What is the European Union (EU)?
The European Union (EU) is a unified international organization that governs the economic, political, and social policies of 27 member states. Originally formed with the desire to achieve peace in Europe, current EU policies are tailored to ensure the free movement of people, goods, services, and capital among its member states.
- The European Union (EU) is a unified organization of 27 member states, with authority over their political, economic, and social policies.
- The EU aims to ensure peace, encourage free trade, and tailor policies to work towards the benefit of its members.
- It functions as a single unit in international trade, making it the largest trading power in the world.
Brief History of the European Union
The European Union was built with the aim of ending frequent wars among neighboring countries following the Second World War. In 1951, the European Coal and Steel Community (ECSC) started uniting nations to achieve peace.
The six founding countries of the EU are:
The Treaty of Rome was signed in 1957, creating the European Economic Community, or a “common market.” It was followed by a period of economic growth – a result of lowering trade restrictions among member states.
The EU experienced continued expansion ever since, with the fall of communism and the Berlin Wall supporting a closer-knit Europe. In 1993, the “Single Market” agreement was completed, allowing four types of freedoms – the movement of goods, services, people, and money.
As more members joined the EU, it grew from a community of six member states to 27 member states.
Membership of the European Union
To be a part of the EU, applicant countries must meet certain conditions, known as the “Copenhagen criteria.” The key criteria are listed below:
- Stable institutions guaranteeing the rule of law, democracy, human rights, and respect for and protection of minorities;
- A functioning market economy and the capacity to cope with market forces and competition in the EU;
- The ability to take on and implement effectively the obligations of membership, including adherence to the aims of economic, political, and monetary union.
Following the exit of the United Kingdom in early 2020, there are now 27 remaining member states of the EU.
Governing Institutions of the European Union
The European Union oversees three main institutions that are involved in legislation:
1. European Parliament
The European Parliament is elected by the EU’s citizens and is responsible for law-making, supervision, and budget establishment.
2. Council of the European Union
Represents the governments of each of the EU’s member states, with one minister from each state. Responsible for coordinating policies, adopting EU laws, and voicing the opinion of member states.
3. European Commission
The EU’s politically independent executive arm, responsible for proposing and enforcing legislation, managing policies, allocating budgets, and representing the EU internationally.
Trade within the European Union
The EU is the largest trading power and the largest single-market area in the world. In 2019, the EU posted a GDP of $15.59 trillion, only behind the United States in terms of economic size.
Free trade within the EU was one of the union’s foundational rules. Trade among member states is completely free, allowing the exchange of goods and services across borders without any tariffs or quotas.
The European Union and International Trade
Besides free trade among member states, the EU also promotes the concept of open economies in foreign trade. The EU also signed several trade agreements with a number of countries, including:
- EU-Canada Agreement (CETA)
- EU-Japan Agreement
- EU-Singapore Agreement
- EU-Australia Agreement
With each trade agreement, the EU aims to either cut or remove tariffs, making the cross-border flow of goods and services easier for exporters and importers.
The EU’s top 10 trading partners:
- United Kingdom
- South Korea
In 2019, the EU’s five largest exports were:
- Machinery and Equipment (276.8bn euros)
- Automobiles (241.2bn euros)
- Pharmaceuticals (205.2bn euros)
- Chemicals (177.7bn euros)
- Computers, electronics, and optical products (171.7bn euros)
The EU’s five biggest imports were:
- Computers, electronics, and optical products (260.2bn euros)
- Crude petroleum and natural gas (249.6bn euros)
- Chemicals (132.4bn euros)
- Machinery and equipment (124.8bn euros)
- Automobiles (114.6bn euros)
In addition, countries in the EU are the largest importers of cocoa beans, which explains the Netherlands and Germany’s prowess in the chocolate industry and the high per-capita chocolate consumption across Europe.
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.
To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below: