THE EUROPEAN UNION

Introduction:
The European Economic Community (EEC) was an international organization
created by the Treaty of Rome of 1957. Its aim was to bring about economic
integration, including a common market, among its six founding members: Belgium,
France, Italy, Luxembourg, the Netherlands and West Germany. The EEC was also
known as the Common Market in the English-speaking world and sometimes
referred to as the European Community even before it was officially renamed as
such in 1993.

It gained a common set of institutions along with the European Coal and Steel
Community (ECSC) and the European Atomic Energy Community (EURATOM) as
one of the European Communities under the 1965 Merger Treaty (Treaty of Brussels).

Upon the entry into force of the Maastricht Treaty in 1993, the EEC was
renamed the European Community (EC) to reflect that it covered a wider range
of policy. This was also when the three European Communities, including the
EC, were collectively made to constitute the first of the three pillars of the
European Union (EU), which the treaty also founded. The EC existed in this
form until it was abolished by the 2009 Treaty of Lisbon, which merged the
EU's former pillars and provided that the EU would "replace and succeed the
European Community."
The forerunner of the EC was the European Coal and Steel Community (ECSC)
Treaty which was ratified by the original six members in 1952. It removed all import
duties and quota restrictions on coal, iron ore, steel and scrap on intra-community
trade. The aim was to have economies of scale in these industries in order to compete
effectively with the US and other foreign producers.
This partial integration by six members of the ECSC was enlarged by the Treaty of
Rome in 1957, for the establishment of a common market for all commodities and for
the development of atomic power.
The European Economic Community (EEC) or European Community (EC) was
founded in 1957, under the Treaty of Rome, by France, Germany, Italy, Belgium,
Luxemburg, and the Netherlands. The community of the original six members was
enlarged as from January, 1973 with the inclusion of Ireland, Denmark and United
Kingdom; Greece became its member in 1981, followed by Portugal and Spain in
1984. The Community has now 27 members. Since 1995, it is called the European
Union (EU).
The European Union or EU is an international organization of European states,
established by the Treaty on European Union (the Maastricht treaty). The European

Union is the most powerful regional organization in existence, in some ways it

resembling state. The European Union (EU) is a political and economic union of 27
member states, located primarily in Europe. It was established by the Treaty of
Maastricht in 1993 upon the foundations of the pre-existing European Economic
Community. With almost 500 million citizens, the EU combined generates an
estimated 305 share of the worlds nominal gross domestic product (US$16.8 trillion
in 2007).

Members :

The six states that founded the EEC and the other two Communities were known as
the "inner six" (the "outer seven" were those countries who formed the European Free
Trade Association). The six were France, West Germany, Italy and the three Benelux
countries: Belgium, the Netherlands and Luxembourg. The first enlargement was in
1973, with the accession of Denmark, Ireland and the United Kingdom. Greece, Spain
and Portugal joined in the 1980s. The former East Germany became part of the EEC
upon German reunification in 1990. Following the creation of the EU in 1993, it has
enlarged to include a further fifteen countries by 2007. Member states are represented
in some form in each institution. The Council is also composed of one national
minister who represents their national government. Each state also has a right to one
European Commissioner each, although in the European Commission they are not
supposed to represent their national interest but that of the Community. Prior to 2004,

the larger members (France, Germany, Italy and the United Kingdom) have had two
Commissioners. In the European Parliament, members are allocated a set number
seats related to their population, however these (since 1979) have been directly
elected and they sit according to political allegiance, not national origin. Most other
institutions, including the European Court of Justice, have some form of national
division of its members.
The European Union is composed of 27 independent sovereign countries which are
known as member states : Austria, Belgium, Bulgaria, Cyprus, the Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta the Netherlands, Poland, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, and the United Kingdom.
Areas currently eligible :

Austria Burgenland (phasing-out)

Belgium Hainaut (phasing-out)

Bulgaria all

Croatia - all

Cyprus all (phasing-in)

Czech Republic all (except Prague)

Estonia all

Finland It-Suomi (phasing-in)

France French Guiana, Guadeloupe, Martinique, Runion

Germany Brandenburg Nordost and Sdwest (phasing out), MecklenburgVorpommern, Saxony Dresden and Chemnitz, Saxony Leipzig (phasing-out),
Lower Saxony Lneburg (phasing-out), Saxony-Anhalt Magdeburg and Dessau,
Saxony Anhalt Halle (phasing-out), Thuringia

Greece Anatoliki Makedonia, Attiki (phasing-out), Dytiki Ellada, Dytiki Makedonia

(phasing-out), Ionia Nisia, Ipeiros, Kentriki Makedonia (phasing-out), Kriti, Notio
Aigaio (phasing-in), Peloponnisos, Sterea Ellada (phasing-in), Thessalia, Thraki,
Voreio Aigaio

Hungary szak-Alfld, Dl-Dunntl, szak-Alfld, szak-Magyarorszg, KzpDunntl, Nyugat-Dunntl

5

Ireland East, South

Italy Basilicata (phasing-out), Calabria, Campania Puglia, Sardinia (phasing-in),

Sicily

Latvia all

Lithuania all

Malta all

Poland all

Portugal Alentejo, Algarve (phasing-out), Azores, Centro, Madeira (phasing-in),

Norte

Romania all

Slovakia all (except Bratislava)

Slovenia all

Spain Andalucia, Asturias (phasing-out), Canary Islands (phasing-in), Castilla-La

