A brief background of the European Union (EU).
The European Union (EU) is an economic and political union of 27 member states which are located primarily in Europe. With a population of 500 million, the inhabitants generated an estimated 28% share (US$ 16.5 trillion) of the nominal gross world product in 2009. As a trading bloc, the EU accounts for 20% of global imports and exports (Paul, 2009).
The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC) formed by six countries in the 1950s. Since the Treaty of Rome in 1958 the EEC is committed to regional integration and has grown in size through the accession of new member states (Paul, 2009). The Treaty of Maastricht in 1993 established the European Union with its current name. A monetary union, the eurozone, has been established since the inception in 1999 and is made of sixteen member states. The last amendment to the constitutional basis of the EU came into force in 2009 and was the Lisbon Treaty (Jean-Claude2010).
The EU operates through a hybrid system of supranational independent institutions and intergovernmentally made decisions negotiated by the 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, R. Jeremy (2008). The European Parliament is elected every five years by EU citizens. The EU has developed a single market through a standardized system of laws which apply in all member states including the abolition of passport controls within the Schengen area. It ensures the free movement of people, goods, services, and capital, enacts legislation in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development (Jean-Claude 2010). Through the Common Foreign and Security Policy the EU has developed a limited role in external relations and defence. Permanent diplomatic missions have been established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20 (Paul, 2009).
History of the European Union.
After World War II, moves towards European integration were seen by many as an escape from the extreme forms of nationalism which had devastated the continent. One such attempt to unite Europeans was the European Coal and Steel Community which, while having the modest aim of centralised control of the previously national coal and steel industries of its member states, was declared to be "a first step in the federation of Europe" (Jeremy 2008)..
The originators and supporters of the Community include Jean Monnet, Robert Schuman, Paul Henri Spaak, and Alcide De Gasperi. The founding members of the Community were Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany.
In 1957, six countries signed the Treaties of Rome, which extended the earlier cooperation within the European Coal and Steel Community (ECSC) and created the European Economic Community, (EEC) establishing a customs union and the European Atomic Energy Community (Euratom) for cooperation in developing nuclear energy. The treaty came into force in 1958 (Jeremy 2008)..
The two new communities were created separately from ECSC, although they shared the same courts and the Common Assembly. The executives of the new communities were called Commissions, as opposed to the "High Authority". The EEC was headed by Walter Hallstein (Hallstein Commission) and Euratom was headed by Louis Armand (Armand Commission) and then Etienne Hirsch. Euratom would integrate sectors in nuclear energy while the EEC would develop a customs union between members (Jean-Claude 2010).
Throughout the 1960s tensions began to show with France seeking to limit supranational power. However, in 1965 an agreement was reached and hence in 1967 the Merger Treaty was signed in Brussels. It came into force on 1 July 1967 and created a single set of institutions for the three communities, which were collectively referred to as the European Communities (EC), although commonly just as the European Community. Jean Rey presided over the first merged Commission (Rey Commission).
In 1973, the Communities enlarged to include Denmark, Ireland, and the United Kingdom. Norway had negotiated to join at the same time but Norwegian voters rejected membership in a referendum and so Norway remained outside. In 1979, the first direct, democratic elections to the European Parliament were held (Jean-Claude 2010).
Greece joined in 1981, and Spain with Portugal in 1986. In 1985, the Schengen Agreement led the way toward the creation of open borders without passport controls between most member states and some non-member states. In 1986, the European flag began to be used by the Community and the Single European Act was signed.
In 1990, after the fall of the Iron Curtain, the former East Germany became part of the Community as part of a newly united Germany. With enlargement towards Eastern and Central Europe on the agenda, the Copenhagen criteria for candidate members to join the European Union were agreed.
The European Union was formally established when the Maastricht Treaty came into force on 1 November 1993, and in 1995 Austria, Sweden, and Finland joined the newly established EU. In 2002, euro notes and coins replaced national currencies in 12 of the member states. Since then, the eurozone has increased to encompass sixteen countries. In 2004, the EU saw its biggest enlargement to date when Malta, Cyprus, Slovenia, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, and Hungary joined the Union.
On 1 January 2007, Romania and Bulgaria became the EU's newest members. In the same year Slovenia adopted the euro, followed by Cyprus and Malta in 2008 and by Slovakia in 2009. In June 2009, the 2009 Parliament elections were held leading to a renewal of Barroso's Commission Presidency, and in July 2009 Iceland formally applied for EU membership.
On 1 December 2009, the Lisbon Treaty entered into force and reformed many aspects of the EU. In particular it changed the legal structure of the European Union, merging the EU three pillars system into a single legal entity provisioned with legal personality, and it created a permanent President of the European Council, the first of which is Herman Van Rompuy, and a strengthened High Representative, Catherine Ashton (Jean-Claude 2010).
Member states of the European Union (EU).
