlargement: 2004 1995 1973 2004 1958 Cyprus 1986 Malta 1981

20. 6th Enlargement: 2007 1995 1973 2004 1958 2007 Cyprus 1986 Malta 1981

21. Facts: Population

22. Facts: Income per capita

23. Facts: Size of Economies

24. 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

25. 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)

26. 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

27. 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

28. 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

29. 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)

30. 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

31. 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

34. 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

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

36. 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

37. The Budget: Expenditure (2009)

38. Evolution of Spending Priorities

39. Evolution of Spending, Level

40. Evolution of Spending, Level

41. 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)

42. Evolution of Funding Sources

43. Contribution vs GDP

44. 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.

45. Net Contribution by Member