Bureau of European and Eurasian Affairs
May 13, 2008
European Union Profile
The European Union (EU) is one of the United States' strongest strategic partners, with the importance of the relationship reflected in our close cooperation on regional crises and conflicts, our extensive collaboration on a wide range of global challenges, from counter-terrorism to nonproliferation, and our deep trade and investment relations.
Following World War II, traditional European rivals sought to solidify peace by bringing their nations together under a common institutional structure. Influenced by his compatriot Jean Monnet, French Foreign Minister Robert Schuman officially tabled a plan on May 9, 1950 to pool French and German coal and steel production under an organization that would be open to other European countries. German Chancellor Konrad Adenauer supported this proposal, and six founding countries - Belgium, France, Germany, Italy, Luxembourg and the Netherlands - took an early step toward European integration by establishing the European Coal and Steel Community (ECSC) the following year.
After failing to establish a European Defense Community in the 1950s, the six countries then decided to set up a common market. With the entry into force of the Treaty of Rome in 1957, they created the European Economic Community (EEC), with an objective of liberating the movement of goods, capital, workers and services. (The European Atomic Energy Community (EURATOM) was also established at this time.) The Treaty of Rome established the basic institutions and decision-making mechanisms still in place in today's European Union. As of July 1, 1968, the EEC abolished customs duties between Member States on manufactured goods. New policies, including a common agricultural policy (CAP) and a common trade policy, were in place by the end of the 1960s.
The success of the European integration project during a period of steady economic growth in the 1960s set the stage for a first enlargement - the accession of the UK, Ireland and Denmark - in 1973. Further "deepening" of European integration followed: the Community acquired executive authority in social, regional, and environment policies. The benefits of economic convergence became more evident in the context of the 1970s energy crisis and financial turmoil, which led to the launch of the European Monetary System in 1979. In the same year, the first direct elections to the European Parliament (EP) took place. Previously, delegates from national parliaments had represented their country's legislative bodies at the EP in Strasbourg, France.
The Community further expanded southward with the accession of Greece (1981, the second enlargement), followed by Spain and Portugal (1986, the third enlargement). These accessions led the EEC to adopt "structural programs" in order to reduce economic and social disparities among its regions.
During the 1960s and 1970s, the Community began to assert itself on the international scene with the conclusion of agreements with southern Mediterranean countries. Starting in 1963, the EEC signed four successive Lome Conventions, which guaranteed trading advantages and development aid for Member States' former colonies in Africa, the Caribbean, and the Pacific (ACP).
World recession and internal disputes over Member States' financial burdens gave way, from 1985 onward, to renewed efforts for economic integration, enshrined in the 1985 "Single European Act" (SEA) and marked by the 1992 "Single Market Project." The SEA set January 1, 1993 as the date by which an internal single market was to be established and, by extending the practice of majority voting rather than unanimity in the EU Council, gave Community institutions the means of adopting the 300 Community-wide Directives required to abolish the remaining barriers and obstacles to intra-Community trade. In 1995, the Community entered into the "Barcelona" partnership with twelve southern Mediterranean countries. The partnership, reinforced by agreements on social, cultural, and human cooperation, was intended to lead to a free-trade area.
The collapse of the Berlin Wall and German unification prompted Member States to negotiate the 1992 Treaty on European Union (the "Maastricht Treaty"). In addition to establishing the European Union, the Maastricht Treaty set an ambitious program of further integration: establishment of Economic and Monetary Union (EMU) by 1999 (part of the "First or 'Community' Pillar"), setting up of a Common Foreign and Security Policy (CFSP) ("Second Pillar"); and cooperation on Justice and Home Affairs (JHA) ("Third Pillar"). Shortly thereafter, in 1995, Austria, Finland and Sweden joined the EU - the fourth enlargement.
Signed in 1997 and entering into force on May 1, 1999, the Amsterdam Treaty partially streamlined the EU institutional structure. Its most significant effects were: (1) to transfer aspects of Justice and Home Affairs policy to the Community Pillar, enabling the Commission to propose decisions to be taken by the EU Council by qualified majority voting instead of by consensus, and (2) to establish a High Representative for the CFSP (who also serves as Secretary-General of the Council Secretariat). Ten countries in Central and Eastern Europe and Cyprus began accession procedures in 1997, followed by Malta. The prospect of eastward enlargement raised significant resource concerns and prompted the adoption in March 1999 of the "Agenda 2000" package, which covered amendments to the CAP and EU structural policies, as well as a budgetary framework through 2006.