Mancha, Castilla y Leon (phasing-in), Ceuta and Melilla (phasing-out), Extremadura,
Galicia, Murcia (phasing-out), Valencia Region (phasing-in)
United Kingdom Anglesey, Blaenau Gwent, Bridgend, Caerphilly, Carmarthenshire,
Cornwall and the Isles of Scilly, Ceredigion, Conwy, Denbighshire, Gwynedd,
Merseyside (phasing-in), Merthyr Tydfil, Neath Port Talbot, Pembrokeshire, Rhondda
Cynon Taf, Scotland Highlands and Islands (phasing-out), South Yorkshire
(phasing-in), Swansea, Torfaen
Future membership
There are three official candidate countries, Croatia, the Former Yugoslav Republic of
Macedonia, and Turkey. The western Balkan countries of Albania, Bosnia and
Herzegovina, Montenegro, and Serbia are officially recognized as potential candidate
but the Commission does not list it as an independent country because not all member
states recognize it as an independent country, separate from Serbia.
To join the EU, a country must meet the Copenhagen criteria, defined at the 1993
Copenhagen European Council. These require a stable democracy which respects
human rights and the rule of law; a functioning market economy capable of
competition within the EU; and the acceptance of the obligation of membership,
including EU law. Evaluation of a countrys fulfillment of the criteria is the

responsibility of the European Council. The current framework does not specify how
a country could exit the Union (although Greenland, a Territory of Denmark,
withdrew in 1985), but the proposed Treaty of Lisbon contains a formal procedure for
withdrawing.
Four Western European countries that have chosen not to join the EU have partly
committed to the EUs economy and regulation: Iceland, Liechtenstein, and Norway
are a part of the single market through the European Economic Area, and Switzerland
has similar ties through bilateral treaties. The relationships of the European
microstates Andorra, Monaco, San Marino, and Vatican City include the use of the
euro and other co-operation.
Economic integration is a mechanism through which a group of countries try to
improve their level of welfare through higher growth. A single market arrangement,
the highest form of regional cooperation (as adopted by the European Union), requires
that all residents (producers and consumers) should be governed by exactly the same
rules. This form of integration implies that all participants must be treated equally in
all parts of the market. The guiding principle behind economic integration/ economic
union is the concept of convergence in per capita income and/ or per worker income
among participating nations.
The EU has developed a single market through a standardized system of laws which
apply in all member states, guaranteeing the freedom of movement of people, goods,
services and capital. It maintains a common trade policy, agricultural and fisheries
policies, and a regional development policy.
Fifteen member states have adopted a common currency, the euro. It has developed
role in foreign policy, representing its members in the World Trade Organization, at
G8 summits and at the United Nations. Twenty-one EU countries are members of
NATO. It has developed role in justice and home affairs, including the abolition of
passport control between many member states under the Schengen Agreement.
According to the neo-classical models of economic growth, the technology is such
that, all things equal, poor countries/ regions in terms of GDP per capita and/ or per
worker, grow faster than rich ones. If poor and rich countries differ only by their
initial level of per capita GDP and they face identical technology and preferences,

then, inequality eventually dis appears in the long-run. If countries differ in other
aspects too, then convergence takes the form of the stabilization of the distribution of
relative income per capita across territories European Union was created with this
basic principle in mind.
The EU operates through a hybrid system in certain areas it depends upon
agreement between the member states. However, it also has supranational bodies, able
to make decisions without unanimity between all national governments. Important
institutions and bodies of the EU include the European Commission, the European
Parliament, the Council of the European Union, the European Council, the European
Court of Justice and the European Central Bank. EU citizens elect the Parliament
every five years.
The EU traces its origins to the European Coal and Steel Community formed among
six countries in 1951 and the Treaty of Rome in 1957. Since then the union has grown
in size through the accession of new countries, and new policy areas have been added
to the remit of the EU institution.
By making conditions equal across Europe, EU will be able to bridge the gap between
the rich and poorer nations. Over the last twelve years, EU has tried to create equal
opportunities for the poorer nations and we try to find out if it helped poorer nations
get richer and closer to rich nations in terms of GDP per capita as well as in terms of
absolute amount of GDP.
It is necessary to evaluate if EU delivered growth to member nations by creating equal
conditions in terms of lower inflation through monetary policy coordination and lower
budgetary deficits, lower currency volatility through single currency, promotion of
democratic institutions through respect for human rights and peace on borders of the
participating nations.

ORGANIZATION :

The following is the organizational set up of the EU:

European Council
This consists of one minister from each member country. Its decision is taken by
unanimous or majority voting. The Presidency of the Council is held by each
member country by rotation for six monthly periods. The council has its own
secretariat with the Committee of Permanent Representatives (Coreper) as a most
important body. Members of Coreper are officials of ambassadorial rank who are
assisted by a number of specialist and subordinate committees. All major policymaking decisions of the Community, ranging from early discussions to decision
taking by the Council, are made by Coreper. It is also essential link between the
EEC and member governments. Thus the Council is the executive agent of the
Community making daily decisions, formulating rules of conduct, preparing new
legislation, and providing members to carry out the provisions of the Treaty."

European Commission
The Council is assisted in its work by the European Commission. This consists of
20 Commissioners, two each from the 5large countries and one each from the
small. This is the executive body of EC whose members are appointed for period
of four years with renewable appointments. The President and Vice-Presidents are
chosen from its members by governments for a two-year renewable period. The
Commission has its own staff of over ten thousand civil servants, including
translators and interpreters. It administers existing treaties and their subsequent
rules and proposes new policies.

Court of Justice
The court of justice adjudicates disputes relating to agriculture, competition policy
and social security foe migrant among the member countries. It also decides about
cases brought by the Commission against member states or against the Council or
Commission or by a firm or person against a Community decision. It also

10

interprets the Treaty and other regulations, and levies penalties for infringements.
Member states are bound by the Treaty of Rome to comply with the judgement of
the Court.

Court of Auditors
It audits the Community budget, monitors its expenditure thoroughly and lays
down better producers for the collection of duties and levies.

European Parliament
Constituencies in the member countries elect MEPs (Member of European
Parliament). Their role is of a general consultative and informative nature. But it
has the power to approve or reject the draft budget prepared by the commission. It
can also dismiss the Commission. It must be consulted by the Council before a
final decision is taken. The Parliament usually acts through the main
Parliamentary Committee.

Advisory Institutions
Advisory institutions include the Economic and Social Committee, the Monetary
Committee and the Consultative Committee on coal and steel industry.

11

Benefits of European Union

Some of the Benefits of the European Union include:

Peace amongst Nations

European Union countries are no longer at loggerheads like they were in the past.
Europe has managed to heal the divisions which were so painfully exposed in the two
World wars in the Twentieth Century Economic development of countries like
Portugal, Ireland and Spain, and after fall of Berlin Wall, Eastern European is
achieved by EU.

Free trade
Free trade and removal of non-tariff barriers have helped reduce costs and prices for
consumers. Over 60% of UK exports are to the EU. Trade within the EU has
increased 30% since 1992.

