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The European Union - Notes

Index for introductory notes on the European Union.EU logo

The European Union

This set of notes on key aspects of the EU cover regional policy, the Single Market, the euro, reform and enlargement. Further notes will be coming soon - to be notified of these, please subscribe to the Biz/ed mailing list.

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Introduction to European Union

 What is the EU?

The European Union (EU) is the organisation which integrates the countries listed below, both politically and economically. It is a customs union, which is an agreement amongst a group of countries to eliminate trade barriers between them on the movement of goods, services, labour and capital, and also to establish a common external tariff on goods and services coming into the union. The EU evolved from the European Coal and Steel Community (ECSC), which was formed in 1951 as a response to the First and Second World Wars to try to ensure future peace in Europe. This became the European Economic Community (EEC) in 1965, which in turn became the European Union in 1992 following the signing of the Maastricht Treaty.

Europe in 1950
1950 - Belgium, Germany, France, Italy, Luxembourg and the Netherlands agree to form the ECSC.		 Europe in 2004
2004 - The EU consists of 25 Member States, as 10 New Member States joined in May. Bulgaria, Romania and Turkey currently hold applicant status.

Maps courtesy of www.theodora.com/maps used with permission.

 Member States

The EU has 25 Member States. These are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, the United Kingdom and the 'New Member States' which joined in May 2004.

 New Member States

The EU has 10 New Member States which became full members on 1st May 2004. These are Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

 Applicant Countries

There are two countries that are currently negotiating to join the EU by 2007. These are Bulgaria and Romania.

Turkey made an application for membership in 1987, but is not currently negotiating its membership.

Croatia and Macedonia have also applied to join the EU.

More on EU Enlargement...

 Guide to EU Institutions

The three main   political EU institutions are:

  •  The European Parliament is directly elected by citizens of the EU who are represented by Members of the European Parliament (MEPs). There are 626 MEPs, 87 of whom are British. The Parliament makes decisions on legislation and the budget of the EU.
  •  The Council of the European Union is the main decision making body. Together with Parliament, it has the power to make decisions on legislation and the budget of the EU. The Council is also known as the Council of Ministers as a government Minister from each member state attends the Council. The Minister attending varies according to the subject under discussion. For instance, Margaret Beckett, currently Secretary of State for Environment, Food & Rural Affairs, represents the UK at the Agriculture and Fisheries and Environment Councils.
  •  The European Commission proposes legislation to and implements the decisions of the Council and Parliament. It is the civil service institution of the EU. There are twenty Commissioners, two of whom are from the UK - Chris Patten and Neil Kinnock. The President of the Commission is Romano Prodi.
European Council

The Council of the European Union is the EU's main decision-making body. © Jenny Rollo, Stock.Xchng

The two main   financial institutions are:

The euro
  •  The European Central Bank manages the euro, the currency used by 12 of the EU's 15 member states. The Bank sets interest rates for these 12 countries and conducts foreign exchange operations. It also maintains price stability in the euro area by controlling the money supply and monitoring price trends.
  •  The European Investment Bank finances investment projects that promote the objectives of the integration, balanced development and economic and social cohesion of Member States. The Bank raises money on the financial markets, rather than using EU funds. Examples of the Bank's projects range from the building of Phase 3 of the Manchester Metrolink to the upgrading of 100 schools in Bucharest, Romania.

Euro coins. Copyright: "European Commission Audiovisual Library".

 The EU budget

 How is the EU funded?

The EU is funded from four sources of revenue. These sources were set out in what is known as the 'Own Resources Decision', which ensured that the EU has automatic sources of revenue. Each Member State must pay the following:

  • Customs duties. These are derived from tariffs applied to imports from countries outside the EU. Member states may retain 25% of customs duties to take into account the costs of collection.
  • Agricultural levies. These are charged on agricultural imports from countries outside the EU. Member states may retain 25% of customs duties to take into account the costs of collection.
  • VAT-based contributions. These are levied at 0.75% in 2002 and 2003, then 0.5% thereafter.
  • Contributions based on Gross National Product (GNP). This is set at 1.02% for the 2003 budget.

 How is the money spent?

The EU has committed itself to spending just under 100 billion euro in 2003. This budget will be split as follows:

  • 45% on the Common Agricultural Policy (CAP)
  • 34% on Structural Operations (this redistributes wealth from the richer countries to the poorer ones via the EU's regional policy)
  • 9% on External Action (this includes overseas development aid and disaster relief)
  • 7% on Internal Policies (this includes research and development, energy, transport networks and education and training)
  • 5% on Administration
Division of the EU budget

 How much does the UK contribute?