In May 1998, EU heads of government officially designated eleven Member States eligible to adopt a single currency. Greece initially did not qualify, and Sweden, the UK and Denmark "opted out." On January 1, 1999, the euro became the official currency of the EU, and the European Central Bank (ECB) put euro notes and coins into circulation on January 1, 2002. Today, thirteen countries use the euro: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain.
Streamlining the size and procedures of EU institutions to make the expanded EU more efficient was also an aim of the 2003 Treaty of Nice. A year later, in May 2004, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined the EU, bringing total membership to 25. In 2007, Bulgaria and Romania joined the EU, which currently stands at 27 members. Formal Candidate countries currently include Turkey and Croatia, as well as the Republic of Macedonia.
In October 2004, Member States signed an EU Constitutional Treaty in Rome, intending that it take effect on November 1, 2006. French and Dutch voters rejected the treaty through referenda in 2005, thereby suspending the ratification process. A new effort, undertaken in June 2007, calls for the creation of an Intergovernmental Conference to form a political agreement, known as the Reform Treaty. In contrast to the Constitutional Treaty, the Reform Treaty would amend existing treaties rather than replace them. The IGC approved the new reform treaty, called the Lisbon Treaty, in October 2007. The Lisbon Treaty must be ratified by all 27 national Parliaments. So far, only Ireland has indicated that it is constitutionally bound to hold a referendum. The Lisbon Treaty would ideally streamline the decision making process of the EU and abolish the rotating Presidency of the Council, replacing it with a more permanent President of the Council. The Lisbon Treaty would also combine the role of the High Representative for Common Foreign and Security Policy, currently Javier Solana, and the EU Commissioner for External Relations, currently Benita Ferrero-Walder, into a single position, in an effort to combine the face and the purse strings of European foreign policy.
The European Commission
The role and responsibilities of the European Commission place it at the center of the EU's decision-making process. Acting as the EU's policy and executive engine, the Commission is composed of 25 Commissioners, one from each Member State and is supported by a substantial staff located primarily in Brussels, Belgium. In matters relating to economic integration ("First or ‘Community' Pillar"), only the Commission has the right to propose legislation for approval by the EU Council and European Parliament. As "guardian of the Treaties," the Commission ensures that EU laws are applied and upheld throughout the EU, prosecuting Member States and other institutions for failing to follow treaty precepts or otherwise apply Community law. The Commission has full authority to enforce Community competition policy, and its policing of implementation of Community legislation preserves the integrity of the EU single market. The Commission likewise manages and develops the Common Agriculture Policy (CAP), implements the budget, and represents the European Community in its areas of competence, notably including international trade negotiations.
The Commission President is appointed by agreement of the EU heads of government and is subject to approval by the European Parliament. Commissioners serve for a renewable five-year term. New Commissioners are identified by Member State governments in consultation with the President-designate of the Commission and are normally put in place at the beginning of the term of the Commission President. The entire Commission must be confirmed as a collective whole by the European Parliament before its formal appointment by common accord of EU governments.
The European Council
The Council of Ministers of the European Union (the "EU Council") is the body in which representatives of the individual Member State governments, usually ministers, legislate for the EU, set its political objectives, coordinate national policies and resolve differences among their governments and with other EU bodies. Legally speaking, there is only one Council, but it meets in nine different formations, depending on the matters on its agenda. Foreign ministers usually meet at least once a month in the General Affairs and External Relations Council (GAERC), which deals with major foreign policy issues and plays a coordinating role. Ministers for the Economy and Finance (ECOFIN) and ministers responsible for agriculture also hold monthly meetings. Ministers for Justice and Home Affairs (JHA) hold regular meetings to coordinate policies within their competence.
