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The European Economy Cheat Sheet (DRAFT) by

Explaining European union, its benefits and much more.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

What is European Union?

EU is an unique economic and political union betwwen 27 European countries.
The Schuman Plan created on 9 May 1950 made sure than Germany and France would cooperate in steel and coal production - neither of them could get enough resources to start producing weapons.
France and Germany gathered enough money to improve their standard of living (building new roads, homes and other buildings to replace those that were destroyed during WWII)
the European Coal and Steel Community (ESCS) was founded in 1951 together with Luxemb­ourg, the Nether­lands, Belgium and Italy
the European Economic Community (EEC) was founded in 1957 and written down in The Treaty of Rome. The treaty contained the agreements upon agricu­lture, economy and transport. By 1992 twelve countries had joined.
In 1992 there was signed a treaty in Maastricht that decided that from then on the collab­oration would be calle the European Union - many import and export regula­tions were abolished.
The Lisbon Treaty signed on 1 December 2009 made the EU more democratic and easier to govern.
Brexit = the UK decided by voting to leave the EU (51,9% was the majority). They left on 31 January with a deal called the withdrawl agreement.

The EU instit­utions

the Council of the European Union (Council of minist­ers))
memebers are not the prime ministers but ministers who vary depending on the subject of meeting
each country has its own voice in the CoM
role: voice of the EU memeber govern­ments, adopting EU laws and coordi­nating EU policies
members: government ministers from each EU country, according to the topic
president: each EU country holds the presidency on a 6-month rotating basis
location: Brussels
the European Council
it brings together the EU leaders (heads of states) to define the general political directions and priorities of the EU; decides on the EU's overall direction and political priorities
it represents the highest level of political cooper­ation between EU countries
role: defines the general political direcition and priori­eties of the EU, it nominates and appoints
members: heads of the states
location: Brussels
the European Commision
there are 27 commis­sio­ners, one frm each country, the commis­sioners do not represent their country, but the EU as a whole
each commis­sioner is respon­sible for a different sibject
the EC makes proposals for European laws and monitors their implem­ant­ation by all memebr states
manages EU policies and allocates EU funding, sets EU spending priori­ties, together with the Council and Parliamen it draws up annual budget for approval by the Parliament and Council, supervises how the money is spent
it represents the EU intern­ati­onally, speaks on its behalf in intern­ational bodies, in particular in areas of trade policy and humani­tarian aid
role: promotes the general interest of the EU by proposing and enforcing legisl­ation and implem­enting it as well
members: a team or college of commis­sio­ners, 1 from each EU country
president: Ursula von Leyen
location: Brussels
the European Parliament
directly elected by EU voters every 5 years (lastly in 2019)
the EU's law-making body
705 members - they do not sit together in the European Parlia­ment, they foin the MEPs (Members of the European Parlia­ment) from other EU countries with whom they agree the most, and so form the European party
3 roles:
legisl­ative - passing EU laws, together with the Council of the EU, based on the European Commission proposals
superv­isory - democratic scrutiny of all EU instit­utions, electing the Commission President, examining citizens' petitions and setting up inquiries, discussing monetary policy
budgetary - establ­ishing the EU budget, together with the Council, approving the EU's long-term budget - the Multia­nnual Financial Framework
role: directly elected EU body with legisl­ative, superv­isory, and budgetary respon­sib­ilities
members: 705 MEPs
president: Roberta Metsola
location: Strasb­ourg, Brussels, Luxembourg
**the European Court of Justice
is respon­sible for ensuring EU lawis being interp­reted and applied the same in every EU country
monitors whether the countries, citizens and businesses in the EU comply with the EU rules and legisl­ations

Objectives and values of the EU

goals of the EU
to promote peace, values of the EU and well-being of the citizens
to offer freedom, security and justice without internal borders
sustai­nable develo­pment based on economic growth and price stability
economy with full employment and highly compet­itive market and social progress, and enviro­nmental protection
fight against discri­min­ation
promote scientific and techno­logical progress
improve economic, social and territ­orial cohesion and solidarity among the EU states
respect culture and language of a country
establish economic and monetary union, whose currency is euro

