EUROPEAN

UNION
PRESENTED:-

AVICK BISWAS.
ISB&M ,
BANGALORE.
 ABOUT EUROPEAN UNION
• The European Union (EU) is an economic and political union of 27 member states, located primarily in Europe.
•
• The EU was established by the Treaty of Maastricht on 1 November 1993.
•
• The  EU  combined  generates  an  estimated  30% share (US$18.4 trillion in 2008) of  the nominal gross world
product and about 22% of the PPP gross world product.
•
• The  EU  has  developed  a single market through  a  standardized  system  of  laws  which  apply  in all member states, 
ensuring the free movement of people, goods, services, and capital.
•
• It  maintains common policies on  trade  and  the  member  states  have  adopted  a  common currency,  the EURO, 
constituting the Eurozone.
•

• Largest economic body in the world.

•

• World’s most successful model for advancing peace and democracy.

•
 GROSS DOMESTIC PRODUCT
• The gross domestic product (GDP)  or gross domestic income (GDI)  is  a  basic  measure  of  a 
country's overall economic performance. It is the market value of all final goods and services made 
within the borders of a country in a year.
•
GDP (purchasing power parity): GDP - real growth rate:
$14.91 trillion (2008 est.) 0.8% (2008 est.)
country comparison to the world: 1 country comparison to the world: 184
$14.79 trillion (2007 est.) 3% (2007 est.)
$14.36 trillion (2006 est.) 3.4% (2006 est.)
note: data are in 2008 US dollars

GDP - per capita (PPP)

GDP - composition by sector
$33,700 (2008 est.)
Agriculture : 2%
country comparison to the world: 38
Industries : 27.1%
$33,500 (2007 est.)
Services : 70.9% (2008 est.)
$32,600 (2006 est.)
note: data are in 2008 US dollars

GDP (official exchange rate)

$18.14 trillion (2008 est.)

The purchasing power parity (PPP) theory uses the long-term equilibrium exchange 

rate of two currencies to equalize their purchasing power.
27
 BUDGET FOR EU
• EU had an agreed budget of €120.7 billion for the year 2007 and €864.3 billion for the period 
2007-2013.
•
• By  comparison,  the  UK  expenditure  for  2004  alone  was  estimated  at  about  €759 billion and 
France was estimated at about €801 billion.
•
• The budget for a year, or period of years, is determined in advance.
•
• Council of Ministers, the European Commission and  the European Parliament. All three 
take a part in setting the annual budget.
•
• SOURCES OF REVENUE:
•
• 1. Traditional own resources -  are  taxes  raised  on  behalf  of  the  EU  as  a  whole,  principally 
import duties on goods brought into the EU.
•
• 2. VAT based own resources - are taxes on EU citizens derived as a proportion of VAT levied 
in each member country.
•
 SOURCES OF REVENUE CONTINUED…
• The EU applies a call-up rate to the tax base, generally of 0.33%, but this is varied for some 
countries.
•

• For  2007-2013  the  rate  proposed  for  Austria is 0.225%,  and  Germany 0.15%, the 
Netherlands and Sweden 0.1%.
•
• 3. Gross national income (GNI) based own resources –
• GNI based own resources currently forms the largest contribution to EU funding. 
• Revenue is currently capped at 1.24% of GNI for the EU as a whole.
•
• 4. Other Revenue –
• Other Revenue makes up approximately 1% of the EU budget
• This includes: interest on deposits or late payments,
• payments from non-EU organizations,
• underspent funding from community programs,
• any other surplus from the previous budget.
•
 EXPENDITURE
• In the 2006 budget, the largest single expenditure item was agriculture.
•
•

• Direct aid, export refunds, storage, rural development and other with around 46.7% of the 

total budget.
•
•

• Training, media, information, energy, nuclear safeguards and environment, consumer

protection, internal market, industry and research and technological development,
other internal policies took up around 8.5%. 
•
•

• Administration accounted for around 6.3%.
•
•

• External actions, the pre-accession strategy, compensations and reserves  brought  up 
the rear with approximately 4.9%, 2.1%, 1% and 0.1% respectively.
•
REVENUE & EXPENDITURE
 INFLATION
• Inflation is an increase in the price of a basket of goods and services that is representative 
of the economy as a whole.
• Inflation is caused by a combination of four factors:
• The supply of money goes up.
• The supply of other goods goes down.
• Demand for money goes down.
• Demand for other goods goes up.
•

