European Union (EU)

What Is the European Union (EU)?

The European Union (EU) is a group of 27 countries that operates as a cohesive economic and political block. Nineteen of the countries use the euro as their official currency.

The EU grew out of a desire to form a single European political entity to end the centuries of warfare among European countries that culminated with World War II and decimated much of the continent. The European Single Market was established by 12 countries in 1993 to ensure the so-called four freedoms: the movement of goods, services, people, and money.

The EU's gross domestic product (GDP) totaled $15.6 trillion (nominal) in 2019, which was $5.8 trillion less than the United States' $21.4 trillion GDP, according to figures available from the World Bank.

Key Takeaways

  • The European Union (EU) consists of a group of countries that acts as one economic unit in the world economy.
  • Its official currency is the euro; 19 of its 27 members have adopted the currency.
  • In a 2016 referendum, the U.K. voted to leave the EU. Though the terms of Brexit had been challenged many times, Jan. 31, 2020, marked the official enactment of Britain leaving the EU.
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European Union (EU)

Understanding the European Union (EU)

The EU began as the European Coal and Steel Community, which was founded in 1950 and had just six members: Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. It became the European Economic Community in 1957 under the Treaty of Rome and, subsequently, became the European Community (EC).

The early focus of the EC was a common agricultural policy as well as the elimination of customs barriers. The EC initially expanded in 1973 when Denmark, Ireland, and the United Kingdom. A directly elected European Parliament took office in 1979.

In 1986, the Single European Act solidified the principles of foreign policy cooperation and extended the powers of the community over the members. The act also formalized the idea of a single European market.

The Maastricht Treaty took effect on November 1, 1993, and the European Union (EU) replaced the EC. The treaty created the euro, which is intended to be the single currency for the EU. The euro debuted on January 1, 1999. Denmark and the United Kingdom negotiated "opt-out" provisions that permitted them to retain their own currencies.

Several newer members of the EU have not yet met the criteria for adopting the euro common currency.

The European Union Map
The European Union Map.  Investopedia

Special Considerations

The EU continues to face a number of challenges.

North-South Issues

The EU and the European Central Bank have struggled with high sovereign debt and sluggish growth in Portugal, Ireland, Greece, and Spain since the global financial market collapse of 2008. Greece and Ireland received financial bailouts from the community in 2010, which were accompanied by fiscal austerity. Portugal followed in 2011, along with a second Greek bailout in 2012.

Multiple rounds of interest rate cuts and economic stimulus failed to resolve the problem. Northern countries such as Germany and the Netherlands increasingly resent the financial drain from the south. Repeated rumors that Greece would be forced to withdraw from the euro failed to materialize amid disagreement as to whether the move was legally possible as it was not covered in the Maastricht Treaty.

Brexit

As the situation moved from crisis to stagnation, the U.K. government announced it would hold a referendum to determine whether it would remain a part of the EU on June 23, 2016. The nation voted to leave the EU under what's now called Brexit. The U.K. officially left the EC as of 11 p.m. Greenwich Mean Time, Jan. 31, 2020.

Article Sources

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  2. European Union. "The History of the European Union." Accessed Sept. 10, 2020.

  3. World Bank. "GDP (Current US$)." Accessed Sept. 10, 2020.

  4. UK Parliament. "Brexit Timeline: Events Leading to the UK’s Exit From the European Union." Accessed Sept. 10, 2020.

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  10. International Monetary Fund. "The IMF and the Greek Crisis: Myths and Realities." Accessed Sept. 11, 2020.

  11. European Central Bank. "Withdrawal and Explusion From the EU and EMU: Some Reflections." Accessed Sept. 11, 2020.