Environmental Treaties
Environmental treaties which have sought to deal with European wide environmental
problems such as acid rain, global warming, e.g. Commitment to use 20% renewable
energy.

Free mobility
Free movement of labour and capital has helped create more flexible economy e.g.,
UK and Ireland have benefited from immigration of Eastern European worker. EU has
enabled people to travel freely across national boundaries making trade and tourism
easier and cheaper Easier to use qualification in different member countries. This
makes it easier to work abroad without having to retraining national qualifications.

Modernization
Prospect of membership has helped modernized Turkey. Copenhagen Criteria
enshrine commitment to human rights, rule of law and market economy.
12

Strongest economies areas

EU is one of strongest economy area. It accounts for 20% of world GDP, from 65 of
worlds population.

Reduce costs
Mutual recognition of safety standard and rules has helped reduce cost for firm. These
have encouraged the development of small and medium business that realize on low
cost of export.

Nature of the European Union

The classification of the European Union in terms of international or constitutional

law has been much debated, often in the light of the degree of integration that is
perceived, desired, or expected. Historically, at least, the EU is an international
organization, and by some criteria, it could be classified as a confederation; but it also
has many attributes of a federation, so some would classify it as a (de facto)
federation of states. For this reason, the organization has, in the past, been termed sui
generis (incomparable, one of a kind), though it is also argued that this designation is
no longer true.

The organization itself has traditionally used the terms "community", and later
"union". The difficulties of classification involve the difference between national law
(where the subjects of the law include natural persons and corporations) and
international law (where the subjects include sovereign states and international
organizations); they can also be seen in the light of differing European and American
constitutional traditions. Especially in terms of the European constitutional tradition,
the term federation is equated with a sovereign federal state in international law; so
the EU cannot be called a federal state or federationat least, not without

13

qualification. Though not, strictly, a federation, it is more than a free-trade

association. It is, however, described as being based on a federal model or federal in
nature. Walter Hallstein, in the original German edition of Europe in the
Making called it "an unfinished federal state. The German Constitutional Court
refers to the European Union as an association of sovereign states and affirms that
making the EU a federation would require replacement of the German constitution.
Others claim that it will not develop into a federal state but has reached maturity as
an international organization.

14

OBJECTIVES
The European Union (EU) is a political community constituted as an international
organization whose aim is to promote integration and a common government of the
European people and countries.According to the Article 3 of the European Union
Treaty, Unions aim is to promote peace, its values and the well-being of
its peoples. It is based on the values of freedom, democracy, equality, law
enforcement and respect for human rights and dignity.

The Unions mission:

- Establishing an area of freedom, security and justice without internal borders.

- Developing an internal market where competition is free, within the framework of

a social economy market whose aim is full employment.

- Creating a sustainable development with an economic growth capable of fulfilling

the well-being needs of our society in the short, medium and, especially, long term.Promoting scientific and technical progress.- Fighting against social exclusion and
discrimination. Promoting social justice and protection, equality between women
and men, solidarity between generations and, protection of childrens rights.Promoting economical, social and territorial cohesion and solidarity among Member
States.

Also, the European Union aims to respect its cultural richness and
linguistic diversity (23 official languages) and, to ensure the conservation and
development of European cultural heritage.The EC consists of three organization
based on their separate treaties originally signed by the six member states: first, the
ECSC set up by the Treaty of Paris in 1951, valid for 50 years; second, the EC by the
Treaty of Rome in 1957 of unlimited duration; and third, the European Atomic Energy
Community (Euratom) by the Second Treaty of Rome in 1957, also of unlimited
15

duration. The first Treaty was already in operation from July 1952 and the other two
came into force from January 1958. The Single European Act of 1986 led to the
formation of a single internal market in the EC. The objectives of the Community
include:

The elimination, between Member States, of custom duties and of quantitative

restrictions in regard to the import of and export of goods, as well as all other
measures having equivalent effect;

The establishment of a common customs tariff and of a common commercial

policy towards third countries.

The abolition, between Member States, of obstacles of freedom of movement for

persons, services and capital;

The establishment of a common policy in the sphere of agriculture;

The adoption of a common policy in the sphere of transport;

The establishment of a system ensuring that competition in the common market is

not distorted;

The application of procedures by which the economic policies of Member States

can be coordinated and disequilibrium in their balance of payments can be
remedied;

The approximation of the laws of Member States to the extent required for proper
functioning of the common market;

The creation of a European Social Fund on order to improve the possibilities of

employment of workers and to contribute to the raising of their standard of living;

The establishment of a European Investment Bank of facilitate the economic

expansion of the Community by opening up fresh resources; and

The association of overseas countries and territories with a view to increasing

trade and to promoting jointly economic and social development.

16

Thus the principle objective of the EC are the elimination of all obstacles to the
free movement of goods, services, capital and labour between the member
countries, and the establishment of common policies in the spheres of agriculture
and transport, and a common external commercial policy. To make the common
market effective, a variety of national policies relate to competition, fiscal and
regional aids.

WORKING AND ACHIEVEMENTS

The EC has worked towards the creation of a customs union having common external
tariff and no internal tariffs. It has also been following certain common economic
policies for a common market. They are as follows:

Custom Union:
The principle objective of the EC was the creation of a custom union. To achieve this,
the Treaty of Rome provided 12 years for the elimination of internal tariff and other
trade barriers, and the adoption of a common external tariff for the industrial goods.
Both these goals were achieved on 1 July, 1968 and full customs union became a
reality.

Common Agricultural Policy (CAP):

The CAP machinery varies from product to product, but the basic features are the
same. The agricultural support prices for different products are fixed by the Council in
Units of Account. For each member country there is a Green Rate at which the
support prices are converted into national prices. Farmers in all member countries are
free to produce as much as they like at the support prices. Farmers in all member
countries are free to produce as much as they like at the support prices. There are no
trade barriers on the movements of agricultural products from one member country to
another. Imports from the outside world are allowed only if there is excess demand
over domestic production of farm products. To keep imports under check, a variable
imports levy is used that can be raised or lowered thereby completely offsetting and
price advantage enjoyed by importers. In the case of those farm products whose
production exceeds the community requirements, subsidies and provided to finance
their exports or additional consumption within the community.

