The European Union

The European Union (EU)

The 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.

The UK’s decision to leave the EU, following its referendum vote in June 2016, will have a considerable impact on the overall value of the EU’s output, as well as triggering a period of uncertainty during the exit negotiations to create a new trade relationship.

See also:

Brexit

Brexit speech

Brexit update

*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, despite Brexit, 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.

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