The UK's net contribution for 2002-3 is forecast to be £2.2 billion, followed by £2.4 billion in 2003-4. This figure takes into account revenues to be received from the EU from sources such as the Agriculture Guidance Fund, the Social Fund, and the Regional Development Fund.

Web sites for further research:

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EU Regional Policy

 What is Regional Policy?

The aim of the EU's regional policy is to redistribute funds from the wealthier regions of the EU to the poorer ones. This is carried out as the EU's 'Structural Operations' (34% of the EU budget has been earmarked for this in 2003). 'Structural Operations' are divided into the Structural Funds and the Cohesion Fund.

 Structural Funds

The Structural Funds focus on regional development in all Member States and consist of four strands:

  • The European Regional Development Fund (ERDF) promotes economic and social cohesion within the EU and finances investment leading to the creation of new jobs, infrastructure improvements, local development initiatives and the activities of small and medium-sized businesses.
  • The European Social Fund (ESF) focuses on employment policy and aims to prevent unemployment, develop human resources and promote integration of the labour market.
  • The European Agricultural Guidance and Guarantee Fund (EAGGF - Guidance Section) supports rural development and the improvement of agricultural structures.
  • The Financial Instrument for Fisheries Guidance (FIFG) focuses on the structural reform of the fisheries industry to achieve a sustainable balance between fishery resources and their exploitation.

The Structural Funds have three objectives:

  • Objective 1 supports development in the less prosperous regions, and helps areas that are lagging behind to catch up in their development. The economic signals that highlight these areas are low levels of investment, higher than average unemployment rate, lack of services for businesses and individuals and a poor basic infrastructure.
  • Objective 2 revitalises areas facing structural difficulties. These areas may be rural, urban or dependent on fisheries and may be facing socio-economic difficulties that are often the source of high unemployment.
  • Objective 3 covers the development of human resources, including promoting equal opportunities, modernising systems of training and promoting employment.

The UK will receive £10 billion (approximately 14 billion euro) of Structural Funds in the period 2000-2006. Four areas of the UK qualify for funding under Objective 1 - Merseyside, South Yorkshire, Cornwall, and West Wales and the Valleys. The UK also receives transitional support for Northern Ireland and the Scottish Highlands and Islands. These areas received structural funds in 1994-99 but ceased to qualify in 2000. The transitional funds ensure that a sudden discontinuation of funding does not undo previous work, but consolidates it. Northern Ireland also qualifies for a special programme - PEACE - which supports the Peace Process. The UK also receives funds under Objectives 2 and 3.

Boarded-up shops in Nationalist area of Belfast, N. Ireland

Boarded-up shops in Nationalist area of Belfast, N. Ireland. © Paul Savage, Stock.Xchng

 Cohesion Fund

The Cohesion Fund was set up to improve the environment and develop transport infrastructure in Member States whose GNP per capita was below 90% of the EU average. Since 1993 it has given funds to the same four countries - Greece, Ireland, Portugal and Spain. The Fund has been critical in ensuring that these four countries were ready for the Single Market and Economic and Monetary Union. The Cohesion Fund for the period 2000-06 amounts to 18 billion euro. This money is divided between the four countries as follows:

Spain 61-63.5%
Greece 16-18%
Portugal 16-18%
Ireland 2-6%
Division of the Cohesion Fund

Web sites for further research:

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The Single Market & the euro

 Economic and Monetary Union (EMU)

This is the process, which enabled the introduction of the single currency, the euro. Economic and Monetary Union (EMU) has developed in 3 stages:

The euro
  •   Stage 1 was from July 1990 to December 1993. This removed internal barriers to the free movement of capital within the EU.
  •   Stage 2, beginning in January 1994 set up the European Central Bank (ECB) (or European Monetary Institute as it was then called). This strengthened monetary policy co-ordination and prepared for the establishment of the European System of Central Banks (ESCB).
  •  The final stage started in January 1999 with the irrevocable fixing of exchange rates of the old currencies to the euro, the transfer of monetary policy to the European Central Bank and the introduction of the euro. The use of euro notes and coins in the countries who had agreed to become full members of the euro (the eurozone) came into operation on January 1st 2002. The single monetary policy is now conducted by the Eurosystem (the European Central Bank plus the national central banks of the 12 participating countries).

Euro coins. Copyright: "European Commission Audiovisual Library".