17

With the adoption of the CAP, the Community has become self-sufficient in
agriculture and another step towards custom union has been achieved. But is has
its failure. First, the CAP has not been able to encourage farmers to seek
alternative occupations, as per the objectives of the Treaty of Rome. Second, it has
made the rich farmers richer but has failed to products to consumers at reasonable
and stable prices because the support prices have seen set at high levels. Finally,
the CAP has led to huge surpluses in the form of the Butter and Beef Mountains;
the wine lakes; earlier on, the grain and sugar surpluses; and more recently the
milk lake. The EC sells them at world market prices.

Common Fisheries Policy:

It covers marketing of fresh frozen and preserved fish. It applies common market
standards and facilitates trading between member countries. It provides equal access
to fishing areas for all EEC nationals, with provisions for certain kinds of offshore
fishing. But this policy has been far from common because it has been based on ad
hoc compromises and concessions for individual member nations.

Factor Mobility:
Workers and their families can move from one member country to another without a
permit, and they have the same taxation as nationals of the concerned country. So far
as capital mobility is concerned, it has been obstructed by international monetary
disturbances. Consequently, capital mobility has not taken place smoothly and easily.

Regional development policy

The regional policy of EC has been mainly concerned with providing financial health
to the backward areas of member countries. It provides regional aid through the
European Investment Bank (EIV), the European Social Fund (ESF), and the European
regional development fund (ERDF). The EIB is a non-profit making institution which
performs 3 important functions. First, it gives loans and guarantees to improve basic
common facilities in the underdeveloped regions of the member countries and
associated countries. Second, it provides financial aid to projects for modernization,
conversion or development that are too large to be handled by individual member
states. Third, it helps finance projects in which member countries have a common

18

interest the (ESF), assist financially the re-employment of workers thrown out of
work as result of E S policies. The ERDF lends and grants money for the development
of the backward region of EC. It makes supplementary grants to help investment in
the industrial and service sectors. It makes investments in infrastructure that creates
new jobs or safeguard existing jobs, and in infrastructure in backward rural area.
Despites this measure, the communitys regional development policy has failed to iron
out income disparities. Rather the disparities between the economics of member
countries have been widening.

EU Funding
The EU provides funding and grants for a broad range of projects and programmes
covering areas such as:
Funding is managed according to strict rules to ensure that there is tight control over
how funds are used and that funds are spent in a transparent, accountable manner.
EU funding is complex, since there are many different types of programmes managed
by different bodies. Over 76% of the EU budget is managed by the member countries.
This includes the structural funds - which finance regional policy, social and training
programmes, as well as agriculture (including support for farmers).

Aim of Community Grants

The commission awards money in the form of grants in order to implement projects or
activities in relation to European Union policies. These grants may be awarded within
fields as diverse as research, education, health, consumer protection, protection of the
environment, humanitarian aid, etc.
Grants for specific projects, usually following a public announcement known as a
'call for proposals'. Part of the funding comes from the EU, part from other sources.
Public contracts to buy services, goods or works to ensure the operations of EU
institutions or programmes. Contracts are awarded through calls for tenders (public

19

procurement) and cover a range of areas: studies, technical assistance and training;
consultancy, conference organisation, IT equipment purchases, etc.
As a group, the 28 EU Commissioners have the ultimate political responsibility for
ensuring that EU funds are spent properly. But because most EU funding is managed
at country level, national governments are responsible for conducting checks and
annual audits.

Grant beneficiary
Small businesses
Can obtain EU funding through grants, loans and guarantees. Grants provide direct
support, while other funding is available through programmes managed at national
level.
Non governmental & civil society organisations
May be eligible for funding, provided they are active in EU policy areas on a non
profit basis.
Young people
Two main types of funding:

Lifelong Learning Programme - study opportunities through Erasmus, support for

school goers nearing the end of secondary education, and vocational training in
another country

Youth in Action Programme - co funding of projects which encourage civic

involvement, volunteer work and a broader multicultural outlook.
Lifelong Learning Programme - funding for education and training Get involved in
the Youth in Action Programme
Researchers

20

Over 53 billion has been made available between 2007 and 2013 for research,
mainly through the seventh framework programme (FP7). Grants are available in the
form of co financing for research related to cooperation, ideas, people, capacities &
nuclear research.
Farmers
Most farmers in the EU are eligible to receive direct payments to support their
income. Farmers must respect standards related to environmental protection, animal
welfare and food safety.
Most support is not linked to production. But under certain conditions, EU countries
may give less money and instead provide support linked to production.
The grant beneficiaries are mainly private or public organization and exceptionally
individuals chosen by the European commission for their capacity to implement the
projects concern.
Grants cover very diverse range of field; the specific conditions that need to be
fulfilled vary from one field to another. It is therefore important to consult carefully
the rules of each grant programme. However, some basic principles apply in every
case.
Grants

Are a form of complimentary financing. The EU does not finance projects upto
100%; only projects taken place outside the European Union have the
possibility to the finance in full.

Enable a given operation to break even financially and cannot lead to a profit
for their beneficiaries;

Cannot be awarded retroactively for actions that are already completed. In

addition, only one grant may be awarded for the same action.

Grants are not awarded on a case by case basis. Instead, they are subject to annual
programming. Before 31st March each year, those Departments of the Commissions
that manage grants programme publish their annual work programme on their internet
sides. The work programme fixes the broad outlines of the grants that are envisaged

21

over the year (area of activity, objectives, timetable, available budget, award
conditions, etc)
Subsequently, the commissions departments publish calls for proposals all their
internet sides; the calls for proposals invite candidates to present, within a given
deadline, a proposal for action that correspondents to the objectives pursued and
fulfills the require conditions. All applications are examine and evaluated on the basis
of criteria that have clearly been announce in the calls for proposals, while ensuring
equal treatment; candidates are individually informed of the final decision concerning
their proposal.
Some grants are exceptionally awarded directly to concern beneficiaries without a call
for proposals. This may be due to their specific competences or characteristics which
meant that they are the sole beneficiaries for certain actions (situation of monopoly),
or to the emergency nature of the action (humanitarian aid in particular).
As grants are made with public money, the European commission applies the
principle of transparency. Thus, by 30th June of each year, the Commission
Departments publish on internet side the list of grants that they awarded during the
previous year, with the exception of those awarded in the form of scholarships to
individuals.