• Current inflation rate is -0.10%
•

• Since calculating inflation is euro zone is more complex compare to single country  so there 
individual  country  inflation   calculation  is  called  HICPs (Harmonized indices  consumer 
prices)
•
• The combine inflation rate is called “the monetary union index of consumer prices.
•
 Harmonized Index of Consumer Prices
• The  Harmonized  Index  of  Consumer  Prices  (HICP)  is  an  indicator  of  inflation  and  price 
stability  for  the  European  Central  Bank  (ECB).  It  is  a  consumer  price  index  which  is 
compiled according to a methodology that has been harmonized across EU countries.
•
• The  euro  area  HICP  is  a  weighted  average  of  price  indices  of  member  states  who  have 
adopted the euro.
•
• The  primary  goal  of  the  ECB  is  to  maintain  price  stability,  defined  as  keeping  the  HICP 
below but close to 2% for the medium term.
•
•       HICP attempts to incorporate rural consumers into the sample while the CPI maintains a 

survey strictly based on the urban population.
•
• HICP does not fully incorporate rural consumers since it only uses rural samples for creating 
weights; prices are often only collected in urban areas.
INFLATION RATE
 CONTROL OF INFLATION
• A Contractionary Policy results in increasing interest rates to combat
inflation.
•
• An Economy growing in an uninhibited manner leads to inflation
•
• Hence increasing interest rates increase the cost of credit thereby making
people borrow less.
•
• Due to lesser borrowing the amount of money in the system reduces which in turn
brings down inflation.
•
• A Contractionary Policy is also known as TIGHT POLICY as it tightens the flow
of money in order to contain Inflationary forces.
•
•
 CPI INDEX OF EUROPEAN UNION

• The European union CPI index included 129 items.

•
• The Consumer Price Index is used as a general measure of
inflation.
•
• The European Union also produce the Harmonized Index of
Consumer Prices (HICP).
•
• The main purpose for which the Harmonized Index of Consumer
Prices is used is inflation comparison between the EU countries.
 Fiscal policy & Fiscal Deficit
• Fiscal policy is the use of government spending and revenue collection to 
influence the economy.
•
• When a government’s total expenditure exceeds the total revenue that it 
generates  (excluding  money  borrowing)  this  gap  is  known  as  fiscal 
deficit).
•
• Besides Taxation the government’s major revenue is borrowing.
• Another effective way to fill this deficit is also through disinvestment.
 Fiscal policy 2010
• Estimated income euro 141 bn..
•
• (45%) into growth and employment measures –
• a 2.6 % rise on 2009 – to help restore.
•
• €63.8 billion for jobs, infrastructure, competitiveness.
•
• Trans-European transport and energy networks will receive 10.3%
more funding compared to 2009 (€2bn)
•
• 2010 will be the European Year for Combating Poverty and Social
Exclusion
•
• € 8.1 billion in external aid.
•
 Making the EU a safer place for all

• The  part  of  the  budget  to  receive  the  biggest  boost  in 
spending  (in  line  with  the  EU’s  seven-year  financial 
programming) will be projects to fight crime, terrorism and 
manage migration flows. 
•
 FISCAL POLICY
• FRAMEWORK FOR FISCAL POLICIES:
•
• The framework for fiscal policies of EU Member States is primarily intended to
monitor and supervise the deficits and debts of each member country. The aim is
to achieve balanced budgetary positions over the economic cycle. The
Commission is the institution responsible for the monitoring.
•

• OBJECTIVES
•
• TO SECURE SOUND PUBLIC FINANCES
• TO MAKE A COMMON FRAMEWORK FOR ALL EU NATIONS
• TO AVOID ANY IMBALANCE FROM ONE MEMBER NATION TO OTHER.
• TO MAINTAIN THE DEFICITS AND DEBTS OF ALL MEMBER NATIONS.
•
 PROBLEMS
•

• The Constitutional Treaty of EU :

•

• Has not innovated on fiscal policy.
•
• Has even reduced the EU-budget powers of the European Parliament
•
•
• Europe’s fiscal Constitution is not optimal:
•
• The bulk of spending is through national budgets.
•
• EU budget only 1% of GDP.
•
•

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 SOLUTION
•

• There is a need to integrate fiscal policy at the European level

•
– Integrate national and EU budgets
–
– Reform the financing of EU Budget
–
– The “own resources” must become own resources
–
– Introduce Euro tax
–
– Vat
–
– Corporate tax
–
– Capital income
–
– Energy tax
•  
– Make the European Parliament responsible for taxing and spending.
•

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 The European Union

1951

Founding
Members

Belgium
France
Germany
Italy
Luxembourg
Netherlands
 1973

Denmark
Ireland
United Kingdom
1981

Greece
 1986

Portugal
Spain
 November
1989

Fall of the
Berlin Wall
sets the
stage for
unifying
Europe and
EU
enlargement
1995

Austria
Finland
Sweden
 2004

Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovakia
Slovenia
 2007

Bulgaria
Romania
Candidate Countries

Croatia
Former Yugoslav
Republic of Macedonia
Turkey

Potential
Candidate Countries

Albania
Bosnia & Herzegovina
Montenegro
Serbia including Kosovo
under UN Security Council
Resolution 1244
Monetary Policy
Monetary policy is the process by which
the government, central bank, or
monetary authority of a country controls:

1 Supply of money,
2 Availability of money
3 Cost of money or rate of interest, in
order to attain a set of objectives
oriented towards the growth and
stability of the economy.
Objective
§ To achieve price stability by
controlling inflation and
deflation .

