European Union

The European Union (EU) is a political and economic entity consisting of 27 member states that share a common political ideology. In political form, it is a complex hybrid structure with elements of federalism (such as the European Court of Justice and the European Parliament), intergovernmentalism (the Council of Ministers) and some characteristics of an international organsation (the European Commission represents the Union in certain international negotiations). In economic form it has acquired some, but not all, the attributes of a fully co-ordinated system. Recent events have raised doubts whether its stability as a single economic unit can be preserved without the surrender of national sovereignty that would be required to achieve further centralisation of fiscal policy.

Overview

Determined to lay the foundations of an ever closer union among the peoples of Europe, ... we are agreed ... preamble to the Treaty of Rome[1] by the heads of state of Belgium, France, Germany, Italy, Luxembourg, and The Netherlands.

The transition from the European Common Market of 1957 to the European Union of 2011 (summarised on the timelines subpage of this article ) has involved a major deepening and widening of coooperation among the countries of Europe. Among the most recent of the moves toward the founders' objective of economic and political union was the creation by the Maastricht Treaty of an economic and monetary union, to form in 1999 what came to be knowm as the eurozone. Two of the existing members of the European Union (The United Kingdom and Denmark) were unwilling at the time to accept the surrender of control over monetary policy that was required of eurozone members, but willingness to join the eurozone became a condition of membership of the European Union for subsequent applicants. The Maastricht Treaty required all members of the European Union to relinquish a limited degree of control over their fiscal policies by abiding by agreed limits on their budget deficits and their public debt. The widening of tne scope of membership, from 6 countries ,in 1957 to 27 in 2011 has involved a further surrender of national sovereignty because it has been accompanied by a widening of the range of policy issues that are decided by majority voting, and thus a reduction of the degree of influence that any country can exert upon the policies of the Union.

The development of the eurozone crisis in the aftermath of the Great Recession has added to the urgency of the onegoing debate concerning the desireability of further surrenders of national sovereignty. There is a widely-held view that a major increase in the degree of central control over fiscal policy would be needed to solve the problems raised by that crisis, but there is uncertainty about the willingness of people to accept the implied reduction in their influence over public expenditure and taxation. Since there seems to be little prospect that all of the existing member countries of the European Union would accept such a development, it would appear necessary, on that view, to envisage a number of departures from the eurozone.

Rationale

Although it started as an economic association, the anticipation of economic benefits was not the only rationale that inspired its founders. It was also seen as a means of bringing political stability to a Europe that had been torn apart by two world wars in the course of the previous 50 years. That advantage has since been taken for granted, and its rationale has been perceived mainly in terms of economic advantage.

The principal economic advantage of membership to a country has been seen as the unrestricted access that it provides to wider markets for its products. The adoption of a common currency as part of the Economic and Monetary Union was seen as further lowering barriers to those markets by reducing transaction costs and eliminating exchange rate risks. Some of the Union's smaller members may also have anticipated further advantages arising from the improvement in their creditworthiness that membership would generate. It was generally accepted that there could be offsetting disadvantages arising from loss of control over the domestic economy, but most of the continent's governments judged the balance to be positive. Some have since come to question that judgement because of the unsymmetrical impact of recent demand shocks upon the domestic economies of member countries.

Constitution

The term "european constitution" commonly refers to a document published in 2004, whose proposals have not been given formal effect because they have not received universal ratification. In the absence of an accepted codification, the constitution of the European Union consists of a collection of treaties, protocols, declarations and regulations. Notwithstanding its lack of status, the document of 2004 provides a valuable summary of the existing position as perceived by its authors.

The conditions for membership of the Union are defined in the document in two clauses:

Article I-58: The Union shall be open to all European States which respect the values referred to in Article I-2, and are committed to promoting them;

and,
Article I-2: The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.

Those joining after 1992 are also expected to meet the eurozone entry criteria.

Exclusive competence is ascribed to the Union as regards:

- the customs union, competition rules, monetary policy (for eurozone members), conservation of marine biological resources, the common commercial policy, and certain (defined) categories of international agreement.

Shared competence between the Union and member states is deemed to apply to:

- internal markets, specified aspects of social policy, economic, social and territorial cohesion, agriculture and fisheries, the environment, consumer protection, transport, trans-European networks, energy, freedom, security and justice, and public health.

Most decisions by the Union's governing body are taken by a qualified majority, defined as at least 55 per cent of the members of the Council(72 per cent for proposals from other than the Commission or the Union Minister of Foreign Affars), comprising at least fifteen of them and representing member states comprising at least 65 % of the population of the Union. Exceptions include decisions on foreign and defence policy, the Union budget, the admission of new members, emergency financial assistance to members and penalties for breaches of the Union's rules.

Structure

The European Council

The European Council was created in 1974 with the intention of establishing an informal forum for discussion between Heads of State or Government. It rapidly developed into the body which fixed goals for the Union and set the course for achieving them, in all fields of EU activity. It acquired a formal status in the 1992 Treaty of Maastricht, which defined its function as providing the impetus and general political guidelines for the Union's development. In addition to the Heads of State, it includes an elected President, the President of the Commission, and the High Representative of the Union for Foreign Affairs and Security Policy if required.

The Council of the European Union

The Council of Europe (known as the "Council of Ministers") is the main decision-making body of the Union. It passes laws, co-ordinates economic policies, implements foreign and security policy, concludes international agreements, coordinates crime prevention, and adopts the Union's budget. It is made up of ministers of the member states concerned with the decisions to be made (foreign affairs, finance, social affairs, transport, agriculture, etc.).

