A Briefing on the European Union- the past, present and future -

Mattias Hamberg

The starting point

Why do I (you) need to know anything about the European Union?

Top 10 States for EU Foreign Direct Investment

State Investment, USD billion

Texas 69.6

California 57.2

New York 36.1

Michigan 25.0

Pennsylvania 24.5

Illinois 23.8

Florida 22.4

Ohio 21.0

North Carolina 20.8

New Jersey 20.4

Source: U.S. Department of Commerce, Bureau of Economic Analysis, 2002. Foreign Direct Investment in the United States. Operations of U.S. Affiliates of Foreign Companies. Preliminary 2000 Estimates. Investment figures are for 2000.

Top 10 States with jobs supported by EU investments

State Number of Jobs

California 346,000

New York 287,200

Texas 243,000

Pennsylvania 192,300

Illinois 186,900

North Carolina 185,600

Florida 172,000

Michigan 163,200

New Jersey 154,300

Ohio 145,800

Top 10 States Exporting to European Union, 2001

StateTotal value,

USD billion% 2000-01

California 22.8 11.3

New York 11.0 0.9

Texas 10.7 2.9

Washington 8.7 -21.6

Massachusetts 7.1 -6.6

Illinois 6.6 -2.9

New Jersey 5.9 1.7

Ohio 5.2 13.0

Pennsylvania 4.6 7.0

Michigan 4.3 -10.4Source: U.S. Census Bureau, Foreign Trade Division/ MISER 2002. Figures are for 2001.

Structure

• Data on EU• EU in the past versus EU of the future• Political agenda• Economic agenda• Major challenges lying ahead

The past• Founded in 1950• Originally six countries• International politics has certainly shaped the Union’s

development in the past and present• Some important steps:

– European Coal and Steel Community (1950)– European Economic Community (1956)– Euratom (1956)– Common Agricultural Policy (1962)– European Monetary System (1979)– Maastricht treaty (1992)– Schengen agreement (1995)– European Central Bank (1999)– The Euro (2002)

Developments of the last decade

• The European Union is currently undergoing dramatic changes...

Political motives Economic motives

-Free movement of goods,services, capital and people

-Creating stability between nations by integrating them

Member statesUnion membership is open to any European country with a stable democratic government, a good human rights record, a properly functioning market economy, and sound macroeconomic policies. Candidates must also have the capacity to fulfill and to implement existing EU laws and policies (known as the acquis communautaire).

• France• Germany• Italy• Belgium• The Netherlands• Luxemburg• UK (1973)• Denmark (1973)• Ireland (1973)• Greece (1981)• Spain (1986)• Portugal (1986)• Austria (1995)• Finland (1995)• Sweden (1995)

• Estonia• Lithuania• Latvia• Poland• Chech republic• Slovakia• Slovenia• Hungary• Malta• Cyprus

• (Bulgaria)• (Romania)• (Turkey)

EU’s political agenda

• European Parliament– Legislative power

– Budgetary control

• Council of the European Union– Highest legislative power

– Coordinates economic policies

• European Commission– Initiates and drafts legislation

– Handles international trade agreements

• Court of Justice– Ensures that community law is uniformly interpreted

– A court of first instance

• European Central Bank

How many leaders does Europe need?

• Pat Cox, President of the European Parliament

• Romano Prodi, President of the European Commission

• Constantin Simitis, President of the Council and Prime minister of Greece

• Wim Duisenberg, President of the European Central Bank

EU and Bureaucracy

• Do we need so many (expensive) institutions to govern Europe?

• Do people care about the union?• Low interest in the parlament elections• Little knowledge about the functioning of the union

• Who likes and who dislikes the Union?• The further north from Brussels you get the more skeptical

people get...

The budget

• Financing the budget• ”Traditional own resources” (levies and tariffs on agricultural products

from non-members), ~14%• ”VAT resources” (consumption determined contributions), ~35%• ”GNP resources” (wealth determined contributions from member

states), ~48%

• Budget spending• Agricultural subsidies, 43%• Structural measures (regional support), 30%• Other internal policies, 6%• External actions, 5%• Administration, 5%• Pre-accession aid• Total around €101 Billion in 2003 ($112 Billion)

Common European markets

• Started with free trade of coal and steel• Free trade then extended to other areas• Free movement of capital• Free movement of labour

• 1993 Single European Market• 1995 The Schengen agreement

is entered• 1999 True single economic

market

Are the common markets only for Europeans?

EU’s economic agenda

• 1979 Agreement on having common financial goals• 1990 Basically all capital restrictions between member

countries are removed• 1992 The Maastricht treaty is signed• 1994 European Monetary Institute is created• 1994 Economic and Monetary Union (EMU) created• 1994-98 Local currencies pegged to the ECU• 1999 Final (irrevocable) pegging of national currencies• 2002 All national currencies of participating states are

substituted for the Euro

Convergence criteria

• Stable prices: the rate of inflation may not be more than 1.5 percentage points higher than in the three member states with the lowest inflation.

• Stable exchange rate: the exchange rate must have been stable for the two years prior to entry into the third stage of EMU.

