The European Union (EU) is a family of democratic European countries, committed to working together for peace and prosperity. It is not a State intended to replace existing states, but it is more than any other international organization. The historical roots of the European Union lie in the Second World War. The idea of European Union was perceived to prevent destruction from ever happening again. It was first proposed by the French Foreign Minister Robert Schuman in a speech on 9 May 1950. This date, the “birthday” of what is now the EU, is celebrated annually as Europe Day.
The EU is unique; its member states have set up common institutions to which they delegate some of their sovereignty so that decisions on specific matters of joint interest can be made democratically at European level. The EU has established Economic and Monetary Union (EMU) whose currency is Euro. The creation of the EMU and the introduction of the euro were milestones of European integration. The EU’s highest achievement is euro and one of the Europe’s defining symbols across the globe. Euro is the world’s second largest reserve currency, and the integral part of the global economy.
Such integration has enabled immediate price comparisons for goods and services across countries. By eliminating exchange rate risk and foreign transaction costs, the euro facilitates a more efficient distribution of resources, and makes price of goods and services fully transparent across all the European Union countries. Thanks to rapid technology development this single market is a powerful tool for growth, and the stability. The stability of the currency has made the euro area and attractive investment destination.
These trade and investment gains have increased growth and jobs. Euro area is set to increase in the future, Slovakia joined the single currency in January 2009 and Estonia joined in January 2011. EU is the economic union of twenty seven nations with approximately 503. 5 (as of 2012) million citizens and more than $16,843 billion in output. It is the largest and most integrated regional agreement today in the world. It has its own revenues and budget, a set of institutions for making laws and regulating areas of common interest, a common currency, and freedom of movement.
(Gerber 2012) The economiccrisis has prompted intense and sustained action by the EU’s national governments, the European Central Bank and the Commission. All have been working closely together to support growth and employment, ensure financial stability, and put in place a better governance system for the future. The EU has established Economic and Monetary Union (EMU) whose currency is Euro. The creation of the EMU and the introduction of the euro were milestones of European integration.
Renewed tensions in sovereign debt markets, high oil prices and decelerating world output growth have all contributed to sharp loss of confidence towards the end of 2011 and later output contraction in the European Union. However, strong policy actions and major advancements in the EU institutional framework have averted a far worse outcome and brought about an easing of financial market tensions, as well as, stabilization at the beginning of 2012. Nevertheless, uncertainties about banking sector are still weighing on the economic and financial conditions.
Financial market conditions in the first months of this year have improved as sovereign and bank funding stress have eased and the prospect of a credit crunch has largely diminished, mainly thanks to non-standard monetary policy measures, most notably the Euro system’s long term refinancing operations in December 2011 and February 2012. Uncertainty still remains about fiscal developments in some Member States, credit growth is private sector is still subdued and it is not expected to pick up in the short term. The credit approval conditions remain tight, even though we have seen positive signs, in the demand from private households and firms.
Outside EU, global growth has lately seen signs of reacceleration. The United States recovery seems have gained some momentum in the second half of 2011, mostly reflected by stronger consumption growth and milder fiscal consolidation (implying a public debt level of 112% of GDP in 2013), where labor market still remain uncertain. In the Japan, the post disaster recovery is set to continue, simultaneously with investment. Growth in emerging markets is expected to continue and remain robust, mostly in China. Keep in mind, growth in the emerging market is expected to remain moderate, compared to past performances.
Global trade has decelerated in 2011 driven by the single evens such as disaster in Japan, but also by geopolitical tensions and turmoil in sovereign-debt markets in Europe. Global trade in line with GDP is projected to grow moderately in 2013, increased energy prices are weighing on growth, but going forward crude oil prices are assumed to stabilize and decrease over the next couple years. EU Economy from Recession toward a Recovery In 2012 EU economy is not out of woods yet; it continues to hurt from both European sovereign debt crisis and Great Recession of 2008-2009 (Graph 1.1).
Main concern of EU is shrinking economy and rising unemployment, customer inflation is above long term average. Graph on the right shows EU annual GDP during Great Recession is negative, but going forward annual GDP is moving toward positive output. Looking ahead, number of policy achievement that will subdue sovereign debt crisis and bring back consumer and investor confidence, and return EU economy toward recovery path. This will take some time, particularly in the area of moderate global trade and output growth.
In 2013, with confidence returning to investors and consumers, economic growth is expected to accelerate to moderate levels. As show on the Table 1. 1, most EU member states have entered or are moving into recession in 20122/2012. Looking beyond 2013 stagnant growth is expected with assumptions that euro area will successfully handle sovereign debt crisis of it most critical states PIIGS (Portugal, Ireland, Italy, Greece, and Spain). Number of challenges is visible as EU moves toward future. In the short to medium run, EU must continue to create convergence in income and living standards between its poorest and richest members.
Over the medium run it must look to prepare for further extending it borders for the possible accession of Turkey and Former Yugoslavian states, and in the long run it must look to support its social system to support for older population. Projection of EU population (twenty seven states) through 2040 of the population 65 and over is projected to reach nearly 28% from an estimated 18% in 2010 (Gerber 2012). Increased level of population of 65 and over means total number of people working will decline. Fewer workers mean that the rate of the economic output will decrease. References 1.
Gerber, James, (2012), International Economics 5th Edition, Pearson Education Inc. 2. 2. European Economy 1: European Economic Forecast 2012 http://ec. europa. eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-1_en. pdf 3. European Commission: Communication from the Commission 201, Blue print for a deep and genuine economic monetary union Launching a European Debate http://ec. europa. eu/commission_2010-2014/president/news/archives/2012/11/pdf/blueprint_en. pdf 4. European Union: Future Challenges http://ec. europa. eu/taxation_customs/40customs/customs_service/future/index_en. htm.