 The Single Market

The Single Market came into effect in January 1993 and works on the basis of four freedoms - the free movement of goods, labour, services and capital throughout the EU. This means, for example, that companies can buy and sell goods without them being subject to barriers to trade, that people can work in any member state with their qualifications recognised, that services such as banking may be used across member states, and that capital and currencies can move freely. All Member States of the EU are part of the Single Market, even if they have not joined the euro.

 What are the opportunities of the Single Market?

  • A wider market is accessible for both producers and consumers - there are over 500 million consumers in the EU following enlargement in May 2004.
  • There is greater competition, which has led to lower prices on certain goods, for instance the liberalisation of air travel has contributed to the introduction of 'no frills' airlines.
  • Consumer protection has increased as EU directives apply across the Single Market, for example the Fourth Motor Insurance Directive makes it easier to make a claim following an accident occurring in another EU country.
  • Common standards on products means that they can be sold in other Member States without retesting. This improves consumer and producer knowledge and leads to greater competition which should, in turn, bring benefits to all.
  • Workers are more mobile and can work with the same rights in other Member States. In theory, this should lead to less disparity in wages across member states and more opportunities for people within the EU to locate jobs.

 What are the threats to the Single Market?

  • Some countries are still protectionist and not implementing in full new single market rules. France and Italy are the worst offenders. For example, Italy has yet to abolish a set of technical rules, which restrict how trailers may be attached to tractors - this has blocked the opportunity for other European trailer manufacturers to enter the market.
  • There are fears of possible cultural differences. For example, if Muslim states join would they be able to adjust their approach to women to meet the standards set by the EU? Should they have to?
  • The opportunities that exist for criminal elements to exploit the single market could cause de-stabilising effects.
  • The disparity between member states could lead to further social and economic problems, particularly in countries that used to be part of the former Soviet bloc where it is acknowledged that they are a long way behind the economic development of existing members. The experience faced by Germany when it united West Germany with the former 'communist' East Germany is a good example of the potential problems that could arise.

 What is the euro?

The euro is the common currency used by 12 of the 25 EU member states. The 3 'old' member states not yet using the euro are Denmark, Sweden and the United Kingdom. The euro was introduced in the 12 participating states on 1 January 2002, replacing their old currencies such as the franc (France) and lira (Italy). This was the third stage of Economic and Monetary Union (EMU), which commenced in the early 1990's. Sweden (September 2003) and Denmark (September 2000) have both held public referenda on whether or not to join the euro, and both have rejected it in favour of keeping the krona and krone respectively.

The new member states which joined in May 2004 have not automatically joined the euro. They will only do so when they have reached the level of economic convergence required by the 'Maastricht' convergence criteria. This includes a high degree of price stability, sustainable government finances, a stable exchange rate, and convergence in long term interest rates. There is no timetable at present for the new member states to join the euro.

The eurozone

The eurozone. Copyright: "European Commission Audiovisual Library".

 Will the UK join the euro?

The Treasury outlined five economic tests in 1997 that need to be met before the UK can adopt the euro. These tests are:

  •   Convergence. Are UK business cycles and economic structures compatible with euro interest rates on a permanent basis? This test looks at whether a single interest rate will be suitable for all Member States using the euro over a sustained period. It looks at what impact an economic disturbance or 'shock' would have on each of the Member States, i.e. whether each economy would react in the same way, and whether or not Members would be vulnerable to country specific shocks. If the latter applies, the government would not consider there to be sufficient convergence for the UK to join.
  •   Flexibility. Is there sufficient flexibility to deal with problems? This test looks at the ability to respond to economic change efficiently and quickly, and at ensuring that shocks do not have long-lasting effects.
  •   Investment. For firms wishing to invest long-term in the UK, would joining the euro create more favourable conditions?
  •   Financial Services. What effect would joining the euro have on the competitive position of the UK's financial services industry, particularly on the City of London's wholesale markets?
  •   Growth, Stability and Employment. Will joining the euro promote higher growth, stability and a long-term increase in jobs?

In June 2003, the government assessed whether the conditions of these tests had been met. They concluded that the first two tests of Convergence and Flexibility had not been met, but that the other three tests of Investment, Financial Services, and Growth, Stability and Employment had been met. Therefore, the government decided that it was not currently in the national interest to join the euro. They announced reforms including a new inflation target, reforms to housing, planning to promote flexibility in the economy, and consultation on a new fiscal regime in order to meet all five economic tests. The Government will report on progress on the economic tests in the Budget of 2004. If the 5 tests are met at that time, it is proposed that the issue would then be put before the British people in a referendum.

