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 IS EFTA-7 NL B D L N S FIN F I DK EEC-6 UK IRL A P CH E GR

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.

Concentric circles: from 1973 GR I D F B L NL IRL P UK CH A FIN N 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 1973 1958

2nd Enlargement: 1981 1973 1958 1981

3rd Enlargement: 1986 1973 1958 1986 1981

4th Enlargement: 1995 1995 1973 1958 1986 1981

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

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

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

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: Sources Primary legislation: EU Treaties Secondary legislation (EU Law): Regulations, decisions, directives, recommendations and opinions 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

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

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