The European Union is composed of 27 sovereign Member States namely: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Republic of Ireland, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The Union's membership has grown from the original six founding states—Belgium, France, (then-West) Germany, Italy, Luxembourg and the Netherlands—to the present day 27 by successive enlargements as countries acceded to the treaties and by doing so, pooled their sovereignty in exchange for representation in the institutions. To join the EU a country must meet the Copenhagen criteria, defined at the 1993 Copenhagen European Council. These require a stable democracy that respects human rights and the rule of law; a functioning market economy capable of competition within the EU; and the acceptance of the obligations of membership, including EU law. Evaluation of a country's fulfillment of the criteria is the responsibility of the European Council. No member state has ever left the Union, although Greenland (an autonomous province of Denmark) withdrew in 1985. The Lisbon Treaty now provides a clause dealing with how a member leaves the EU (Jean-Claude 2010).
There are five official candidate countries, Croatia, Iceland, Macedonia, Montenegro and Turkey. Albania, Bosnia and Herzegovina and Serbia are officially recognised as potential candidates. Kosovo is also listed as a potential candidate but the European Commission does not list it as an independent country because not all member states recognise it as an independent country separate from Serbia.
Four Western European countries that are not EU members have partly committed to the EU's economy and regulations: Iceland (a candidate country for EU membership), Liechtenstein and Norway, which are a part of the single market through the European Economic Area, and Switzerland, which has similar ties through bilateral treaties. The relationships of the European microstates, Andorra, Monaco, San Marino and the Vatican include the use of the euro and other areas of co-operation.
The cost and benefit of UK leaving EU.
According to findings of A Cost Too Far, published by Civitas, if the UK were to leave the EU, there would be no net loss of jobs or trade. The findings further stipulate that there would be between £17 billion and £40 billion per year better off, or even possibly more. At one time the then British Prime Minister, Tony Blair, often claimed that 60 per cent of the UK’s trade and three million jobs ‘depended on’ UK’s EU membership. However, a closer analysis reveals this to be a highly misleading claim (Jean-Claude 2010).
The first problem with Mr. Blair’s statement is that it refers to ‘goods’ and not ‘goods and services’. In 2002, 59 per cent of UK exports of ‘goods’ were exported to the other 14 EU countries. However, it was more usual to count exports of both ‘goods and services’ and, in 2002, UK exports of goods and services to the EU comprised about 52 per cent of the UK total. These two huge ports serve as transit points for goods on their way to other parts of the world, but the official figures assume that goods sent there are going to the EU. After adjustment, 48 per cent of UK exports of goods and services go to the EU.
The second misconception is that 60 per cent of UK economy depends on the EU, whereas the true figure is more like ten per cent. Exports of goods and services only account for 21 per cent of ‘final demand’. If exports of goods and services to the EU account for 48 per cent of total exports, then ten per cent of GDP is currently the result of exports of goods and services to other EU members. In other words, about 79 per cent of the UK economy is the result of domestic activity, involving buying from and selling to each other, and exports of goods and services to the rest of the world account for another 11 per cent (Christian 2006).
Mr Blair’s third mistake is to believe that the jobs currently resulting from trade with the EU would be lost if UK left the EU. However, a number of convincing studies have found that leaving the EU would have little impact on jobs, including a report by the National Institute for Economic and Social Research, and a report for the US Congress by the US International Trade Commission. In particular, if the UK left the EU, it is unlikely that UK companies would be denied access to other EU markets. The latest figures are for the period before enlargement and show that the other 14 members exported more to the UK than they imported from us. It is imperative to say that EU needs the UK more than the UK needs EU. Moreover, about twenty countries as diverse as Switzerland, Gambia and Mexico have free trade agreements with the EU (with another sixty holding discussions), and it would be extraordinary if the UK could not negotiate a similar deal. In trading relations, self-interest tends to prevail, but in any event the EU’s average external tariff on non-EU imports is down to about 1.5 per cent and the World Trade Organisation would prevent any ‘retaliation’, however improbable (Christian 2006).
It’s commonly understood that, if the UK were to leave the EU, there would be no net loss of jobs or trade. However, such a conclusion involves complex calculations, and it is widely accepted that assumptions have to be made that can influence the final figure. Ranges of estimates have been provided from ‘rock bottom’, through ‘most likely’, to ‘high’. The rock-bottom figure draws largely on official sources and deploys the most cautious of assumptions. The net costs of EU membership are appraised in five areas: EU regulation, the common agricultural policy, net payments to EU institutions, the single market, and inward investment. In keeping with earlier cost-benefit studies, the results in A Cost Too Far are expressed as a percentage of GDP and rounded to the nearest half percentage point. In this Fact sheet the estimates are in pounds. Overall, the net cost of remaining in the EU ranges from the ‘rock-bottom’ estimate of £17.6 billion to the ‘most likely’ of £40 billion (Christian 2006).
