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Last Updated: Friday, 23 March 2007, 00:23 GMT
Is the EU good for economic health?
By Jorn Madslien
Business reporter, BBC News

Containers moved by crane at container dock
The internal market spurred on trade and development

The European Union (EU) has come a long way since it was formed 50 years ago.

Since 1957, when the six signatory nations to the Treaty of Rome unveiled the European Economic Community (EEC), the ranks of its members have swelled to 27 and the Union has morphed into not only an economic but also a political powerhouse.

This political element could in itself be taken as testimony to the economic achievements:

Had the EEC, and later the EU, not successfully pushed aside obstacles to economic growth - creating a customs union and then the single market, lifting exchange controls that removed barriers to trade, agreeing a competition policy that aided the efficient development of commerce - then there would have been every chance the project would have flopped rather than prospered.

As it is, the near 500 million people who live in the EU's member states now account for almost a third of global GDP, or gross domestic product. Economic output has soared, and per capita wealth along with it.

Enlargement is helping more countries to join the party.

The newcomers are hoping to follow in the footsteps of formerly poor countries like Greece, Ireland and Portugal, whose economic performance supports the argument that the EU has not only fostered economic prosperity but also facilitated a more equitable distribution of wealth amongst its members.

Disgruntled voters

But whilst economic success during the early years did speed up political integration, the economic concerns of the past decade appear to have had precisely the opposite effect.

EU in figures
What a Cyprus euro will look like
Accounts for 30% of global GDP
Some 500 million people
315 million people in 13 countries use the euro

"Brussels" became the favourite scapegoat of many politicians. Many national problems have been blamed on the EU, while in some countries the large body of EU-wide regulation is perceived either as an unnecessary burden or too liberal for society's good.

No wonder that many voters have become disenchanted with the European Union, as they worry about sluggish economic growth and high rates of unemployment, especially in the nations that founded the EEC.

In 2005, Dutch and French voters rejected their governments' plans to ratify the European constitution.

Hits and misses

However, although the Union's political climate is a useful yardstick of economic performance, it is often precisely political disagreement that gets in the way of measuring success.

There is little agreement on the EU's most important economic hits and misses. Here are some of the areas where the debate is fiercest.

Common agricultural policy

Ever since wine lakes and butter mountains created headlines during the 1970s, the European Common Agricultural Policy (CAP) has found itself under attack from free-trade proponents both within the EU and beyond.

The CAP accounts for some 45bn euros ($60bn; 30bn) or nearly half the total EU budget.

French commuters
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Indeed, the lavish subsidies to both commercially unviable farms and agroindustrial big business are often hailed as evidence that the EU is not working.

The CAP is also blamed for the misery of farmers outside the EU. Subsidies depress agricultural prices, which makes it difficult for farmers in Africa, Latin America and elsewhere to compete with the EU's subsidised farmers.

But the policy is also secretly admired by many for having preserved the countryside - especially in France - and small-scale farming across Europe.

So although not many seem to be prepared to stand up and defend the CAP, pushing through any meaningful reforms has been a painfully slow process.

The euro

Looking back, it is tempting to declare euro a resounding success.

Worker at German steel firm Thyssenkrupp
Job creation is crucial as unemployment remains a problem

Businesses trading within the eurozone have benefited a great deal from stable exchange rates and transparent markets, and while the euro's initial weakness boosted the area's exporters, its recent strength has done a lot to insulate member nations from the sharp rises in global commodity markets, especially oil, which are priced in US dollar.

In 2002, euro notes and coins were introduced in the eurozone, and although 315 million people in 13 countries now use the currency daily, many feel poorer as a result.

The launch of the euro has been widely blamed for a bout of inflation, with retailers using the changeover to hide sharp price rises of ordinary goods, ranging from espressos in Rome to pints of stout in Dublin.

EU exporters selling to customers outside the Union also bemoan the strong euro, which is making its goods and services more expensive.

But the main challenge posed by the euro is its one-size-fits-all monetary policy. A single interest rate applies to the entire eurozone, but for some economies this rate is probably very inappropriate. The same could be said for some of the larger countries, where for example Germany's poor east and its rich south might want to have different interest rates.

Job creation

Much was made of last year's creation of three million jobs within the European Union, yet despite such headline grabbing figures there is little doubt that many EU member states, and indeed many regions within, are suffering from stubbornly high rates of unemployment.

Job creation has long been a declared goal shared by all EU member states, though there is no agreement about how to go about it.

Each country has chosen different tools for the job.

Britain and France are at opposite ends of the debate, with most other member nations somewhere in between.

In the UK the rate of unemployment stands at 5%, which is relatively low, at least by European standards. Deregulated labour markets are claimed to be behind the success. If it is easy to shed workers, employers find it less risky to create new jobs, and hence unemployment falls.

In France, where unemployment has been hovering around 10% for years, there is widespread scepticism about such Anglo-American attitudes to commerce. More people may be out of a job, but those who have one can feel more secure.

Competitiveness

Lamentably weak economic growth, in the lower single digit percentages, is another cause of concern for many within the EU.

It is made all the more worrying by the emergence of China, India, Brazil and Russia as new powerful competitors.

Compared with these newcomers, the EU is suffering a relative economic decline, and it is widely agreed that what is crucial for the EU at this stage is to stimulate innovation to boost competitiveness and growth.

Only then can the Union make sure what was gained during the last 50 years will not be lost during the next half century.




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