 Should the UK join the euro?

 Advantages:

  • Reduction of opportunity cost, which may occur as a result of loss of investment and trade from eurozone countries. Small and medium sized businesses would be able to trade freely in the Single Market, perhaps for the first time.
  • Stability would increase as vulnerability to short term shocks would be reduced, (such as house price and interest rate rises), as would changes in the exchange rate which affect the level of exports.
  • The UK may find it is increasingly sidelined in terms of political decisions within the EU, particularly following enlargement, if it is not a full member in economic terms.
  • It would cut business costs by removing the need to convert from the pound to the euro, and the associated changes in the exchange rate which may unexpectedly cut profits.
  • Businesses will be able to make longer term decisions as unpredictable currency movements would be reduced.
  • Competition would be stimulated, benefiting the consumer as prices throughout Europe would be more 'transparent' - differences could not be masked by changes in the exchange rate.

 Disadvantages:

  • In the present climate, it would be an unpopular decision, with the majority of Britons not being in favour of joining. This may lead to a lack of confidence in the economy. Many worry about the UK losing control over its own economy.
  • The UK would not be able to set its own interest rate. Instead, it would be set by the Central Bank for all eurozone countries. This reduces the government's ability to react to shocks in the market. Any change in the interest rate will benefit the eurozone countries as a whole, which may mean it benefits some countries more than others.
  • Mortgages in the UK are different to those in the rest of Europe. In the UK, there is a high proportion of owner-occupiers with variable rate mortgages. In the rest of Europe, however, there is a higher tendency for long term renting, and those that do have mortgages are on long term fixed rates. Therefore, homeowners in the UK are more likely to be affected by interest rate changes than their counterparts in other EU states.
  • Joining the euro may restrict the amount of long-term borrowing the UK is able to carry out. Eurozone countries are subject to the Stability and Growth Pact, which means that countries must not spend beyond their means. If the UK wishes to borrow money for long-term investment, this would be against the guidelines.
  • Some take the view that as the British economy is doing well at the moment, and outperforming the eurozone states, why move over to the euro?

 Why is the exchange rate set between the euro and the pound before joining the euro so important?

The rate at which the UK might join the euro is important because this would determine relative prices. If the UK joined at too high a rate, it would mean that exporters would find that their prices had effectively risen making them less competitive whilst imports would appear cheaper. The disruption to our competitive position could have long-term effects as businesses would have to find ways of regaining the competitiveness that they had lost. This could be difficult - especially in the case of manufacturing industry - when margins might be already very tight and there is not much room for improving efficiency and productivity.

euro notes

If we joined at too low a rate, the opposite position would arise - imports would become more expensive, thus increasing business costs but exporters would see some benefits in terms of improved prices. The effects in both cases is not 'real' in the sense that the prices received by both importers and exporters would not necessarily reflect the resources used in the production of the goods and services concerned.

In 1992, the UK joined the Exchange Rate Mechanism (ERM) at a rate of DM2.95 to the pound. This was seen as being too high and that the pound was effectively overvalued - not worth what you had to pay for it. The increased pressure on the pound to fall meant the government had to maintain interest rates at very high levels, which in turn exacerbated the downturn in the economy.

To further understand the problems, refer to the Purchasing Power Parity (PPP) theory. This states that relative exchange rates should reflect the cost of purchasing a similar basket of goods in different countries. If £100 would buy a specified basket of goods in the UK and an equivalent basket cost €200 in Europe, then the exchange rate should be £1 = €2.

Euro notes. Copyright: "European Commission Audiovisual Library".

Web sites for further research:

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EU Reform

 What is the Common Agricultural Policy?

The CAP was formally introduced in 1962, but its origins lie in the aftermath of the Second World War and the need to safeguard Europe's food supply and eradicate shortages. The objectives of the CAP were as follows:

  • Improve food productivity in the agricultural sector
  • Ensure fair prices for consumers
  • Ensure a stable food supply
  • Ensure income stability for farmers

Methods used by the EU to achieve these objectives included the following:

  • Taking produce off the market and into storage
  • Direct income to support farmers
  • Import restrictions (from outside the EU)
  • The use of subsidies

 Why did the CAP need to be reformed?