Objectives of the EU

forming a customs union
removing all taxes on internal trade in order to discourage EU citizens from buying imports coming from non-EU countries
common external tariff - tax on the price of imports, it protects the domestic market
freedom of movement
no barriers to the free movement of Gs, Ss, capital and people across the EU borders
common agricu­ltural policy
the idea was that the Europe should produce its own food and not rely on foreign supplies
it implements a system of agricu­ltural subsidies and other programmes to help out farmers in the EU and improve agricu­ltural produc­tivity
help to less prosperous regions in the EU
provides money, jobs, improves schools, hhousing, roads, etc. (Euro funds)
single European market
created on 1 January 1993
EU members removed all remaining barriers to movement and free trade such as forntier checks at custom posts, cumersome importing documents, different national product and safety standards, etc.
Shengen Agreement - area without any frontier checks at custom posts
Creating of economic and monetary union
7 February 1992 Maastricht Treaty - the main focus of that is the creation of a framework for European economic and monetary union

Economic and Monetary Union (EMU) in Europe

Three stage plan for EMU
stages 2 and 3 have proved contro­versial and UK and Denmark have ipter out of them
1st stage (1 July 1990)
increased co-ope­ration between central banks (new tasks - holding consul­tations and promoting the coordi­nation of the monetary policies of the Member States - the aim is to achieve price stability
compete freedom of capital transa­ctions
improv­ement of economic conver­gence
Economic conver­gence - process in which economies of different countried become more similar to each other
2nd stage (1 January 1994)
establ­ishment of the EMI (European Monetary Institute)
main tasks of the EMI - to strengthen central bank cooper­ation and monetary policiy coordi­nation, and to make the prepar­ations required for the establ­ishment of the European System of Central Banks (ESCB)
ESCB consists of the ECB and the national central banks of all 27 member states of the EU
gradual transfer of economic decistion making power from national central banks to the ECB
increased coordi­nation of monetary policies
3rd stage (1 January 1999)
fixing of conversion rates
introd­uction of euro (online)
conduct of the single monetary policy by the ECB
entry into force of the Stability and Growth Pact
Maastricht condition - a stability and growth pact was agreed at a meeting in Dublin in 1996, budget deficit must not exceed 3% of their GDP and nainal debt must not exceed 60% of the GDP, otherwise the country will be penalised
Conver­gence criteria
they measure progress in countr­ies's prepar­edness to adopt the euro, and are defined as a set of macroe­conomic indicators
indicators focus on: price stability, sound public finances, exchan­ge-rate stability, long-term interest rates
Conditions for the 3rd criteria
annual average inflation must be within 1.5% of the rate of inflation of the 3 EU members with the lowest inflation rate
average long-term interest rate over 1 year must be within 2% of rates of the 3 best performing member states in terms of price stability
budget deficit must be lower than 3% of GDP
exchange rates partic­ipation in European Exhange Rate Mechanism (ERM II) for at least 2 years without severe tensions and without devaluing against the euro

The European Exchange Rate Mechanism (ERM)

ERM II provides the framework to manage the exchange rates between EU countries and ensures stability.
Partic­ipation in ERM II is voluntary thought. Country which wants euro must partic­ipate in it for at least 2 years.
ERM II entry id based on an agreement between the ministers and central bank governors of the non-euro area Member State and the euro-area Member States, and the ECB

It covers the following:

central exchange rate between euro and the country's currensy is agreed - currency is allowed to fluctuate by up to 15% above or below this central rate
if necessary the currency is supported by interv­ention (buying or selling) to keep the exchange rate against the euro within +- 15% fluctu­ation band.

The euro

the name given to the currency that has replaced the national currencies of the EU member countries
euro area/e­urozone
countries using the euro
it is a monetary union of 19 (soon to be 20) member states of the EU that have adopted the euro as their primary currency
Euro system
the monetary authority of the eurozone
it is formed by the ECB together with all central banks of countries with euro


The creation of the ECB was accomp­anied by the introd­uction of the euro. The ECB was founded on 1 June 1998.
The seat of the ECB is in Frankfurt am Main in Germany and the President is Christine Lagarde
Its main task is to maintain price stability and to keep the infaltion at a desired level of 2%.
The ECB takes decisions on the single monetary policy and interest rate for the euro area.
ECB together with all central banks of countries with euro for the Euro system.
ECB heads the European System of Central Banks.

Argument for and against euro

Potential benefits
reduced transa­ction costs - no commission for changing money
increased European compet­ition - all prices are in euro
reduced exchange rate uncert­ainty - intern­ational trade may become less risky
lower interest rates - the goal of ECB is to keep the inflation as low as possible
increased direct inward invesment
Potential costs
economic misali­gnment resulting in higher unempl­oyment and/or lower real income growth in some countries - the value of euro may harm countries at certain times when they would need to alter it
national govern­ments will no longer be able to use economic policy to control inflation and unempl­oyment in their own countries - ECB setes interest rates and the rest has to obey by them
changeover costs - though they happen only once