• Healthy public finances: the national debt may not exceed 60 per cent of gross domestic product (GDP) and the deficit in public finances may not exceed 3 per cent of GDP.

• Long-term interest rates: the long-term interest rate may not be more than 2 percentage points higher than in the three member states with the lowest inflation.

The role of the central bank

1. Frames and implements a common economic policy

2. Conducts foreign exchange operations

3. Management of the European payment system

• Economic policy is focused on economic stability.

• Does stability inhibit growth, and does stability inhibit equality among member countries?

The Euro

• As of January 1st 2002, twelve countries have abandoned their past currency and choosen the Euro.

• The abandonment is (supposed to be) irrevocable.

Argumentation

• Why have a single currency?

– Pro: -Shows uniformity (political ambition)

-Gives EUROPE a stronger position

-Reduced costs of changing money

-No speculation

Con: -European economies are not uniform

-Mobility is not good enough

-Single currency blocks a geographical expansion of the union

The Future looks bigger

• The political agenda– New members are

entering the union– Harmonisation means

long-term security

• The economic agenda– Harmonisation might

influence short-term survival of the union

Europe is spreading its wings. In freedom. In prosperity. And in peace. It is a truly proud moment for the European Union. It is a triumph for liberty and democracy. To our new members I say: “Warmly welcome to our family”. Our new Europe is born.

EU in year 2004

Enlargement of:

Countries: 67%

Area: 23%

Population: 20%

Main question for the future: Will all countries benefit from the same economic policy?

Challenges

• Short-term challenges• Integrating cultures• Removing subsidies• Increased bureaucracy• Stagnated economies

• Long-term challenges• Ageing society• Integrating cultures / handling social differences• International agenda?

US - EU relations

MICHIGAN AND EUJobs

• EU investment in Michigan supports an estimated 163,200 jobs (2000).1

• Exports to EU support an estimated 35,900 jobs in Michigan (2001).2

Investment• EU is #1 foreign investor

in Michigan (2000).1

• EU investment amounted to an estimated $25.0 billion or 64% of total foreign investment in Michigan (2000).1

Exports• Michigan’s goods exports

to EU were $4.3 billion, representing 10% of total exports (2001).2

1 US Department of Commerce, BEA, 2002. Foreign Dir ect Investment in the United States. Operations of US Affiliates of Foreign Companies. Prel iminary 2000 Estimates.2 Office of the United States Trade Repr esentativ e and U.S. Cens us Bureau, Foreign Trade Divis ion/ MISER.3 U.S. Census Bureau, Foreign Trade Div ision / MISER.4 U.S. Census Bureau, Foreign Trade Div ision/ MISER.

Percentage of investment in 20001

EU64%Can

10%

Other5%

Japan21%

Major FDI in 2000 (USD Bn)1

25.0

3.9

8.2

2.0

0.0 10.0 20.0 30.0

EU

Can

Japan

Other

Major export markets in 20013

4.3

1.8

4.8

0.0 2.0 4.0 6.0

EU

Canada

Mexico

USD billion

Top 5 exports to EU, 2000-20014

2385

663 334 619157.01

1985

575134331624

0100020003000

Transportationequipment

Chemicals Computer andelectronicproducts

Machinery,except

electrical

Plastics andrubber

products

US

D m

illio

n

2000

2001

WASHINGTON AND EUJobs

• EU investment in Washington supports an estimated 44,000 jobs (2000).1

• Exports to EU support an estimated 71,800 jobs in Washington (2001).2

Investment• EU is #1 foreign investor

in Washington (2000).1

• EU investment amounted to an estimated $10.6 billion or 48% of total foreign investment in Washington (2000).1

Exports• Washington’s goods

exports to EU were $8.7 billion, representing 25% of total exports (2001).2

1 US Department of Commerce, BEA, 2002. Foreign Dir ect Investment in the United States. Operations of US Affiliates of Foreign Companies. Prel iminary 2000 Estimates.2 Office of the United States Trade Repr esentativ e and U.S. Cens us Bureau, Foreign Trade Divis ion/ MISER.3 U.S. Census Bureau, Foreign Trade Div ision / MISER.4 U.S. Census Bureau, Foreign Trade Div ision/ MISER.

Major FDI in 2000 (USD Bn)1

10.6

2.8

4.9

3.8

0.0 5.0 10.0 15.0

EU

Can

Japan

Other

Percentage of investment in 20001

EU48%

Can13%

Other17%

Japan22%

Major export markets in 20013

8.7

2.7

3.4

0.0 2.0 4.0 6.0 8.0 10.0

EU

Canada

Japan

USD billion

Top 5 exports to EU, 2000-20014

9029

80 342103 37471802

6595

876 1030

2000400060008000

10000

Transportationequipment

Computer andelectronicproducts

Fish Food products Machinery,except

electrical

US

D m

illio

n

2000

2001

Source: www.eurunion.org/partner/usstates/eustates.htm

Internet resources

www.eurunion.org

europa.eu.int

europa.eu.int/comm/eurostat/

www.eurunion.org/partner/usstates/usstates.htm