The CAP, though successful in some areas, led to a number of problems:

  • The policy of storing products in order to regulate the market led to issues of the cost of storage, the morality of the policy when people in other parts of the world were starving, and the impression of an inefficient EU bureaucracy (epitomised by the infamous butter mountains and wine lakes of the 1980s).
  • The cost of running the CAP is huge (45% of the EU budget is spent on the CAP (just under 45 billion euro in the 2003 budget).
  • The policy was in direct contrast to free trade movements outside the EU, such as the WTO, which have put pressure on the EU to open up its agricultural markets to the outside world.
  • The point above is particularly relevant to less developed countries who are trying to compete but are prevented from doing so by the restrictions they face in selling their products on EU markets.
Combine harvester

Will EU CAP reform reduce grain surpluses? Is this a good idea anyway? © Kriss Szkurlatowski, Stock.Xchng

 How is it being reformed?

The first reforms to the CAP began in 1983, with major reforms being agreed in the Agenda 2000 plan. CAP reform of some sectors will continue in 2002-3. The main areas of reform are as follows:

  • Constraining production through methods such as quotas and set aside schemes.
  • Encouraging farmers to diversify into other methods of income to reduce their dependence on subsidies.
  • Supporting environmentally beneficial forms of farming and reducing support for environmentally damaging intensive farming.
  • Giving direct payments to farmers in compensation for cuts in prices on their products - a transition towards further integration of a free market in agriculture.

 Tax harmonisation

 What is tax harmonisation?

Tax harmonisation is critical to the operation of the Single Market so that goods, services, people and capital can move freely around the EU. Basically, harmonisation of taxes means making the levels of taxation more consistent in each country. Harmonisation only affects indirect taxes, most notably corporation tax, which is much lower in the UK and Ireland than other Member States, and VAT (Value Added Tax) which ranges from 15 to 25% across the EU. At present, these taxes are not harmonised between the EU Member States, but it is one of the issues being debated in a proposed new EU constitution.

Different countries have different tax regimes for different reasons. For example, the duty on tobacco in the UK is much higher than that in Spain and France. The question of how such taxes could be harmonised triggers massive problems - for example, the UK might claim to have higher taxes to discourage smoking and to provide external benefits to health and welfare whereas the tobacco industry in Spain might be hit hard by any increases in tax causing unemployment.

 What are the advantages of tax harmonisation?

  • It would remove barriers to the freedom of goods, services, people and capital in the Single Market by creating equal conditions in all Member States, e.g. a proposal in 2002 for a harmonised diesel duty would create fair conditions for truck drivers across the EU.
  • If VAT was the same rate across all Member States, it would enable companies to set one price EU wide, and save on administration costs.
  • Fuel crisis, 2000An even level of VAT would also be fairer on EU consumers. For instance, the cost of alcohol in France and England would be more equal. Such a situation might reduce the incentives to smuggle and possibly reduce criminal activities that tend to surround products that have wildly varying prices because of tax differences.
  • As other barriers to movement are removed, if corporation taxes are not harmonised, they may become increasingly used as a method of competition between countries.
  • Tax fraud would be reduced by better monitoring taxation on investments.

Right: The fuel protests over the amount of duty compared with the rest of the EU caused a widespread shortage at petrol stations across the UK in 2000.

 What are the disadvantages of tax harmonisation?

  • Some Member States, particularly the UK, consider the setting of taxes by the EU as a 'step too far'. For the UK, raising corporate tax is a move away from the taxation policy of the last 20 years.
  • Some poorer regions of the EU may wish to use lower corporation tax to encourage firms to establish themselves in the region. For instance, Ireland has used lower tax rates to bring in foreign investment.
  • Firms will tend to establish themselves in clusters in order to benefit from having similar businesses in the same area. Therefore, the level of corporation tax may well be offset by other benefits.
  • If Member States are able to increase taxes, they are better able to control their budget deficits - an important area of economic policy in the eurozone.

Web sites for further research:

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EU Enlargement

 What is EU Enlargement?

The EU expanded its membership from 15 to 25 in May 2004. Two further countries are negotiating to join by 2007. The enlargement countries consist of many of the former Soviet Bloc countries of central and Eastern Europe as well as Cyprus and Malta.

EU Enlargement Map

Candidate countries must meet a set of criteria, called the 'Copenhagen Criteria', before negotiations on their membership can commence. These criteria are:

  • To be a stable democracy, guaranteeing human rights, the rule of law and the protection of minorities
  • To be a functioning market economy
  • To adopt and implement the body of EU law

The EU consists of 15 Member States, with 10 New Member States due to join in May, 2004. Map courtesy of www.theodora.com/maps used with permission.