The Council holds formal sessions in its Brussels headquarters, except in April, June and October, when all sessions take place in Luxembourg. Most formations of the Council also meet informally (tasking no legally binding decisions) in the country holding the EU Presidency, usually once in the course of the Presidency's six-month term. The most prominent of these informal meetings is the so-called "Gymnich" meeting of foreign ministers, named for a town in Germany where the first such meeting took place.
The Council takes most decisions under the Community Pillar by qualified majority voting (QMV) but endeavors to reach the broadest possible consensus before approving legislation. Unanimity is required for a number of specific areas related to economic integration (e.g. taxation), constitutional matters such as amendments to the treaties, the launching of a new common policy, the accession of a new Member State, and matters falling within the EU's Common Foreign and Security Policy, European Security and Defense Policy, and aspects of law enforcement and judicial cooperation. The number of votes cast by each Member State when the EU Council votes by qualified majority voting was determined by the Nice Treaty and roughly correlates to the size of its population.
The European Parliament
Members of the European Parliament are directly elected by EU citizens for five-year terms; elections follow national election procedures. Members do not sit in national delegations; rather, they sit in groups according to political affiliation (including Socialists, Christian-Democrats/Conservatives, Liberals, Greens, etc.).
Parliament's powers have gradually grown with the entry into force of the Single European Act (1986), the Maastricht Treaty (1993) and the Treaty of Amsterdam (1999). Parliament shares decision-making power on an equal footing with the Council in many areas under the Community Pillar to which the "co-decision procedure" applies. The European Parliament is one of the two branches with budgetary authority - the Council is the other. The signature of the EP president brings the overall EU budget into effect.
The European Parliament also plays a role in the process of selecting the President and other members of the Commission. The European Council's nomination of the President is subject to approval by the Parliament. The EP holds U.S.-style public hearings of Commission nominees before taking a formal vote to approve the nomination of the Commission as a body. Parliament has the power to censure the Commission, but the Treaties do not allow for the dismissal of individual Commissioners by Parliament.
The European Court of Justice
The European Court of Justice (ECJ) ensures uniform interpretation and application of both the Treaties establishing the European Communities and the secondary legislation and other law adopted under their authority. To enable it to carry out that task, the Court has wide jurisdiction to hear various types of cases. For example, the Court has the authority to hear and issue binding judgments in lawsuits that seek to annul a law adopted by the EU, to compel an EU institution to act, or to require that a Member State comply with EU law. The ECJ may issue clarifications of EU law (in response to a request for a preliminary ruling from any Member State court) and hears appeals on legal questions arising out of cases at the Court of First Instance. The ECJ currently has 25 justices and eight advocates-general, who are appointed by common accord of the governments of the Member States and who hold office for six-year renewable terms.
The United States and the EU are important partners who maintain a robust agenda of cooperation in areas such as the Middle East, Balkans, Ukraine, Central Asia, and Africa.
In pursuit of Middle East peace, the United States and the EU cooperate, with the United Nations and Russia, in the "Quartet." The EU has made significant contributions to the goal of promoting good governance, democracy, and strong civil societies throughout the Middle East. The United States and the EU also work together in promoting reform throughout the Middle East.
The United States and EU share a commitment to a free and democratic Iraq. The United States and EU supported preparations for Iraq's January 2005 elections and are cooperating to support Iraq's continuing political transition. The United States and EU co-hosted an International Conference on Iraq in June, 2005 in Brussels that marked the creation of a new international partnership to support the Iraqi Transitional Government.
In the Western Balkans, the United States and the EU are working together to strengthen democracy, ensure stability, and promote the region's integration into Euro-Atlantic structures, and are urging all parties to meet their obligations to cooperate with the International Criminal Tribunal for the Former Yugoslavia. The United States and EU also cooperate closely in the process intended to culminate in resolving Kosovo's future status.
The United States and the EU share a commitment to promoting democracy throughout Eurasia. The United States and the EU cooperated closely during the presidential election campaign in Ukraine, and especially following the flawed November 2004 second-round vote. In Afghanistan, the EU is a close partner with the United States in supporting democratic development and reconstruction. A combination of NATO security forces and EU civilian rule of law assistance are contributing to the stabilization of a democratic Afghanistan. Most notably, in 2003 the EU pledged $1.3 billion to Afghanistan over a five-year period to support reconstruction and development.
