European Union

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The European Union is an ever-evolving alliance of fifteen European countries designed to foster economic cooperation among its members. With its roots stretching back to just after World War II, this alliance has the ultimate goal of unifying the economic interests of these countries in order to reduce the chance of widespread armed conflict returning to the European continent.

In the early 1950s, Germany and France spear headed the establishment of the European Coal and Steel Community. At this time, West Ger many was in the process of rebuilding its war ravaged steel industry under the direction of the United States and Great Britain. This was an understandable source of concern for France, as German industrial might had been used against the French in the two world wars earlier in the century. Consequently, a federation that would govern these important economic resources won the approval of both the French and Germans. They were also joined by Italy, Belgium, Luxembourg, and the Netherlands as the original six founding nations of what would eventually be come the European Union.

The European Coal and Steel Community was later followed by the establishment of the European Economic Community under the Treaty of Rome, which was signed by the same six countries in 1957. This treaty established the framework for the six member countries to pursue an economic and monetary union by creating a single market to further their economic development. The European Economic Community established a customs union for re moving trade barriers, such as tariffs and quotas, between member countries over a period of several years. Also, common external tariffs were phased in for goods entering the union.

The single market established by the European Economic Community also opened the door for the free movement of workers, businesses, and capital throughout the community. Border stops and customs checks were eliminated, companies expanded across national borders, and financial institutions expanded with them.

To further facilitate trade within this single market, European leaders felt a single currency should be created to eliminate foreign-exchange hurdles encountered by companies doing business across European borders. After several intervening rounds of negotiations and agreements, the Treaty on European Union was signed in Maastricht in December 1991. The European Union was formally established as the successor to the European Economic Community, and the treaty laid the groundwork for the completion of the economic and monetary union by calling for a new European currency.

The European Union introduced this new currency on January 1, 1999, christening it the "euro." Like many other changes implemented by the European Union, the euro was not launched without difficulties. By the time the euro was introduced in 1999, nine more countries had joined the original six members. The European Union had added Denmark, Ireland, and the United Kingdom to its ranks in 1973; Greece in 1981; Portugal and Spain in 1986; and Austria, Finland, and Sweden ratified membership in 1995. During the launch of the euro, the United Kingdom, Sweden, and Denmark all chose to "opt out" of participation due to political pressures in each country. One other member, Greece, failed to satisfy the economic criteria for convergence, which required members of the "euro zone" to meet targets for price stability, long-term interest rates, government budget deficits, and government debt. Consequently, the conversion to the euro was initiated in only eleven of the fifteen member states in 1999.

Transactions in member states beginning in 1999 could be denominated in euros. The actual euro currency and coins will begin circulation in 2002. In the "interim period," transactions can be carried out in either euros or the former national currencies of the member states.

The governance of the European Union is quite complex. The European Commission, based in Brussels, introduces legislation and negotiates all trade agreements between the European Union and other countries. The five largest countries in the union appoint two members and other countries one member to the European Commission. The European Parliament, which is the only elected body, also has legislative and veto authority in some specific areas. The Council of Ministers, comprised of civil servants from each country, acts on the legislation proposed by the European Commission. Most decisions are by a majority vote, but some require unanimity.

Monetary policy in the countries adopting the euro is governed by the European Central Bank. The primary mission of this independent institution is to maintain stable prices. It is also responsible for foreign-exchange operations and managing foreign reserves in the euro zone. Although it is a relatively new currency, the euro has joined the U.S. dollar and Japanese yen as a reserve currency held by central banks.

The fifteen members of the European Union in 1999 have a combined population 40 percent larger than that of the United States, creating an attractive business marketplace without internal trade barriers. Many American companies—from Ford, which sells 15 million vehicles a year in Europe, to Coca-Cola, Inc., which serves 209 million of its beverages to European customers every day—have a long-established presence in Europe. Other companies, such as software giant Microsoft, have entered the European market in recent years and been successful in the European Union's single market. If the European Union continues to add new members, it may be only a matter of time before the European marketplace begins to challenge the United States as the premier business market in the world.

European companies, with their enhanced size due to expansion across Europe, have also set their sights across the Atlantic. The purchases of Chrysler by Daimler-Benz and Amoco by British Petroleum in the late 1990s were but two of the many examples of large European companies strengthening their positions in the American marketplace. With the majority of foreign investment in the United States coming from members of the European Union, economic interests have continued to become more intertwined as multi-national companies now operate on both sides of the Atlantic.

In the future, the size of the European Union will likely expand because numerous other countries, primarily in Central and Eastern Europe, have expressed an interest in joining the union. Many of these countries are in the process of making the structural changes needed to meet the criteria for membership in the European Union. Admitting these countries would add to the European Union's stature in global trade negotiations, further the cause of social stability in the region, and add yet another chapter to the story of this dynamic union.

Dinan, Desmond, ed. (1998). Encyclopedia of the European Union. (1998). Boulder, CO: Lynne Rienner.

How Does the European Union Work?, 2d ed. (1998). Luxembourg: Office for Official Publications of the European Communities.

Leonard, R. L. (1998). The Economist Guide to the European Union. London: The Economist in association with Profile.

Redmond, John, and Rosenthal, Glenda G., eds. (1998). The Expanding European Union: Past, Present, Future. Boulder, CO: Lynne Rienner.

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