European Union

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EUROPEAN UNION

The European Union is a unique economic and political partnership between 27 European countries.

It has delivered half a century of peace, stability, and prosperity, helped raise living standards, launched a single European currency, and is progressively building a single Europe-wide market in which people, goods, services, and capital move among Member States as freely as within one country.

The EU was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: countries that trade with one another are economically interdependent and will thus avoid conflict.

Since then, the union has developed into a huge single market with the euro as its common currency. What began as a purely economic union has evolved into an organisation spanning all areas, from development aid to environmental policy.

The EU actively promotes human rights and democracy and has the most ambitious emission reduction targets for fighting climate change in the world. Thanks to the abolition of border controls between EU countries, it is now possible for people to travel freely within most of the EU. It has also become much easier to live and work in another EU country.

Brief history

1945 - 1959

A peaceful Europe - the beginnings of cooperation

The European Union is set up with the aim of ending the frequent and bloody wars between neighbours, which culminated in the Second World War. As of 1950, the European Coal and Steel Community begins to unite European countries economically and politically in order to secure lasting peace. The six founders are Belgium, France, Germany, Italy, Luxembourg and the Netherlands. The 1950s are dominated by a cold war between east and west. Protests in Hungary against the Communist regime are put down by Soviet tanks in 1956; while the following year, 1957, the Soviet Union takes the lead in the space race, when it launches the first man-made space satellite, Sputnik 1. Also in 1957, the Treaty of Rome creates the European Economic Community (EEC), or "Common Market".

1960 - 1969

The "Swinging Sixties" - a period of economic growth

The 1960s sees the emergence of "youth culture". It is a good period for the economy, helped by the fact that EU countries stop charging custom duties when they trade with each other. They also agree joint control over food production, so that everybody now has enough to eat - and soon there is even surplus agricultural produce. May 1968 becomes famous for student riots in Paris, and many changes in society and behaviour become associated with the so-called "68 generation".

1970 - 1979

A growing Community - the first Enlargement

Denmark, Ireland and the United Kingdom join the European Union on 1 January 1973, raising the number of member states to nine. The short, yet brutal, Arab-Israeli war of October 1973 result in an energy crisis and economic problems in Europe. The last right-wing dictatorships in Europe come to an end with the overthrow of the Salazar regime in Portugal in 1974 and the death of General Franco of Spain in 1975. The EU regional policy starts to transfer huge sums to create jobs and infrastructure in poorer areas. The European Parliament increases its influence in EU affairs and in 1979 all citizens can, for the first time, elect their members directly.

1980 - 1989

The changing face of Europe - the fall of the Berlin Wall

In 1981, Greece becomes the 10th member of the EU and Spain and Portugal follow five years later. In 1987 the Single European Act is signed. This is a treaty which provides the basis for a vast six-year programme aimed at sorting out the problems with the free-flow of trade across EU borders and thus creates the "Single Market". There is major political upheaval when, on 9 November 1989, the Berlin Wall is pulled down and the border between East and West Germany is opened for the first time in 28 years, this leads to the reunification of Germany when both East and West Germany are united in October 1990.

1990 - 1999

A Europe without frontiers

With the collapse of communism across central and eastern Europe, Europeans become closer neighbours. In 1993 the Single Market is completed with the the "four freedoms" of: movement of goods, services, people and money. The 1990s is also the decade of two treaties, the "Maastricht" Treaty on European Union in 1993 and the Treaty of Amsterdam in 1999. People are concerned about how to protect the environment and also how Europeans can act together when it comes to security and defence matters. In 1995 the EU gains three more new members, Austria, Finland and Sweden. A small village in Luxembourg gives its name to the "Schengen" agreements that gradually allow people to travel without having their passports checked at the borders. Millions of young people study in other countries with EU support. Communication is made easier as more and more people start using mobile phones and the internet.

2000 - today

A decade of further expansion

The euro is the new currency for many Europeans. The political divisions between east and west Europe are finally declared healed when no fewer than 10 new countries join the EU in 2004. Many people think that it is time for Europe to have a constitution but what sort of constitution is by no means easy to agree, so the debate on the future of Europe rages on.