§ To promote and encourage

economic growth in the economy .
§
§ To ensure the economic
stability at full employment or
potential level of output .
 Scope of Monetary Policy
The central bank is the sole
issuer of banknotes and bank
reserves. That means it is the
monopoly supplier of the
monetary base. By virtue of this
monopoly, it can set the
conditions at which banks
borrow from the central bank.
Therefore it can also influence
the conditions at which banks
trade with each other in the
money market.
 Control of Inflation…
The CBI makes an
adjustment in its
lending rate(Repo
Rates) in order to
influence the cost of
credit. Thereby
discouraging borrowing
and hence reduces
brings reduction in the
system.
 Open market…

The Central Bank does this by

issuing fresh bonds and treasury
bills in open market. This tool
was extensively used at the time
when dollar inflows into the
economy were very high,
resulting in euro appreciation.
How can monetary policy influence
the price level?
•

• Inflation is ultimately a monetary phenomenon
•
• Monetary policy influences with the so-called transmission process the price level
• - Actions of the central bank are transmitted through the
•    economy and, ultimately, to prices
• - The process is in essence complex
•

• The central bank is the sole issuer of banknotes and bank reserves.
•
• By virtue of this monopoly, the central bank is able to influence money market conditions 
and steer short term interest rates.
 How Monetary Policy Controls Inflation?

CENTRAL BANK

CASH
CURITIES AND TRESURY BILLS CASH RESERVE RATIO
STATUTORY LIQUID RATIO
BANK RATE

 
CRR SE IN 
LE
INC ING

SO
ND

 %
LD
RE  RAT

REA
AS

INC
E  E

COMMERCIAL BANKS
REDUCE LIQUIDITY 
REDUCED BORROWING OF  IN MARKET
LOANS

CORPORATES INDIVIDUALS
•

• The economic crisis in Europe –

causes, effects, policies, alternatives
 Overview

•Causes
•Current situation 

•Green shoots?

•EU policy response

•Critique – what needs to be done.
Causes – not just a financial crisis
• Sharp rise in commodity prices.
•

• Sharp appreciation of the euro.
•

• Lagged effect of past interest-rate rises.
•

• Imbalances and (housing) booms in some EU countries.
•

• Then shock from US hit Europe:

•

• US consumer retrenchment.
•

• Toxic assets held by EU banks.
•

• Emerging markets and world trade hit.
 RECESSION

The global financial crisis, that began in 2007/2008, the Euro zone entered 
its first official recession in the third quarter of 2008, official figures 
confirmed in January 2009.

Euro zone's unemployment rate hike

Inflation dropped to 3.2%, down 0.5 percentage points . A 2.9% monthly 
reduction in energy costs was the main reason for the fall.
Severe lagged impact on (un)employment
 Con…
• “As  a  result  of  the  global  turmoil,  capital  flows  to  Eastern  Europe  have 
been declined. Western European banks are no longer providing new 
funding to their local subsidiaries, and private sector credit growth has 
slowed, in many countries to near zero.”. 
•
•    “At the same time, demand for Eastern Europe’s exports has shrunk, as 

its  principal  trading  partners  are  in  recession.  With  both  exports  and 
domestic demand shrinking, GDP in the region is declining”.
 ACTION PLAN

• The  Commission  proposed  ‘a  European  Economic  Recovery  Plan’  in 

November, 2008.
•
• The plan aims to limit the impact of the crisis on the real economy via a 
comprehensive  package  of  measures  at  the  EU  and  national  level, 
including  a  significant  budgetary  stimulus  amounting  to  more  then 
€300 billion (corresponding to1.5% of EU GDP)
•
• the  overall  stimulus  provided  by  the  public  sector  in  response  to  the 
downturn is thus estimated to be around 4% of GDP over 2009–10.
•
•
 Policies
•
• The  countries  must  move  together,  and  we  must  strengthen  common 
action  to  prevent  the  push  to  reduce  the  Single  Market’s  aquis:  we 
need of more “Europe”
•  

• It is important that the West European countries resist the temptation of 
protectionism.  For  many  of  the  new  member-states,  exports  account 
for 80-90 per cent of GDP. By far the biggest market for all of them is 
the euro zone, which is now in recession. Any signs of protectionism 
in  Western  Europe  would  make  the  situation  in  Central  and  Eastern 
Europe a lot worse. 

•
THE FUTURE OF THE
EUROPEAN UNION:
OPPORTUNITIES AND
CHALLENGES
• The EU:
•

•     accounts for one eighth of the world’s states 
•

• has a population, and therefore also an internal market, of 450 
million
•

•     has a GDP almost as large as the US (EU-9 trillion USD, US-10 trillion)
•

•     ‘Europe’ and ‘the EU’ are becoming increasingly co-terminus.
•THANK YOU !

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