The European Parliament

The European Parliament is the only directly-elected body of the European Union. It plays an active role in drafting legislation on, for example, environmental protection, consumer rights, equal opportunities, transport, and the free movement of workers, capital, services and goods. It also has joint responsibility with the Council of Ministers for the Union's budget.

The European Commission

The European Commission is the EU's executive body. It drafts proposals for new European laws and is responsible for the implementation of the Union's policies, the allocation of its funds, and the enforcement of its laws; and for the conduct of international negotiations.

The European Central Bank

- executes the EU's monetary policy.

The European Court of Justice

- the judicial authority of the European Union which reviews the legality of the acts of the institutions of the European Union, ensures that the Member States comply with obligations under the Treaties, and interprets European Union law at the request of the national courts and tribunals.

PD Image
Countries of the EU as of January 1, 2007

Membership

To the 6 founder members in 1951, 1 was added in 1981, 2 in 1986, 4 in 1995, 10 more in 2004 and a further 2 in 2007 - (see the lists on the timelines subpage)

The 27 member countries are:

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

The candidate countries are:

Croatia, The former Yugoslav Republic of Macedonia, Turkey and Iceland.

Potential candidates are:

Albania, Bosnia and Herzegovina, Kosovo under UN Security Council Resolution 1244, Montenegro, and Serbia.

Following the signing of the Maastricht Treaty in 1992, 11 European Union members became members of the Eurozone. They were:

Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland,

Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008 and Slovakia in 2009.

Policies

Agriculture

The protection of the community's agricultural industry from overseas competition by a "Common Agricultural Policy" was among the principle objectives of the founders of the Europeam Common Market (as set out in article 39 of the Treaty of Rome), and it is even now the most costly of the activities of the Union, accounting for about 40 per cent of its annual budget . Its principal instruments are price support payments, export subsidies and taxes on agricultural imports. The subsidies were initially production-related but since 2003 they have decoupled from production levels and made dependent on animal welfare and environmental protection. Its principal recipients in 2006 were France (20%), Spain (13%), Germany (13%), and Italy (11%)

Competition

The purpose of EU competition policy is to regulate those business practices that restrict competition, to limit the ability of firms to combine in such a way as to enable them to restrict competition, and to prevent member governments from assisting national enterprises in ways that would inhibit competition from firms in other countries. It is coordinated and operated by the Competition Directorate of the European Commission. It depends for its legal authority upon legislation governing the behaviour of firms and upon legislation concerning thr provision of governmental assistance to member firms. The Commission and the competition authorities of the member states have the power to require that an infringement of the rules governing the behaviour of firms to ended, or to accept an ameliorating commitment from those concerned, or to impose fines. he Commission also has the power to order structural remedies (such as the divestiture of acquisitions or splitting up of a company). The Commission may also impose fines for infringement of the rules. The Commission alone is responsible for enforcement of the rules governing state aid.

Economic and Monetary Policy

Member countries of the eurozone have adopted a common monetary policy determined by the European Central Bank. Member countries of the European Union that are not members of the Eurozone are free to conduct their own monetary policy. The fiscal policies of all European Union member countries are conducted independently but they are required to keep within the limits on public debt and budget deficit stipulated in the Stability and Growth Pact .

Other policy areas

There are also departments of the European Commission that develop policy on climate action, communication, culture, employment, energy, environment,foreign affairs, health, justice, science and technology, transport and tourism.

Recent developments

The economies of all member countries suffered major downturns during the Great Recession of 2007-10 (as described on the Addendum subpage of the article on that subject). One effect of the recession was to reduce revenues from taxation and increase public expenditure, as a result of which there were increases in member countries' budget deficits and public debt, and multiple breaches of the limits required by the Stability and Growth Pact. Particular concern developed in early 2010 concerning the fiscal sustainability of the economies of the "PIIGS" countries (Portugal, Ireland, Italy, Greece and Spain) following rating downgrades by the credit rating agencies (their problems are described in the article on the eurozone crisis). In May 2010, a €500 billion European financial stabilisation mechanism was established, enabling member states in difficulties to get loans from the European Central Bank (subject to the adoption of measures to restore fiscal sustainability) and the Bank launched a securities market programme, designed to calm the bond market. During 2010, the governments of Greece and Ireland decided that, without help, they would not be able to continue to finance their budget deficits, and they sought - and received - loans from other European governments. Those loans failed to reassure potential investors, and in November and December of 2010 the international bond market forced further increases in interest rates on the governments of all five governments (including those of Portugal, Spain and Italy, because of fears of contagion from Greece and Ireland).

Prospects

By December 2010, there was widespread uncertainty about future prospects for the eurozone and beyond. There were doubts about the willingness of European governments to provide further financial support to the five "PIIGS" governments, and speculation that financing difficulties might spread to affect other governments. Some commentators considered it inevitable that one or other of the PIIGS governments would default on, or restructure, its loans, and other commentators forecast departures from the eurozone by governments wishing to escape its restraints. There were even those who envisaged wholesale departures, leading to a collapse of the common currency - an outcome that would impose substantial losses upon countries with investments in euro-denominated securities, and could threaten the stability of the international financial system.

Further crisis prevention measures were under consideration in December 2010. The leaders of Frances and German were again calling for further moves toward political integration , and the two governments announced that they would jointly table structural answers to the eurozone crisis "in the first weeks of the new year".