 What are the consequences of enlarging the EU?

Enlargement of the EU is not a new concept, for instance, Austria, Finland and Sweden only became members in 1995. The issue that concerns most in this next wave of enlargement is the economic disparity between the existing and new members.

Click on the links below to view economic data for the EU Member States, New Member States, Applicant Countries and Turkey. The data may be viewed by subject or by country.

Graph representation

Balance of Payments
GDP
Human Development Index
Inflation
Unemployment
All data by country

 Advantages

  • Economic growth. Enlargement will generate economic growth in both 'old' and 'new' member states: in the new states the reform of economic systems to a market economy will generate increased productivity and efficiency and allow them to be able to take advantage of the Single Market through increased trade; in the old states as trade and investment opportunities increase with the new states. Estimates suggest that job totals could increase in old member states by 300,000.
  • Stability. Membership of the EU will bring with it political stability to the new democracies of Eastern Europe as they reform their legal and government institutions as part of the accession process. Such stability is important in generating investment not only from within the EU but from outside it, thus contributing to further economic development.
  • Global Presence. The EU has a stronger global voice, as its enlargement has brought the population to over 500 million (more than the USA and Russia combined), so giving more weight in international negotiations such as trade policy.
  • Business Confidence. Companies in existing Member States will have more confidence with those in the new Member States, as they will be operating on a level playing field in terms of EU legislation. Again, business confidence is an important factor in generating investment and encouraging enterprise and initiative.
  • Foreign Direct Investment (FDI). Membership of the EU and the euro will increase the amount of Foreign Direct Investment in the New Member States.
  • Structural Funds. The regional aid which attempts to redistribute funds from the wealthier regions of the EU to the poorer ones will be made available to the New Member States. This will help develop these countries and improve infrastructure. Improvements in infrastructure will again be a benefit to trade and in theory, all countries involved will benefit - the new member states from improved internal infrastructure and the old member states from the extra revenues earned from new trade.
Maria Valeria Bridge

The opening of the Maria Valeria bridge across the Danube connecting the Slovak town of Sturovo with Oestergom in Hungary in October 2001.
This project was financed by the EU PHARE programme, which assists the applicant countries of central Europe in their preparations for joining the European Union. Reproduced courtesy of the European Commission. Copyright: EPA PHOTO CTK/JANA MISAUEROVA.

 Disadvantages

  • Migration. Enlargement could produce high levels of migration as workers move from the new member states such as Poland where unemployment is high at 16.7% to those old member states where it is low such as the Netherlands at 3.6%. It was anticipated that workers would be able to move freely as the EU operates on the principle of the Single Market - one of the 'four freedoms' inherent in the Single Market is the free movement of labour. However, the old member states have created restrictions on the entry of labour into their countries for at least the first two years of enlargement.
  • Common Agricultural Policy. The controversial Common Agricultural Policy will be extended to the new member states, many of which have predominantly rural economies. The CAP includes measures such as subsidies and income guarantee schemes for farmers, which could prove to be hugely expensive if extended and a drain on the economies of old member states.
  • Regional Aid. The difference in GDP per capita between the old member states and the new member states is stark. This is also reflected in the ranking of each set of countries in the UN Development Programme's Human Development Index (HDI), which combines indicators of life expectancy, education, literacy and GDP. This difference in wealth and standard of living could be another drain on old member states in two ways - firstly, old member states may need to contribute more as the demand for regional aid increases, and secondly, old member states currently receiving regional aid such as Spain and Greece find their aid reduced as money is channelled elsewhere.
  • EU Standards and Systems. There are concerns that some New Member States will not have the necessary standards and systems in place, e.g. in meeting standards in food hygiene, and regulations on agricultural production. Meeting environmental standards may be too high a cost for some, while bringing public services up to standard will mean increased taxation for many citizens of the New Member States.
  • The Legacy of the Soviet Economy. In some of the states of the former Soviet bloc, certain areas of industry may not have had time to catch up with those of the EU and find they are forced out of business when these countries join the Single Market.