Policy highlights of EU an overview

The Regional policy of the European Union (EU), also referred as Cohesion Policy,
is a policy with the stated aim of improving the economic well-being of regions in the
EU and also to avoid regional disparities. More than one third of the EU's budget is
devoted to this policy, which aims to remove economic, social and territorial
disparities across the EU, restructure declining industrial areas and diversify rural
areas which have declining agriculture. In doing so, EU regional policy is geared
towards making regions more competitive, fostering economic growth and creating
new jobs. The policy also has a role to play in wider challenges for the future,
including climate change, energy supply and globalisation.
The EU's regional policy covers all European regions, although regions across the EU
fall in different categories (so-called objectives), depending mostly on their economic
situation. In the current 20072013 funding period, EU regional policy consists of

22

three objectives: Convergence, Regional competitiveness and employment, and

European territorial cooperation.

Agriculture & environment

Integrating environmental concerns into the Common Agricultural Policy aims to
head of the risk of environmental degradation and enhancing the sustainably of agroecosystems.
Around half the EUs land is farmed. Farming is important of EUs natural
environment. Farming and nature influence each other:

Farming has contributed over the centuries to creating and maintaining the
unique country side. Agricultural land management has been a positive force
for the development of the rich variety of landscape habitats, including a
mosaic of woodlands, wetland, and extensive tracts of an open country side.

The ecological integrity and the scenic value of landscapes make rural areas
attractive for the establishment of enterprises, for places to live, and for the
tourist and recreation businesses.

The links between the richness of the natural environment and farming practices are
complex. Many valuable habitats in Europe are maintained by extensive farming and
a wide range of wild species rely on this for their survival. But inappropriate
agricultural practices and land use can also have an adverse impact on natural
resources, like

Pollution of soil, water and air

Fragmentation of habitats and

Loss of wildlife

The Common Agriculture Policy (CAP) has identified three priority areas for action to
protect and enhance the EUs rural heritage:

Biodiversity and the preservation and development of natural farming and

forestry systems, and traditional agriculture landscapes

Water management and use

23

Dealing with climate change

The CAP ensures that its rules are compatible with environmental requirements and
that CAP measures promote the development of agricultural practices preserving the
environment and safeguarding the countryside. Farmers are encouraged to continue
playing a positive role in the maintenance of the countryside and the environment.
This is achieved by:

Targeting aid at rural development measures promoting environmentally

sustainable farming practices, like agri-environment schemes

Enhancing compliance with environmental laws by sanctioning the nonrespect for these laws by farmers through a reduction in support payment from
the CAP

Promotional measure

Promotion of EU farm products

European Union farm products are unique in their quality and diversity. In an open
global market, merely producing excellent food and drinks not enough. By explaining
to consumers the standards and the quality of what EU agriculture puts on the table,
EU promotional programmes help European producers in an increasingly competitive
world.
Parallel with the CAP reform process, the Commission launched a wide ranging
consultation process with view to defining the contours of a more targeted and
ambitious promotion strategy which makes better use of the considerable resources of
the agriculture and food sector in Europe.
Following the green paper consultation in2011, the Commission adopted a
communication in March 2012 to launch a debate on the future promotion legislative
proposals by the end of 2012.

Access to finance

24

Small businesses often have difficulties financing their growth and innovations. The
European Commission is working with the Member States to stimulate the provision
of loans and venture capital for SMEs.
Getting an innovative firm of the ground or expanding it requires money, but
financing SMEs is a risky proposition for financiers. To solve this, Europe needs more
investors and banks willing to take the risk, and concerns in order to be able to
provide assurances about the soundness of their proposal.

European standards
Standardization is the voluntary process of developing technical specification based
on consensus among all interested parties (industry including Small and Mediumsized Enterprises (SMEs), consumers, trade unions, environmental NonGovernmental Organizations (NGO), public authorities, etc.). It is carried out by
independent standards bodies, acting at national, European and international level.
While the use of standards remains voluntary, the European Union has, since the mid1980s, made an increasing use of standards in support of its policies and legislation.

Industrial competitiveness
The performance of European industry is closely linked with its competitiveness,
which refers to the competitive position in the world market. This competitive
performance is influenced by the business environment, which turn is created by the
regulatory framework both at national and European level.
A strong, competitive and diversify industrial manufacturing value chain is vital for
economic well-being in Europe. A competitive industry can lower costs and prices,
create new products and improve quality, thus contributing to wealth and job
creation and productivity growth throughout the economy. Manufacturing industry
and the associated business services (industrial base) account for more than505 of
private sector employment; 75% of export, and 80% of private R&D in the EU. Many
services industries such as transport, health and Information and Communication
Technology (ICT) depend on competitive industry to produce the equipment and
hardware which they use. Consequently, a strong and competitive industrial base is
25

essential for growth jobs as well as restoring sustainability to the EU economy.

Industry is also a key source of innovation and solutions requires meeting the societal
challenges facing the EU.

Industrial innovation
In a remarkably short time, economic globalization has changed the worlds economic
order, bringing with it new challenges and opportunities. Europe cannot compete in
this new environment unless it becomes more innovative and responds more
effectively to consumers needs and preferences.
The European Union possesses extraordinary potential for innovation. Europe has a
longstanding tradition of producing breakthrough inventions; it has a wealth of
creative people and can build on its culture diversity. It has laid the foundations for
one of the largest single markets in the world, where innovative products and services
may be commercialized on a large scale. Historically it has a strong and responsible
public sector, which should be capitalized on.

International affairs
One of the key objectives of is to ensure that the Commissions policies make
European enterprises more competitive, thus stimulating economic growth and
creating more jobs.
This strategy for growth and jobs, Europe 2020, not only looks inwards at the EU
(aiming to make Europe a more attractive place in which to live and work), but also
has an external dimension: to ensure that EU companies can compete fairly in the
global marketplace, by opening up markets and further liberalizing trade.

