The European Union (EU)

EU pictureThe EU is the world’s largest trading bloc, and second largest economy, after the USA. In 2014 the value of the EU's output totalled $18.5 trillion*. The five largest Economies, Germany, France, the United Kingdom, Italy and Spain, account for around 70% of the 28-country trading bloc.

*Sources: IMF; Eurostat

The EU was originally called the Economic Community (Common Market, or The Six) after its formation following the Treaty of Rome in 1957. The original six members were Germany, France, Italy, Belgium, Netherlands, and Luxembourg. Since then the EU has undergone extensive and continuous enlargement.

History of EU

Video courtesy of The Economist

The initial aim of the EU was to create a single ('common') market for goods, services, capital, and labour by eliminating all barriers to trade and hence promoting free trade between members.

In terms of dealing with non-members, common tariff barriers were erected against cheap imports, such as those from Japan, whose goods prices were artificially low because of the undervalued yen.

By 2014, following continuous enlargement, the EU had 28 members. Croatia was the latest country to join, in July 2013.

EU Membership 2016

Austria

Germany

Norway

Belgium

Greece

Poland

Bulgaria

Ireland

Portugal

Cyprus

Italy

Romania

Croatia

Latvia

Spain

Czech Rep

Lithuania

Slovenia

Denmark

Luxembourg

Slovakia

Estonia

Malta

Sweden

Finland

Netherlands

UK

France

   

A ‘common market’ is the first significant step towards full economic integration.  For a common market to be successful there must also be a significant level of harmonisation of micro-economic policies, and common rules regarding monopoly power and other anti-competitive practices. There may also be common policies affecting key industries, such as the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP).

Firms inside the bloc are protected from cheaper imports from outside, such as the protection of the EU shoe industry from cheap imports from China and Vietnam.

See: Evaluation of trading blocs

See: Trade creation and trade diversion.

See: EU Sugar Case