The European Union (EU) single market

The EU has developed a single market through a standardised system of laws which apply in all member states, and ensures the free movement of people, goods, services, and capital,[13] including the abolition of passport controls by the Schengen Agreement between 22 EU states.[14] It maintains common policies on trade,[15] agriculture,[16] fisheries and regional development.[17] Sixteen member states have adopted a common currency, the euro, constituting the eurozone.

As a legal personality the EU is able to conclude treaties with countries and enacts legislation in justice and home affairs.[18] It has devised the Common Foreign and Security Policy, thus developing a limited role in European defence and foreign policy. Permanent diplomatic missions of the EU are established around the world and representation at the WTO, G8, G-20 and the United Nations is maintained.

As an international organisation, the EU operates through a hybrid system of supranationalism and intergovernmentalism.[19][20][21] In certain areas, decisions are taken by independent supranational institutions, while in others, they are made through negotiation between member states. Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The European Parliament is elected every five years by EU citizens .

The EU traces its origins from the European Coal and Steel Community formed among six countries in 1951 and the Treaty of Rome formed in 1957 by the same states. Since then, it has grown in size through enlargement, and in power through the addition of policy areas to its remit. The last amendment to the constitutional basis of the EU came into force in 2009 and was the Lisbon Treaty, by virtue of which the Charter of Fundamental Rights of the European Union was elevated to legally binding status.[nb 3]


The member states of the EU retain all powers not explicitly handed to the Union, as in most federations. However in some areas the EU does not have exclusive competence, it only plays a supporting role. In such middle ground member states may enact legislation only where the EU has not, or they may elaborate the laws of the EU. Different competencies may also be used in different ways. For example, on foreign and defence issues the Parliament has a smaller role and the Council decides by unanimity rather than by majority. The distribution of competences in various policy areas between Member States and the Union is divided in the following three categories:

Exclusive competence

Shared competence

Supporting competence

The Union has exclusive competence to make directives and conclude international agreements when provided for in a Union legislative act.

Member States cannot exercise competence in areas where the Union has done so.

The Union can carry out actions to support, coordinate or supplement Member States' actions.

the customs union

the establishing of the competition rules necessary for the functioning of the internal market

monetary policy for the Member States whose currency is the euro

the conservation of marine biological resources under the common fisheries policy

common commercial policy

the internal market

social policy, for the aspects defined in this Treaty

economic, social and territorial cohesion

agriculture and fisheries, excluding the conservation of marine biological resources


consumer protection


trans-European networks


the area of freedom, security and justice

common safety concerns in public health matters, for the aspects defined in this Treaty

the protection and improvement of human health




education, youth, sport and vocational training

civil protection (disaster prevention)

administrative cooperation

See Part I, Title I of the Treaty on the Functioning of the European Union (as amended by the Treaty of Lisbon 2009)

Main article: Economy of the European Union

The EU and the next seven largest economies in the

world by nominal GDP. (IMF, 2009)[107]

Since its origin, the EU has established a single economic market across the territory of all its members. Currently, a single currency is in use between the 16 members of the eurozone.[108][109] If considered as a single economy, the EU generated an estimated nominal gross domestic product (GDP) of US$16.45 trillion (14.794 trillion international dollars based on purchasing power parity) in 2009, amounting to over 21% of the world's total economic output in terms of purchasing power parity,[12] which makes it the largest economy in the world by nominal GDP and the second largest trade bloc economy in the world by PPP valuation of GDP. It is also the largest exporter,[110] and largest importer[111] of goods and services, and the biggest trading partner to several large countries such as China and India.[112][113][114]

161 of the top 500 largest corporations measured by revenue (Fortune Global 500 in 2010) have their headquarters in the EU.[115]

In May 2007 unemployment in the EU stood at 7%[116] while investment was at 21.4% of GDP, inflation at 2.2% and public deficit at −0.9% of GDP.[117] There is a great deal of variance for annual per capita income within individual EU states, these range from US$7,000 to US$69,000.[118]

[edit] Single market

Main article: Single market of the European Union

The European Central Bank in Frankfurt governs the eurozone's monetary policy.

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,[109] 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.[38] Half the trade in the EU is covered by legislation harmonised by the EU.[119]

Free movement of capital is intended to permit movement of investments such as property purchases and buying of shares between countries.[120] 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 judgements 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 citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and recognition of professional qualifications of other states.[121]

The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis. While services account for between sixty and seventy percent 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 liberalise the cross border provision of services.[122] According to the Treaty the provision of services is a residual freedom that only applies if no other freedom is being exercised.

[edit] Monetary union

See also: Euro, Eurozone, and Economic and Monetary Union of the European Union

16 EU countries have introduced the euro as their sole currency.

The creation of a European single currency became an official objective of the EU 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 fifteen member states of the EU. It remained an 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 twelve member states. The eurozone has since grown to sixteen countries, the most recent being Slovakia which joined on 1 January 2009.

All other EU member states, except Denmark and the United Kingdom, are legally bound to join the euro[123] 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.[nb 17]

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.[108] Since its launch the euro has become the second reserve currency in the world with a quarter of foreign exchanges reserves being in euro.[124]

The euro, and the monetary policies of those who have adopted it in agreement with the EU, are under the control of the European Central Bank (ECB).[125] There are eleven other currencies used in the EU[108] with all but two legally obliged to be switched to the euro. A number of other countries outside the EU, such as Montenegro, use the euro without formal agreement with the ECB.[40]

[edit] Budget

Main article: Budget of the European Union

The total expenditure of the European Union in 2006.[126]

The twenty-seven member state EU had an agreed budget of €120.7 billion for the year 2007 and €864.3 billion for the period 2007–2013,[127] representing 1.10% and 1.05% of the EU-27's GNI forecast for the respective periods. By comparison, the United Kingdom's expenditure for 2004 was estimated to be €759 billion, and France was estimated to have spent €801 billion. In 1960, the budget of the then European Economic Community was 0.03% of GDP.[128]

In the 2006 budget, the largest single expenditure item was agriculture with around 46.7% of the total budget.[129] Next came structural and cohesion funds with approximately 30.4% of the total.[129] Internal policies took up around 8.5%. Administration accounted for around 6.3%. External actions, the pre-accession strategy, compensations and reserves brought up the rear with approximately 4.9%, 2.1%, 1% and 0.1% respectively.[129] .

[edit] Competition

Further information: European Community competition law and European Commissioner for Competition

The EU operates a competition policy intended to ensure undistorted competition within the single market.[nb 18] The Commission as the competition regulator for the single market is responsible for antitrust issues, approving mergers, breaking up cartels, working for economic liberalisation and preventing state aid.[130]

The Competition Commissioner, currently Joaquín Almunia, is one of the most powerful positions in the Commission, notable for the ability to affect the commercial interests of trans-national corporations.[131] 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.[132] Another high profile case against Microsoft, resulted in the Commission fining Microsoft over €777 million following nine years of legal action.[133]

In negotiations on the Treaty of Lisbon, French President Nicolas Sarkozy succeeded in removing the words "free and undistorted competition" from the treaties. However, the requirement is maintained in an annex and it is unclear whether this will have any practical effect on EU policy.[134]

[edit] Development