26

ECONOMY
The EU has established a single market across the territory of all its members. 17
member states have also joined a monetary union known as the Eurozone, which uses
the Euro as a single currency. In 2012 the EU had a combined GDP of 16.073
trillion international dollars, a 20% share of the global gross domestic product (in
terms of purchasing power parity). According to Credit Suisse Global Wealth Report
2012 (September), the EU owns the largest net wealth in the world; it is estimated to
equal 30% of the $223 trillion global wealth.
Of the top 500 largest corporations measured by revenue (Fortune Global 500 in
2010), 161 have their headquarters in the EU. In 2007, unemployment in the EU stood
at 7% while investment was at 21.4% of GDP, inflation at 2.2%, and current account
balance at 0.9% of GDP (i.e., slightly more import than export). In 2012,
unemployment in the EU stood, per August 2012, at 11.4%
There is a significant variance for GDP (PPP) per capita within individual EU states,
this range from 11,300 to 69,800 (about US$15,700 to US$97,000). The difference
between the richest and poorest regions (271 NUTS-2 regions of the Nomenclature of
Territorial Units for Statistics) ranged, in 2009, from 27% of the EU27 average in the
region of Severozapaden in Bulgaria, to 332% of the average in Inner London in the
United Kingdom. On the high end, Inner London has 78,000 PPP per capita,
Luxembourg 62,500, and Bruxelles-Cap 52,500, while the poorest regions,
are Severozapaden with 6,400 PPP per capita, Nord-Est with 6,900 PPP per
capita, Severen tsentralen with 6,900 and Yuzhen tsentralen with 7,200.
Structural Funds and Cohesion Funds are supporting the development of
underdeveloped regions of the EU. Such regions are primarily located in the states
of central and southern Europe. Several funds provide emergency aid, support for
27

candidate members to transform their country to conform to the EU's standard

(Phare, ISPA, and SAPARD), and support to the former USSR Commonwealth of
Independent States (TACIS). TACIS has now become part of the
worldwide EuropeAid programme. EU research and technological framework
programmes sponsor research conducted by consortia from all EU members to work
towards a single European Research Area.

Internal market
Two of the original core objectives of the European Economic Community (EEC)
were the development of a common market offering free movement of goods, service,
people and capital (see below). Free movement of goods was established in principle
through the customs union between its then-six member states.
However the EEC struggled to enforce a single market due to the absence of strong
decision making structures. It was difficult to remove intangible barriers with mutual
recognition of standards and common regulations due to protectionist attitudes.
In the 1980s, when the economy of the EEC began to lag behind the rest of the
developed world, the Delors Commission took the initiative to attempt to relaunch the
common market, publishing a White Paper in 1985 identifying 300 measures to be
addressed in order to complete a single market. The White Paper which was well
received and led to the adoption of the Single European Act, a treaty which reformed
the decision making mechanisms of the EEC and set a deadline of 31 December 1992
for the completion of a single market. In the end, it was launched on 1 January 1993.
The new approach, pioneered by the Delors Commission, combined positive and
negative integration, relying upon minimum rather than exhaustive harmonisation.
Negative integration consists of prohibitions imposed on member states of
discriminatory behaviour and other restrictive practices. Positive integration consists
in approximation of laws and standards. Especially important (and controversial) in
this respect is the adoption of harmonising legislation under Article 114 of the TFEU.
The Commission also relied upon the European Court of Justice's Cassis de Dijon
jurisprudence, under which member states were obliged to recognise goods which had
been legally produced in another member state, unless the member state could justify

28

the restriction by reference to a mandatory requirement. Harmonisation would only be

used to overcome barriers created by trade restrictions which survived the Cassis
mandatory requirements test, and to ensure essential standards where there was a risk
of a race to the bottom. Thus harmonisation was largely used to ensure basic health
and safety standards were met.
By 1992 about 90% of the issues had been resolved[6] and in the same year the
Maastricht Treaty set about to create Economic and Monetary Union as the next stage
of integration. Work on freedom for services did take longer, and was the last freedom
to be implemented, mainly through the Posting of Workers Directive (adopted in
1996) and the Directive on services in the internal market (adopted in 2006).
In 1997 the Amsterdam Treaty abolished physical barriers across the internal market
by incorporating the Schengen Area within the competences of the EU. The Schengen
Agreement implements the abolition of border controls between most member states,
common rules on visas, and police and judicial cooperation.
Two of the original core objectives of the European Economic Community were the
development of a common market, subsequently renamed the single market, and
a customs union between its member states. The single market involves the free
circulation of goods, capital, people, and services within the EU, and the customs
union involves the application of a common external tariff on all goods entering the
market. Once goods have been admitted into the market they cannot be subjected to
customs duties, discriminatory taxes or import quotas, as they travel internally. The
non-EU member states of Iceland, Norway, Liechtenstein and Switzerland participate
in the single market but not in the customs union. Half the trade in the EU is covered
by legislation harmonized by the EU.
Free movement of capital is intended to permit movement of investments such as
property purchases and buying of shares between countries. Until the drive
towards economic and monetary union the development of the capital provisions had
been slow. Post-Maastricht there has been a rapidly developing corpus of ECJ
judgments regarding this initially neglected freedom. The free movement of capital is
unique insofar as it is granted equally to non-member states.
The free movement of persons means that EU citizens can move freely between
member states to live, work, study or retire in another country. This required the

29

lowering of administrative formalities and recognition of professional qualifications

of other states.
The free movement of services and of establishment allows self-employed persons to
move between member states to provide services on a temporary or permanent basis.
While services account for 6070% of GDP, legislation in the area is not as developed
as in other areas. This lacuna has been addressed by the recently passed Directive on
services in the internal market which aims to liberalize the cross border provision of
services. According to the Treaty the provision of services is a residual freedom that
only applies if no other freedom is being exercised.

Competition

Further information: European Union competition law and European Commissioner

for Competition
The EU operates a competition policy intended to ensure undistorted competition
within the single market. The Commission as the competition regulator for the single
market is responsible for antitrust issues, approving mergers, breaking up cartels,
working for economic liberalization and preventing state aid.
The Competition Commissioner, currently Joaqun Almunia, is one of the most
powerful positions in the Commission, notable for the ability to affect the commercial
interests of trans-national corporations.[155] For example, in 2001 the Commission for
the first time prevented a merger between two companies based in the United States
(GE and Honeywell) which had already been approved by their national
authority. Another high-profile case against Microsoft, resulted in the Commission
fining Microsoft over 777 million following nine years of legal action.