The rock-bottom estimate is £6.3 billion and the most likely, £20 billion. Based on the Government’s own regulatory impact assessments (RIAs), the total cost of regulation between 1999 and 2004 (one-off costs spread over the period plus recurring costs), according to the British Chambers of Commerce, was £7.91 billion per year. Based on information supplied by the House of Commons Library in May 2004, 83 per cent of the cost of regulations originated in EU directives. If rounded down to 80 per cent, then about £6.33 billion of the £7.91 billion total cost is due to the EU. There were no RIAs before 1999 and the estimate for the period from 1973 to 1999 has to be more tentative. An official study of the overall impact of EU regulation in the Netherlands has put the figure at two per cent of GDP. If also true of the UK, the net cost would be £20 billion.
The rock-bottom figure is £7 billion and the most likely, £15 billion. The Treasury estimated the cost at about 1.2% of GDP (currently about £12 billion). Allowing for subsidies paid to UK farmers, this produces a net figure of about £7 billion. An OECD study put the total cost to the EU in 2002 at 1.4 per cent of GDP (£14 billion), producing a net cost of £9 billion. However, allowing for costs and subsidies not included in the OECD study, and for subsidies received by UK farmers, the most likely net figure is £15 billion (Christian2006).
The payment to EU Institutions is an annual figure published by the Office for National Statistics and so no range is given. The latest Pink Book shows net payments of £4.3 billion. Over the last ten years, the UK has paid a similar net average amount each year, paying out an average of £11 billion per annum and receiving back £7 billion in ‘aid’.
A study by the European Commission in 1996 and an academic study published in 1998 are often quoted in support of the claim that the single market raised total EU output by between one and 1.5 per cent. More recently, the European Commission has claimed that the internal market increased EU GDP in 2002 by 1.8% compared with a year earlier (Charles 2007).
However, a number of independent studies have found no hard evidence of net benefits. For example, the Bundesbank found no evidence that helped German trade. Implausibly, the UK economy is to be any different. The Institute of Directors reviewed studies from the Commission, the OECD and others and noted the absence of persuasive evidence of the benefits of the single market. In 2003 an Institute of Directors’ survey of members found that trading in the EU 14 was on balance unattractive and more costly, with more paperwork than before the single market. The overall conclusion of A Cost Too Far is that the balance of costs and benefits for the UK economy is zero, that it could be negative, and that the UK would not suffer economically by being outside the single market (Charles 2007).
The UK is one of the world’s leading overseas investors, but also a recipient of significant inward foreign direct investment (FDI). UK Trade and Investment, monitors investment flows and its annual review for 2002/03 lists the main reasons why the UK attracts investment. Access to the single market is one among several other advantages, including the skilled and English-speaking labour force, the flexible labour market, good communications, the strong science and technology base in universities, low corporation tax, ease of market entry and tax allowances for start-ups. These other advantages would remain and, if the UK left the EU, the impact on inward investment is likely to be neutral (Jean-Claude2010).
Some studies claim that FDI would fall if the UK left the EU. A Cost Too Far questions this contention by looking at the earnings on all inward investment made by the main economic sectors. The two biggest are oil and gas (39 per cent of earnings) and financial services (18 per cent). The study argues that oil and gas would continue to attract investment because they are high value products in a stable part of the world. Investments in financial services, another global industry, are mainly denominated in US dollars, and will go wherever the best return is to be found. The City has not suffered from the introduction of the euro and would be unlikely to suffer if the UK left the EU. Investment in manufacturing of ‘chemicals, plastics and fuel products’ (10 per cent by earnings) and ‘other industries’ (11 per cent) might be influenced by UK’s EU membership, but it is a factor of declining importance (Charles 2007).
The issue of linking fortunes to a region of the world with a poor record of economic growth and whose share of both world markets and GDP is destined to fall remains unclear to date. Even the European Commission takes a gloomy view of the EU’s prospects. In its December 2002 review it forecast a 44 per cent decline in the EU-15 share of global GDP from 18 per cent in 2000 to ten per cent in 2050. In 2050, as in 1950 and 2000, the three most populous countries in the world are likely to be India (1.6 billion), China (1.5 billion) and the USA (0.4 billion). The working-age population of the EU, even after its current enlargement to 25 members, is projected to decline by 20 per cent to 30 per cent by 2050; whereas the working-age population of the USA is expected to increase by nearly one-third, P. Jean-Claude (2010).
In concluding remarks, the consequence of the UK leaving the EU has more advantages then disadvantages namely;British will stop wasting money on Eastern Europe. British working abroad could have problems. British will need to establish free trade agreement. British ill gain your full sovereignty back. British will not pay the bureaucrats in Brussels.
Paul, C. 2009, EU Law, Text, Cases and Materials (4th ed.). Oxford: Oxford University Press.
Jean-Claude, P. 2010, LisbonTreaty. Cambridge: Cambridge University Press.
Jeremy, R., 2008, The European Dream: How Europe's Vision of the Future Is Quietly Eclipsing the American Dream.
Charles, S., 2007, International Trade and Globalisation, 3rd edition. Stocksfield: Anforme.
Christian, S., 2006, EU Law (9th Ed.). Oxford, Oxford University Press.