The United States and the EU cooperate on many African issues, including supporting efforts by the African Union to restore peace in the Darfur region of Sudan. The United States welcomed the EU's peacekeeping mission in Africa's Great Lakes region and supported its joining the Tripartite Commission as an observer. The United States consults regularly with the EU on assistance programs, including efforts to combat HIV/AIDS throughout Africa.
The institutions of the European Union were originally created to oversee the operation of the several economic communities that later became the Single European Market. Even as the EU's political integration has continued, the area of greatest integration has always been in the economic sphere: goods, capital, and labor move freely between Member States (with some exceptions), businesses in all Member States are increasingly subject to common basic rules, and thirteen of the 27 Member States use a common currency, the euro. The twelve euro-area countries share a common monetary policy administered by the European Central Bank in Frankfurt, Germany. The EU strives to eliminate internal barriers to the free flow of goods, services, labor, and capital, and to promote the overall convergence of living standards. Internationally, the EU aims to strengthen Europe's trade position and capitalize on the political and economic leverage that a large, unified market brings.
The EU is the world's largest economic area (the U.S. is second) with a 2006 GDP of $13.08 trillion; however, growth in many of the EU's Member States in the recent past has been slow. Between 2001 and 2003, the overall growth rate dropped from 1.8 percent to 1.0 percent. The EU economy staged a modest, short-lived recovery in 2004, and increased to 3.2% in 2006. Within the euro area, growth varies as much as 4.5 percentage points between the fastest and slowest-growing economies. In 2005, many of the EU's largest economies, including Germany, France and Italy, will grow by less than two percent. Outside the euro area, growth is forecast to remain strong, particularly in the Central and Eastern European countries that joined the EU in May 2004.
In spring 2000, the EU committed to a ten-year strategic goal of transforming the EU into a more competitive, knowledge-based economy capable of sustaining higher levels of growth. Focusing on labor market reform, macroeconomic and fiscal policy, and promotion of e-commerce and entrepreneurship, the EU's "Lisbon Agenda" was an attempt to stimulate growth while remaining committed to the EU social model. Some suggest that it has so far failed to achieve its goals in large part because national governments (which retain authority over employment policy, immigration, large public sector workforces, entitlement programs and pensions) have not completed the necessary reforms. With euro area unemployment at 8.6 percent, generous social programs continue to strain national economies. The European Commission re-launched the Lisbon Agenda in March 2005, promising three percent growth and six million new jobs by 2010. The revamped strategy focuses on developing political consensus within Member States to make the changes necessary to complete elimination of barriers in the internal market, reduce the regulatory burden on business, improve labor market flexibility, provide incentives to work and increase investment in human capital.
Fiscal and Monetary Policy
Introduced in 1999, the euro is currently the official currency of thirteen of the 27 EU Member States. United Kingdom, Denmark and Sweden chose to retain their national currencies, and newer EU members have yet to adopt the euro. Prior to the euro's launch in 1999, national currency exchange rates of countries intending to join the euro were fixed within an Exchange Rate Mechanism. Following the January 2002 introduction of euro notes and coins into general circulation, national currencies were removed from circulation. Each of the euro area countries agreed to abide by a shared fiscal policy rule book known as the Stability and Growth Pact (SGP). This agreement generally obliges national governments to limit government budget deficits to 3 percent of GDP and established a target debt-to-GDP ratio of below sixty percent. Although enforcement actions have been forgiving - France and Germany, for example, avoided sanctions despite missing SGP targets - countries violating the SGP are technically subject to sanctions by the European Commission. As of March 2005, national governments have been granted budget leeway to achieve structural reforms and to combat prolonged stagnation, negative growth or other factors, such as the cost of German reunification or state pensions. The revised standards still require deficits to remain close to the targets; they may only temporarily exceed the three percent limit. The ten Member States that joined the EU in May 2004 may adopt the euro after complying with the SGP targets and meeting other applicable criteria.