Monetary union

The creation of a European single currency became an official objective of the

European Economic Community in 1969. However, it was only with the advent of
the Maastricht Treaty in 1993 that member states were legally bound to start
the monetary union no later than 1 January 1999. On this date the euro was
duly launched by eleven of the then 15 member states of the EU. It remained an
30

accounting currency until 1 January 2002, when euro notes and coins were issued and
national currencies began to phase out in the eurozone, which by then consisted of 12
member states. The eurozone (constituted by the EU member states which have
adopted the euro) has since grown to 17 countries, the most recent being Estonia
which joined on 1 January 2011.
All other EU member states, except Denmark and the United Kingdom, are legally
bound to join the euro when the convergence criteria are met, however only a few
countries have set target dates for accession. Sweden has circumvented the
requirement to join the euro by not meeting the membership criteria.
The euro is designed to help build a single market by, for example: easing travel of
citizens and goods, eliminating exchange rate problems, providing price transparency,
creating a single financial market, price stability and low interest rates, and providing
a currency used internationally and protected against shocks by the large amount of
internal trade within the eurozone. It is also intended as a political symbol of
integration and stimulus for more. Since its launch the euro has become the
second reserve currency in the world with a quarter of foreign exchanges reserves
being in euro. The euro, and the monetary policies of those who have adopted it in
agreement with the EU, is under the control of the European Central Bank (ECB).
The ECB is the central bank for the eurozone, and thus controls monetary policy in
that area with an agenda to maintain price stability. It is at the centre of the European
System of Central Banks, which comprehends all EU national central banks and is
controlled by its General Council, consisting of the President of the ECB, who is
appointed by the European Council, the Vice-President of the ECB, and the governors
of the national central banks of all 28 EU member states. The monetary union has
been shaken by the European sovereign-debt crisis since 2009.

Energy

In 2006, the EU-27 had a gross inland energy consumption of 1,825 million tonnes of
oil equivalent (toe). Around 46% of the energy consumed was produced within the
member states while 54% was imported. In these statistics, nuclear energy is treated
as primary energy produced in the EU, regardless of the source of the uranium, of
which less than 3% is produced in the EU.
31

The EU has had legislative power in the area of energy policy for most of its
existence; this has its roots in the original European Coal and Steel Community. The
introduction of a mandatory and comprehensive European energy policy was
approved at the meeting of the European Council in October 2005, and the first draft
policy was published in January 2007.
The EU has five key points in its energy policy: increase competition in the internal
market, encourage investment and boost interconnections between electricity grids;
diversify energy resources with better systems to respond to a crisis; establish a new
treaty framework for energy co-operation with Russia while improving relations with
energy-rich states in Central Asia and North Africa; use existing energy supplies more
efficiently while increasing renewable energy commercialization; and finally increase
funding for new energy technologies.
The EU currently imports 82% of its oil, 57% of its natural gas and 97.48% of its
uranium demands. There are concerns that Europe's dependence on Russian energy is
endangering the Union and its member countries. The EU is attempting to diversify
its energy supply.

Infrastructure

The EU is working to improve cross-border infrastructure within the EU, for example
through the Trans-European Networks (TEN). Projects under TEN include
the Channel Tunnel, LGV Est, the Frjus Rail Tunnel, the resund Bridge,
the Brenner Base Tunnel and the Strait of Messina Bridge. In 2001 it was estimated
that by 2010 the network would cover: 75,200 kilometres (46,700 mi) of roads;
78,000 kilometres (48,000 mi) of railways; 330 airports; 270 maritime harbours; and
210 internal harbours.
The developing European transport policies will increase the pressure on the
environment in many regions by the increased transport network. In the pre-2004 EU
members, the major problem in transport deals with congestion and pollution. After
the recent enlargement, the new states that joined since 2004 added the problem of
solving accessibility to the transport agenda. The Polish road network in particular
was in poor condition: at Poland's accession to the EU, a number of roads needed to
be upgraded, particularly the A4 autostrada, requiring approximately 13 billion.
32

The Galileo positioning system is another EU infrastructure project. Galileo is a

proposed Satellite navigation system, to be built by the EU and launched by
the European Space Agency (ESA), and is to be operational by 2012. The Galileo
project was launched partly to reduce the EU's dependency on the USoperated Global Positioning System, but also to give more complete global coverage
and allow for far greater accuracy, given the aged nature of the GPS system. It has
been criticized by some due to costs, delays, and their perception of redundancy given
the existence of the GPS system.

Agriculture

Common Agricultural Policy (CAP) is one of the oldest policies of the European
Community, and was one of its core aims. The policy has the objectives of increasing
agricultural production, providing certainty in food supplies, ensuring a high quality
of life for farmers, stabilizing markets, and ensuring reasonable prices for
consumers. It was, until recently, operated by a system of subsidies and market
intervention. Until the 1990s, the policy accounted for over 60% of the then European
Community's annual budget, and still accounts for around 34%.
The policy's price controls and market interventions led to considerable
overproduction, resulting in so-called butter mountains and wine lakes. These
were intervention stores of produce bought up by the Community to maintain
minimum price levels. To dispose of surplus stores, they were often sold on the world
market at prices considerably below Community guaranteed prices, or farmers were
offered subsidies (amounting to the difference between the Community and world
prices) to export their produce outside the Community. This system has been
criticized for under-cutting farmers outside of Europe, especially those in
the developing world.
The overproduction has also been criticized for encouraging environmentally
unfriendly intensive farming methods.[182] Supporters of CAP say that the economic
support which it gives to farmers provides them with a reasonable standard of living,
in what would otherwise be an economically unviable way of life. However, the EU's
small farmers receive only 8% of CAP's available subsidies.