Political overview

Key EU institutions

The main institutions of the EU are the Council, the Presidency, the Commission and the Parliament.

The Council of Ministers is the EU"s pre-eminent decision-making body. It has both executive and legislative powers, and acts within guidelines provided by the European Council of heads of state and government. Its work is divided into a number of subject-based Councils, including Industry, Environment, Transport and Social Affairs.

The Lisbon (EU reform) Treaty, which entered into force on 1 December 2009, created the new position of President of the European Council (appointed for a two-and-a-half-year term renewable once) who chairs the European Council and the General Affairs Council, taking forward their work in cooperation with the President of the Commission. The President of the European Council is also the face of the EU internationally. On 19 November 2009 the EU Heads of Government agreed to the appointment of Mr Herman Van Rompuy, then Prime Minister of Belgium, as the first President of the European Council. The pre-existing EU Presidency, which is held by Member States on a six-monthly rotation basis, continues in parallel and is responsible for organising and chairing other Councils of Ministers meetings.

The European Commission (EC), comprising one Commissioner from each member state and led by a President, is the Union"s executive body and public service. The current President of the European Commission, Mr Jose Manuel Barroso, was confirmed for a second five year term by a vote of the European Parliament on 16 September 2009.

The European Parliament is the only directly elected EU institution. It shares decision-making power with the Council on most internal market policies and has budget approval powers. The Parliament has the right to approve or reject the nomination of Commissioners. With the entry into force of the Lisbon Treaty, the Parliament gained an expanded role in a number of new areas including trade, agriculture and justice and home affairs.

Prior to the Lisbon Treaty, the Council and the Commission shared responsibility for managing the EU"s external relations through a High Representative for Common Foreign and Security Policy, based in the European Council, and a European Commissioner for External Relations and Neighbourhood Policy. The Lisbon Treaty effectively combined these functions in a single, new High Representative of the Union for Foreign Affairs and Security Policy, who is also a Vice-President of the European Commission. The first person to hold this position is former European Commissioner for Trade, Baroness Catherine Ashton of the UK. The High Representative chairs the Foreign Affairs Council and exercises authority over a new EU foreign service - the European External Action Service.

The European External Action Service (EEAS) assists the High Representative to ensure the consistency and coordination of the Union"s external action. It prepares policy proposals and implements them after they have been approved by the Council. It comprises officials from the Council Secretariat and the Commission as well as staff seconded from the Member States" national diplomatic services. With the entry into force of the Lisbon Treaty, existing European Commission Delegations are renamed European Union Delegations, and form part of the structure of the EEAS.

Mr Karel De Gucht, former Belgian Minister for Foreign Affairs and Foreign Trade and European Commissioner for Aid and Humanitarian Development, is now European Commissioner for Trade.

Economic overview

The EU"s 27 member states have a total population of 501 million people and a combined economy worth USD16.3 trillion in 2010 (around 13 times the size of Australia"s economy). The EU has a combined GDP greater than the United States and includes four of the world"s ten largest economies (Germany, France, the UK, and Italy). european union history cooperation

EU member governments run their economies according to a comprehensive strategy of macroeconomic, microeconomic and employment policies called the Economic and Monetary Union (EMU). Member states draw up national reform programs within this framework, using the tax and social welfare policy mix they think best suits national circumstances.

The Stability and Growth Pact (SGP) prohibits member states from taking policy measures which would unduly benefit their own economies at the expense of other EU countries. A key principle of the Pact is the rule that all member states keep their budgets close to balance or in surplus. Deficits should not exceed 3% of gross domestic product (GDP) and the debt-to-GDP ratio should not be more than 60%. Automatic stabilisers and discretionary fiscal stimulus measures taken in response to the global financial crisis increased public expenditure, resulting in few EU member state budgets remaining within these limits. Public finances are beginning to improve, with the EC forecasting that the general government deficit in the EU will fall from around 6.5% of GDP in 2010 to 4.7% of GDP in 2011 and 3.8% of GDP in 2012. Overall government debt is expected to increase to 83% of GDP in the EU in 2012 (88% of GDP in the euro area.)