The euro area's monetary policy is set by the European Central Bank (ECB), which must devise a monetary policy to accommodate a wide range of domestic policies and economic conditions within euro area Member States. The Treaties require that the ECB's primary objective be to maintain price stability (i.e., to keep inflation low). Euro-area national governments have sometimes criticized the ECB for guarding against inflation at the expense of interest rate flexibility that could enable struggling economies to gain traction. The ECB's consistent overnight interest rate of two percent has been credited with creating favorable conditions for growth in Spain and Ireland, but has been blamed for hindering growth in France, Germany, Italy, and Portugal.
The EU is the world's largest exporter of goods and services. In 2006, excluding internal EU trade, the EU exported $1.33 billion worth of goods to non-EU countries, compared to $987 billion in 2003. The EU's exports grew rapidly between 1996 and 2000 but have grown more slowly since. Except for 2002, the EU as a whole has posted a trade deficit every year since 1999; it was $62 billion in 2004. The EU is a major exporter of chemicals, transport equipment, and industrial machinery. The EU has large trade deficits in raw materials and energy, and a small deficit in food and drink.
The U.S. is the EU's main trading partner by a wide margin. In 2006, the U.S. consisted of 13.8% of all imports to the EU. U.S. goods and services exports to the EU reached $283 billion in 2004, while U.S. goods and services imports from the EU totaled $388 billion. Asian economies such as Japan and China, however, account for an increasingly important share of EU trade. The EU's two-way merchandise trade with China grew to $223 million in 2004, while merchandise trade with Japan was $149 million. Internal trade between euro area and non-euro area countries was down one percent in the first quarter of 2005, but the EU's external trade was up four percent, particularly with Russia and Norway.
Member States have given almost exclusive authority to the EU to negotiate trade treaties that bind the Member States. The European Community (EC) is a full member of the World Trade Organization and plays an active role in the Doha Development Round to foster international trade in services and agricultural products. Bilaterally, the EC maintains framework agreements to facilitate trade flows with thirty-five countries worldwide, mostly elsewhere in Europe, in North Africa, and in the Middle East.
Foreign Direct Investment
The EU is both a major destination for foreign direct investment (FDI) and a major source of FDI. U.S. foreign direct investment in the EU totaled $83.3 billion in 2004; EU FDI into the U.S. totaled $46.6 billion. Following strong year-upon-year growth in the late 1990s, however, inward and outward flows of FDI have contracted since 2001. The EU is a net recipient of FDI from Japan, receiving $81 billion in 2003. Conversely, the EU is a net investor in Canada ($86 billion in outward investment in 2003), and China ($29 billion in outward investment in 2003). Growth of intra-EU FDI has increased rapidly in recent years and has increased much faster than FDI in non-EU countries.
The pattern of foreign investment by European firms reflects deep commercial ties with the United States. U.S. and EU businesses invest heavily and operate profitably on both sides of the Atlantic. U.S. affiliates in Europe accounted for 56 percent of the aggregate output of U.S. affiliates worldwide. European firms were the largest foreign investors in 44 U.S. states and the second largest foreign investor in the remaining six. Sales by U.S. affiliates in Europe totaled $1.5 trillion in 2002, more than double those of U.S. affiliates in the Asia/Pacific region. European affiliate sales in the U.S. were $1.2 trillion in 2002, more than three times the value of U.S. imports from Europe.
Intra-firm trade involving foreign affiliates is particularly important to the transatlantic trade and investment relationship. Approximately 58 percent of U.S. imports from the EU in 2004 involved trade between related parties, as did 30 percent of U.S. exports to Europe in 2003. This high level of intra-firm trade has contributed to the persistence of the U.S. trade deficit with Europe even as the dollar has lost value against the euro since 2002.
The EU's budget is essentially made up of Member State contributions. Equivalent to roughly one percent of the Member States' combined gross national income (GNI), it will be approximately €129.2 billion in 2008. The UK receives a rebate on its contribution. In June 2005, the EU failed to agree on a budget plan for 2007 through 2013, due in part to a disagreement between the UK and France over the persistence of the UK budget rebate and the funding of the Common Agricultural Policy (CAP). Costs attributable to the CAP constitute the EU's largest annual budget item, benefiting farmers across the EU, especially in France. Payments to net-recipient Member States, designed to reduce economic and social disparities among EU countries and regions, are another budget item which has become more contentious with the accession of ten new states poorer than the EU average.
Principal Officials at the U.S. Mission to the European Union: