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A quick guide to the EU

The European Union is a political and economic partnership with 28 member states and an estimated population of 500 million people. It exists to create greater ties between European countries. These ties were initially economic, co-ordinating major industries and leading to the creation of the Single Market. More recently, the EU has widened its interests to include issues of policy such as the environment, human rights, and international aid, hoping to tackle these areas through the co-operation of member states.

A brief history

In the aftermath of the Second World War, European leaders were keen to ensure that there would be a stable peace in Europe, believing that this could be achieved by stronger economic ties – countries that are economically interdependent are far less likely to go to war with one another. Building on the success of a Coal and Steel Treaty, six countries (West Germany, France, Italy, the Netherlands, Belgium and Luxembourg) signed the Treaty of Rome in 1957 to create the European Economic Community (EEC).

In July 1962, the ‘Common Agricultural Policy’ was started, which gives the countries involved joint control over food production, with farmers being paid the same price for their produce. In 1968, custom duties on imported goods between the countries were removed, allowing free cross-border trade.

The first expansion of the EEC came in January 1973, when the UK, Ireland and Denmark joined. In 1975, a referendum on membership of the EEC was held in the UK, with over 67% voting to stay in. The 1970s also saw the first steps towards the creation of a single currency, with countries agreeing to only let their currencies fluctuate against each other within narrow limits. From June 1979, EU citizens were able to directly elect the members of the European Parliament.

The EEC continued to expand in the 1980s, admitting Greece, Spain and Portugal. In 1986, the Single European Act provided a six-year plan to iron out the problems in cross-border trade to open the way to the Single Market.

In 1993, the Maastricht Treaty (originally called the Treaty on European Union) came into force, officially changing the name of the EEC to the European Union. This established the Single Market and its four freedoms: the free movement of goods, services, people and money, and paved the way for a single currency. Austria, Finland and Sweden all joined in 1995. In the same year, the Schengen Agreement took effect in 7 countries, allowing the free movement of people across borders without passports. Other countries have since joined, but the UK has chosen to opt-out.

The Treaty of Amsterdam, signed in 1997, set out plans to reform EU institutions and to focus on employment and the rights of citizens.

In 1999, the Euro was introduced in 11 countries, initially just for commercial and financial transactions. Notes and coins followed later, and more countries joined to make a current total of 19. The UK, Denmark and Sweden decided to opt-out.

2004 saw the biggest expansion of the EU to date, with 10 countries (the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia, Cyprus and Malta) joining. Bulgaria and Romania followed in 2007, with the most recent to join being Croatia in July 2013.

The Treaty of Lisbon which came into effect in December 2009 amended the earlier Treaties, aiming to make the EU more democratic, efficient and transparent.

How the EU is structured

The EU is made up of 3 houses:

The European Parliament: This is the law-making body of the EU. It has 751 members (MEPs) which are directly elected by EU citizens every 5 years. The number of MEPs allocated to each country is roughly proportional to its population size. The UK has 73 MEPs. They are grouped according to their political affiliation rather than nationality. The European Parliament has three main roles: to pass legislation, to supervise the EU institutions and structures, and to approve the EU Budget.

The Council of the European Union: This house is made up of ministers from the member countries, according to the policy area that is being dealt with. Alongside the European Parliament, it is responsible for negotiating and adopting EU laws, and it also has to approve the EU Budget. In the same building is housed the European Council. This is made up of the leaders of EU countries, who meet at least four times a year to decide on the overall direction and political agenda of the EU. They also deal with complex or sensitive issues that cannot be dealt with elsewhere, but they cannot pass laws.

The European Commission: This is the politically independent executive arm of the EU. Its primary functions are proposing and implementing legislation, and ensuring that the Treaties are upheld, as well as drawing up the annual budget to be approved by the Parliament and the Council of the EU. It is made up of a ‘College’ of Commissioners, one from each member country.


The EU budget is drawn up by the European Commission, which knows which policies have to be implemented, and how much money it has available. This usually amounts to approximately €135,000,000,000.

The EU has three main sources of income:

  • A small percentage of the gross national income of EU countries, usually around 0.7%. This forms the bulk of the EU’s income.
  • A small percentage of each EU country’s standardised value-added tax (VAT), usually around 0.3%.
  • A large share of import duties on all non-EU products (the country collecting the duty keeps a small percentage of this).

This money is then spent according to the budget. About 6% is spent on the administration costs of running the EU, another small percentage is spent on action outside of the EU, but the majority is spent back into member states.

For the UK, the situation is complicated. In 1984, Margaret Thatcher negotiated a rebate for the UK, meaning that the UK gets a substantial proportion of its payment back. The justification for this was that a large proportion of the EU budget is spent on the Common Agricultural Policy which has a far smaller impact on the UK than other EU countries. With this taken into account, the UK’s net contribution to the EU in 2013 was approximately £7,258,000,000.

It is hard to calculate the true economic impact of EU membership, as the figures above do not take into account the effects of the Single Market and other benefits that countries enjoy as a result of being in the EU.