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Balance of Payments - EU Member States, New Member States, Applicant Countries and Turkey

EU Balance of Payments for EU Member States, New Member States, Applicant Countries and Turkey Country Balance of Payments - current account balance (% of GDP)
Luxembourg 13.6
Finland 7.4
Belgium 5.0
Sweden 2.9
Italy 2.9
France 1.6
Denmark 1.6
Netherlands 1.2
Ireland -0.6
Germany -1.1
United Kingdom -2.0
Austria -2.6
Hungary -2.8
Slovenia -3.0
Spain -3.4
Slovakia -3.5
Romania -3.7
Turkey -4.9
Czech Republic -5.2
Cyprus -5.2
Bulgaria -5.6
Estonia -5.7
Lithuania -6.0
Poland -6.1
Latvia -6.9
Greece -8.8
Portugal -10.5
Malta -13.2

All data, unless otherwise stated, is for 2001.
Source: World Bank (http://devdata.worldbank.org/external/dgsector.asp?W=0&RMDK=110&SMDK=500008)

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GDP - EU Member States, New Member States, Applicant Countries and Turkey

GDP for EU Member States, New Member States, Applicant Countries and Turkey Country GDP (per capita $)
Austria 26,730
Belgium 25,520
Denmark 29,000
Finland 24,430
France 23,990
Germany 25,350
Greece 17,440
Ireland 32,410
Italy 24,670
Luxembourg 53,780
Netherlands 27,190
Portugal 18,150
Spain 20,150
Sweden 24,180
United Kingdom 24,160
Cyprus 21,190
Czech Republic 14,720
Estonia 10,170
Hungary 12,340
Latvia 7,730
Lithuania 8,470
Malta 13,160
Poland 9,450
Slovakia 11,960
Slovenia 17,130
Bulgaria 6,890
Romania 5,830
Turkey 5,890

All data, unless otherwise stated, is for 2001.
Source: UNDP (http://hdr.undp.org/reports/global/2003/pdf/hdr03_HDI.pdf)

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Human Development Index - EU Member States, New Member States, Applicant Countries and Turkey

Human Development Index for EU Member States, New Member States, Applicant Countries and Turkey Country Human Development Index*
Sweden 0.941
Netherlands 0.938
Belgium 0.937
United Kingdom 0.930
Luxembourg 0.930
Ireland 0.930
Finland 0.930
Denmark 0.930
Austria 0.929
France 0.925
Germany 0.921
Spain 0.918
Italy 0.916
Portugal 0.896
Greece 0.892
Cyprus 0.891
Slovenia 0.881
Czech Republic 0.861
Malta 0.856
Poland 0.841
Hungary 0.837
Slovakia 0.836
Estonia 0.833
Lithuania 0.824
Latvia 0.811
Bulgaria 0.795
Romania 0.773
Turkey 0.734

All data, unless otherwise stated, is for 2001.
Source: UNDP (http://hdr.undp.org/reports/global/2003/pdf/hdr03_HDI.pdf)

*The Human Development Index combines life expectancy, education and GDP.

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Inflation - EU Member States, New Member States, Applicant Countries and Turkey

Inflation for EU Member States, New Member States, Applicant Countries and Turkey Country Inflation (% annual growth rate of GDP deflator)*
Lithuania -0.2
Luxembourg 0.2
Germany 1.3
France 1.4
Austria 1.8
Sweden 2.0
Finland 2.2
Belgium 2.3
United Kingdom 2.4
Latvia 2.5
Italy 2.6
Cyprus 2.8
Denmark 2.8
Greece 3.5
Spain 3.9
Poland 4.2
Netherlands 4.7
Malta 4.9
Portugal 4.9
Slovakia 5.4
Estonia 5.4
Ireland 5.4
Czech Republic 6.3
Bulgaria 6.5
Hungary 8.6
Slovenia 9.9
Romania 37.0
Turkey 54.8

All data, unless otherwise stated, is for 2001.
Source: World Bank (http://devdata.worldbank.org/data-query)

*GDP deflator is an index of the average prices of all the components of GDP - consumption, investment, government spending and the difference between import spending and export earnings.

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Unemployment - EU Member States, New Member States, Applicant Countries and Turkey

Unemployment for EU Member States, New Member States, Applicant Countries and Turkey Country Unemployment (% of total labour force)
Luxembourg 2.4
Cyprus 3.3 (1999)
Netherlands 3.6 (2000)
Portugal 3.8
Ireland 4.7
Austria 4.7 (2000)
Sweden 5.1
Malta 5.3 (2000)
United Kingdom 5.3
Denmark 5.4
Hungary 6.5
Belgium 7.0
Slovenia 7.5
Germany 8.1
Turkey 8.3
Latvia 8.4
Czech Republic 8.8
Finland 9.8
France 10.0
Romania 10.8
Italy 10.8
Greece 10.8 (1999)
Bulgaria 14.1 (2000)
Spain 14.1
Estonia 14.8
Lithuania 15.5
Poland 16.7
Slovakia 18.9