33

Since the beginning of the 1990s, the CAP has been subject to a series of reforms.
Initially these reforms included the introduction of set-aside in 1988, where a
proportion of farm land was deliberately withdrawn from production, milk quotas (by
the McSharry reforms in 1992) and, more recently, the 'de-coupling' (or
disassociation) of the money farmers receive from the EU and the amount they
produce (by the Fischer reforms in 2004). Agriculture expenditure will move away
from subsidy payments linked to specific produce, toward direct payments based on
farm size. This is intended to allow the market to dictate production levels, while
maintaining agricultural income levels. One of these reforms entailed the abolition of
the EU's sugar regime, which previously divided the sugar market between member
states and certain African-Caribbean nations with a privileged relationship with the
EU.

Environment

1957 when the EU was founded, it had no environmental policy, no environmental

bureaucracy, and no environmental laws. Today, the EU has some of the most
progressive environmental policies of any state in the world. The environmental
policy of the EU has therefore developed in remarkable fashion in the past four
decades. An increasingly dense network of legislation has emerged, which now
extends to all areas of environmental protection, including: air pollution control; water
protection; waste management; nature conservation; and the control of chemicals,
biotechnology and other industrial risks. The Institute for European Environmental
Policy estimates the body of EU environmental law amounts to well over 500
Directives, Regulations and Decisions. Environmental policy has thus become a core
area of European politics.
Such dynamic developments are surprising in light of the legal and institutional
conditions which existed in the late 1950s and 60s. Acting without any legislative
authority, European policy-makers initially increased the EU's capacity to act by
defining environmental policy as a trade problem. The most important reason for the
introduction of a common environmental policy was the fear that trade barriers and
competitive distortions in the Common Market could emerge due to the different
environmental standards. However, in the course of time, EU environmental policy

34

emerged as a formal policy area, with its own policy actors, policy principles and
procedures. The legal basis of EU environmental policy was not more explicitly
established until the introduction of the Single European Act in 1987.
Initially, EU environmental policy was rather inward looking. More recently,
however, the Union has demonstrated a growing leadership in global environmental
governance. The role of the EU in securing the ratification and entry into force of the
Kyoto Protocol in the face of US opposition is an example in this regard. This
international dimension is reflected in the EU's Sixth Environmental Action
Programme, which recognizes that its strategic objectives can only be achieved if a
series of key international environmental agreements are actively supported and
properly implemented both at an EU level and worldwide. The entry into force of the
Lisbon Treaty further strengthens the EU's global environmental leadership
ambitions. The vast body of EU environmental law which now exists has played a
vital role in improving habitat and species protection in Europe as well as contributed
to improvements in air and water quality and waste management. However,
significant challenges remain, both to meet existing EU targets and aspirations and to
agree new targets and actions that will further improve the environment and the
quality of life in Europe and beyond.
One of the top priorities of EU environmental policy is combatting climate change. In
2007, member states agreed that the EU is to use 20%renewable energy in the future
and that it has to reduce carbon dioxide emissions in 2020 by at least 20% compared
to 1990 levels. This includes measures that in 2020, 10% of the overall fuel quantity
used by cars and trucks in EU 27 should be running on renewable energy such
as biofuels. This is considered to be one of the most ambitious moves of an important
industrialized region to fight climate change.

Economic issues of EU development policy

The EU is the most important donor of development aid in the world and is
committed to further increase its contributions. But aid alone will not be sufficient to
reduce poverty in a sustained way. Policies need to be put in place to overcome

35

shortcomings in governance, trade regimes and geography location, and to make best
use of the opportunities arising from the globalization.
As the worlds largest donor of Official Development Aid (ODA), the EU is leading
the debate on financing for development. The EU has committed itself to reducing a
share of ODA to Gross National Income (GNI) amounting to 0.7% by 2015. In spring
each year, the Commission presents an Accountability Report which monitors the
implementation of EU commitments on financing for development made in the
context of the Monterrey Consensus and the Doha Declaration. Since 2011, this report
also includes information on the implementation of EU commitment on fast-start
climate finance.

Europe Aid Development and Corporation (EADC)

Innovative sources of finance
The European Union and its Member States are global leaders in innovative
finance for areas such as the financial sector, climate change or development. The
Commission regularly informed the debate in the EU by preparing assessments of the
potential of innovative sources of financing.

Relieving debt
The European Union and its Member States participate in the debt-relief initiative for
the Heavily Indebted Poor Countries, the so-called HIPCs. The main objective of this
initiative is to bring these countries debt burdens to sustainable levels, subject to
satisfactory policy performance, so as to ensure that adjustment and reform efforts are
not put at risk by continued high debt and debt service burdens. Although the HIPC
initiative ended in 2006, countries that were eligible can still benefit from it. The
European Union contributed more than 1.6billion to the HIPC initiative. EU Member
States also contributed to the Multilateral Debt Relief Initiative (MDRI) to cancel in
full eligible HIPCs debt to the World Bank, IMF and African Development Bank.

Globalization and Development

Developing countries have participated in globalization to varying degrees. Asia and
Latin America have increased their shares in global trade and capital flows

36

dramatically since 1980, whereas sub-Saharan Africa shares have fallen. Tariff
barriers in developing countries have come down, although non-tariff barriers remain
high. FDI inflows remain concentrated on only a few large emerging markets, notably
in East Asia and Latin America. Remittances and development aid are important
sources of external financing in many developing countries, while the outflows from
debt service have decreased. A new trend is also in the increasing South-South flows.

Supporting effective trade

The empirical literature generally supports the view that globalization trends to be
associated with higher growth. However, it also shows that trade is a necessary but
not a sufficient condition for growth and development. Economic and social policies,
institutions and geography, and public and private investment are important additional
factors in determining whether countries are able to fully benefit from trade
opportunities. For these reasons, the Europeans Union attaches the highest importance
to making sure that countries receiving EU aid have high-quality development plans
and are improving their institutions and governance systems. While respecting
country ownership, experts in the different Commission departments and Delegations
help define implement country and regional strategies for delivering Community aid.

Climate finance
Advanced economies committed to mobilize USD 30billion (fast-start) for the
period 2010 2012 and USD 100billion per year by 2020to enable and support
climate relevant action in developing countries. The EU committed to mobilize 7.2
billion of Fast-Start Finance (FSF) and to annually report on its actions. ECFIN
services in coordinate with services from other relevant Directorate Generals
coordinate the monitoring and reporting of climate finance EU Member States and the
European Commission are mobilizing.

37