General policies of the European Union

Agriculture

On 30 June 1960, the European Commission tabled proposals for the creation of a common agricultural policy (CAP). CAP is built upon the three pivotal principles: market unity, Community preference, and financial solidarity.

What are the objectives of the CAP?

i. to increase productivity,

ii. to ensure a fair standard of living for the agricultural Community,

iii. to stabilize markets,

iv. to assure food supplies,

v. to provide consumers with food at reasonable prices,

It recognises the need to take account of the social structure of agriculture and of the structural and natural disparities between the various agricultural regions and to effect the appropriate adjustments by degrees.

Economic and monetary policy

The economies of the EU's Member States are becoming extraordinarily intertwined thanks to the single market. More than 60% of their trade is with each other, their companies are linked by a myriad of joint ventures, common ownerships and cooperation agreements, their banks, insurance companies and accountancy firms can operate freely across national borders and ordinary citizens can open bank accounts in any Member State and move capital around the Union as they wish.

But the full benefits of economic integration - faster economic growth, better job creation and wider choice for consumers - are still not being delivered to citizens as well as they should be. Part of the reason is the existence of 15 different currencies. Despite the success of the European Monetary System in promoting currency stability since 1979, events in 1992 and 1993 demonstrated that currencies are always vulnerable to sudden and disruptive movements.

Instability discourages investment partly because currency markets tend to 'overshoot' and fix values either higher or lower than is justified by real economic circumstances. Europe's many currencies tend to increase the costs of travel and tourism and are a financial burden to companies which operate in more than one Member State. Nor is it easy to make a comparison between prices in these countries which means that the consumer is not greatly encouraged to buy in the cheapest market.

These are some of the reasons why the Union is aiming for economic and monetary union (EMU) by 1999. The original Rome Treaty had very little to say about money because stable currencies were largely taken for granted, thanks to the Bretton Woods system which had erected the US dollar as the dominant monetary standard.

During the Community's first 35 years, coordination was more virtual than real; the Commission analysed the economic situation and produced its policy recommendations, but each Member State was entirely free to determine its own priorities.

Now, they are steering their economies towards common objectives, partly because that is the best way to prepare for EMU and partly because they know that financial markets punish countries whose policies are not particularly sound. Currencies are driven downwards and interest rates upwards - penalties which can damage prospects for lasting economic growth and job creation.

Economic policies coordination

Financial integration

Laws and procedures

Economic policies coordination

The Treaty now requires Member States to regard their economic policies 'as a matter of common concern' and to coordinate them within the Council of Ministers. The policy framework is established at the highest political level of the Union - the Heads of State or Government meeting as the European Council.

In order to qualify for membership of EMU, the Treaty requires Member States to aim for certain targets for their budget deficits, public debt, inflation, and interest rates and exchange rates. Since inflation, interest and exchange rates are crucially influenced by the size of budget deficits, special surveillance procedures are applied by the Council and the Commission.

Under the 'excessive deficit' procedure, as it is known, the focus is on a country's total outstanding public debt as a percentage of its gross domestic product (GDP) and on its budget deficit as a percentage of GDP. The targets laid down in a protocol to the Treaty are 60% of GDP for outstanding debt and 3% for the annual budget deficit.

Financial integration

The main barriers to integrating these markets were exchange controls (regulating the import and export of capital) and different regulatory frameworks in the Member States which were a barrier to the supply of such services as banking, insurance and accounting across national borders. Regulations and restrictions had tended to limit the efficiency of these sectors in many Member States and, therefore, add to their costs.

The Union's strategy for the liberalization of financial services has followed three paths:

removing exchange controls;

harmonizing essential regulations combined with mutual recognition of other national regulations. In the case of banking, this means that banks can operate across border under the supervision of their national home country authorities;

harmonising of tax rates.

Exchange controls have been removed and financial services deregulated but little progress has been made in the harmonization of tax rates. The fact that Council decisions on tax rates must be taken unanimously, the importance of the national interests at stake and the wide differences in national taxation systems have been powerful constraints on the Commission's efforts to move harmonisation forward.

Laws and procedures

Role of the Council of Ministers: the European Council sets macroeconomic policy guidelines; 0the Council of Economics and Finance Ministers adopts legislative instruments, drafts policy guidelines and coordinates macroeconomic policies.

Role of the European Parliament: the Parliament debates economic policies and issues reports and recommendations.

Role of the European Commission: proposes legislation and policy initiatives. Monitors Member States' economic policies and proposes macroeconomic policy guidelines and recommendations under the excessive deficit procedure. Participates in the G7 meetings of the world's leading industrial powers.

External relations

By negotiating as one, the Member States of the European Union have achieved far more success in promoting free trade in the world than they could have done by operating as single countries. In the process, they have opened many markets for their companies and secured many jobs for their people. The EU is the world's largest trade grouping and its exports support one job in 10 in the Member States.

Laws and procedures

Legislative procedures: important international trade agreements are adopted by the Council and require the assent of the European Parliament. Association agreements need the assent of the Parliament before they can be implemented.

Role of the European Commission: on a mandate approved by the Council, it negotiates multilateral external commercial agreements in the World Trade Organization as well as bilateral arrangements, applies EU trade legislation, proposes new legislation.

United States

The EU and the United States form a global partnership, covering not only trade and economics but also cooperation on a whole range of foreign policy issues and global challenges.

The economic relationship between the two is characterized by close economic interdependence. The EU and United States are each other's most important partners in trade and investment. Bilateral trade flows in goods and services amounted to ECU 200 billion and total transatlantic investment was ECU 365 billion in 1994. More than three million jobs on either side of the Atlantic depend on this investment.

The Presidents of the United States, the Commission and the European Council meet every six months, as do the Commission and the US Government at ministerial level.

Canada

Links between Europe and Canada have traditionally been close, fortified in particular by Canada's membership of NATO. Bilateral trade exceeds ECU 19 billion and the EU is the second most popular destination for Canadian foreign investment after the United States.

Regular summit meetings now take place between the Presidents of the European Council, the Commission and the Canadian Prime Minister. In the coming years, the relationship is expected to undergo further political development.

Japan

This bilateral relationship has been dominated for years by the Union's trade deficit with Tokyo. Japan exports to Europe are almost 50% higher than European exports to Japan. While keeping up pressure on Japan to remove non-tariff barriers, the Union has also sought to deepen and extend cooperation beyond the field of trade. A joint declaration on EU-Japan relations in 1991 lists shared objectives in the political and economic fields and establishes a consultation framework including annual meetings between the Presidents of the European Council and the Commission, and the Japanese Prime Minister.

Cooperation between the Union and Japan now takes place across a wide range of areas, including science and technology, competition policy, development assistance, environmental policy, industrial policy, industrial cooperation, macroeconomic and financial affairs and transport.

Countries of the southern and eastern Mediterranean

Relations