All data, unless otherwise stated, is for 2001.
Source: World Bank (http://devdata.worldbank.org/external/dgsector.asp?W=0&RMDK=110&SMDK=500007)

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Economic Data - EU Member States, New Member States, Applicant Countries and Turkey

Member States

Country Unemployment (% of total labour force) Inflation (% annual growth rate of GDP deflator)* GDP (per capita $) Balance of Payments - current account balance (% of GDP) Human Development Index** (World ranking)
Austria 4.7 (2000) 1.8 26,730 -2.6 0.929 (16th)
Belgium 7.0 2.3 25,520 5.0 0.937 (6th)
Denmark 5.4 2.8 29,000 1.6 0.930 (11th)
Finland 9.8 2.2 24,430 7.4 0.930 (14th)
France 10.0 1.4 23,990 1.6 0.925 (17th)
Germany 8.1 1.3 25,350 -1.1 0.921 (18th)
Greece 10.8 (1999) 3.5 17,440 -8.8 0.892 (24th)
Ireland 4.7 5.4 32,410 -0.6 0.930 (12th)
Italy 10.8 2.6 24,670 2.9 0.916 (21st)
Luxembourg 2.4 0.2 53,780 13.6 0.930 (15th)
Netherlands 3.6 (2000) 4.7 27,190 1.2 0.938 (5th)
Portugal 3.8 4.9 18,150 -10.5 0.896 (23rd)
Spain 14.1 3.9 20,150 -3.4 0.918 (19th)
Sweden 5.1 2.0 24,180 2.9 0.941 (3rd)
United Kingdom 5.3 2.4 24,160 -2.0 0.930 (13th)

New Member States

Country Unemployment (% of total labour force) Inflation (% annual growth rate of GDP deflator)* GDP (per capita $) Balance of Payments - current account balance (% of GDP) Human Development Index** (World ranking)
Cyprus 3.3 (1999) 2.8 21,190 -5.2 0.891 (25th)
Czech Republic 8.8 6.3 14,720 -5.2 0.861 (32nd)
Estonia 14.8 5.4 10,170 -5.7 0.833 (41st)
Hungary 6.5 8.6 12,340 -2.8 0.837 (38th)
Latvia 8.4 2.5 7,730 -6.9 0.811 (50th)
Lithuania 15.5 -0.2 8,470 -6.0 0.824 (45th)
Malta 5.3 (2000) 4.9 13,160 -13.2 0.856 (33rd)
Poland 16.7 4.2 9,450 -6.1 0.841 (35th)
Slovakia 18.9 5.4 11,960 -3.5 0.836 (39th)
Slovenia 7.5 9.9 17,130 -3.0 0.881 (29th)

Applicant Countries

Country Unemployment (% of total labour force) Inflation (% annual growth rate of GDP deflator)* GDP (per capita $) Balance of Payments - current account balance (% of GDP) Human Development Index** (World ranking)
Bulgaria 14.1 (2000) 6.5 6,890 -5.6 0.795 (57th)
Romania 10.8 37.0 5,830 -3.7 0.773 (72nd)

Other

Country Unemployment (% of total labour force) Inflation (% annual growth rate of GDP deflator)* GDP (per capita $) Balance of Payments - current account balance (% of GDP) Human Development Index** (World ranking)
Turkey 8.3 54.8 5,890 -4.9 0.734 (96th)

(Turkey made an application for membership in 1987, but is not currently negotiating its membership.)

*GDP deflator is an index of the average prices of all the components of GDP - consumption, investment, government spending and the difference between import spending and export earnings.

**The Human Development Index combines life expectancy, education and GDP.

All data, unless otherwise stated, is for 2001.
Source for GDP data: UNDP (hhttp://hdr.undp.org/reports/global/2003/pdf/hdr03_HDI.pdf)
Source for Human Development Index: UNDP (http://hdr.undp.org/reports/global/2003/pdf/hdr03_HDI.pdf)
Source for Unemployment data: World Bank (http://devdata.worldbank.org/external/dgsector.asp?W=0&RMDK=110&SMDK=500007)
Source for Inflation data: World Bank (http://devdata.worldbank.org/data-query)
Source for Balance of Payments data: World Bank (http://devdata.worldbank.org/external/dgsector.asp?W=0&RMDK=110&SMDK=500008)

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Submitted by bized on Mon, 02/02/2004 - 13:00