Seventeen of the 27 EU member states have taken integration a step further by adopting the same currency, the euro: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. Denmark and the United Kingdom have so far opted to remain outside the euro. Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, and Sweden have no target date for joining. Entry criteria for the euro include two prior years of exchange rate stability via membership of the "Exchange Rate Mechanism" (ERM). Three EU members are in the ERM: Denmark, Latvia and Lithuania. Other criteria for adopting the euro relate to interest rates, budget deficits, the inflation rate, and the debt-to-GDP ratio. The European Central Bank (ECB) has responsibility for monetary policy throughout the euro area, including setting benchmark interest rates, managing the euro area"s foreign exchange reserves and ensuring payments move smoothly across EU borders.

The EU entered recession in the second quarter of 2008 and returned to positive growth in the third quarter of 2009, ending longest and deepest recession in the EU"s history. The European Commission estimates GDP in the EU fell by 4.2% in 2009 (4.1% in the euro area) and that the magnitude of the recession across the 27 members of the EU (measured as a decline in GDP from peak to trough) was a contraction of 5.1% between the first quarter of 2008 and the second quarter of 2009. The European Commission"s spring forecast (released in May 2011) estimates growth of 1.8% in 2010 in the EU as a whole and in the euro area. For 2011, it forecasts growth of 1.75% in the EU (1.5% in the euro area), rising in 2012 to 1.9% in the EU and 1.8% in the euro area. However, expected growth in 2011 varies considerably among member states - from 4% or more in Poland, Sweden, Estonia and Lithuania to a low of -3.5% in Greece. All EU countries other than Greece and Portugal are expected to be out of recession in 2011.

Unemployment, which had stabilised over the past year, now appears to be falling. The March 2011 unemployment rate was 9.5% in the EU and 9.9% in the euro area, unchanged over the past month but down since December 2010. Unemployment varies widely across the EU, from 4.2% in the Netherlands to 20.7% in Spain.

Following a crisis of confidence in Greece"s ability to repay its debt, in May 2010 EU Finance Ministers and the IMF agreed to a package of €110 billion in loans to Greece (€80 from the EU and €30 from the IMF) subject to strict conditionality. Concerns that other euro area countries may also require assistance led the EU set aside an additional €500 billion to be available over three years - though an increase of €60 billion to the existing European financial stability mechanism (EFSM) and €440 billion in a new European financial stability facility (EFSF) (guaranteed by euro area members in a pro-rata basis). The IMF agreed to lend up to €250 billion as part of any assistance package the EU provided.

In November 2010, Ireland requested assistance and was granted financial assistance totalling €85 billion (€22.5 billion from the IMF and the balance from the EU), conditional on further austerity measures. Portugal also requested assistance in April 2011, which was unanimously approved by EU Finance Ministers on 17 May. The assistance package includes finance of up to €78 billion, with equally shared contributions of €26 billion from the EFSM, EFSF and IMF.

At their meeting on 24-25 March 2011, EU leaders agreed on the key features of the European Stability Mechanism (ESM), a permanent mechanism to safeguard the financial stability of the euro area as a whole, which will replace the EFSM and EFSF in 2013. The ESM will have an effective lending capacity of €500 billion; will charge an interest rate of 2% above its costs; and have preferred creditor status.

The Leaders also agreed to a "Euro Plus Pact" for the euro area countries and Bulgaria, Denmark, Latvia, Lithuania, Poland, and Romania. The Pact aims to strengthen economic policy coordination, improve competitiveness, thereby leading to a higher degree of convergence. The Pact focuses primarily on areas that fall under national competence and that are considered to be key for increasing competitiveness and avoiding harmful imbalances. It recognises that competitiveness is essential to help the EU grow faster and more sustainably in the medium and long term, to produce higher levels of income for its citizens, and to preserve its social models. Other member states are able to participate in the Pact on a voluntary basis.

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