SULEYMAN DEMIREL UNIVERSITY

FACULTY OF ECONOMICS

HISTORY OF EUROPEAN UNION

PREPARED BY: Nasibulina Meiramgul

CHECKED BY: Mesut Yilmaz

ALMATY 2010
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 Contents

Chapter 1 European Union ………………………………………………………………….....3 page

Chapter 2 History of EU:
1. Origins ………………………………………………………………………………......4 page
2. Creation of the European Economic Community……………………………………..4-5pages
3. Single European Act…………………………………………………………………. …6 page
4. The Maastricht Treaty………………………………………………………………... 6-7 pages
5. Enlargement and post-Maastricht reforms………………………………………….... 7-9 pages
Chapter 3 Taxation trends in EU………………………………………………………......10-14 pages
Chapter 4 Major trade partners of EU……………………………………………………. 15-16 pages
Chapter 5 Conclusion……………………………………………………………………...17-18 pages
References……………………………………………………………………………………...18 page

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CHAPTER 1
International organization comprising 27 European countries and governing common economic,
social, and security policies. Originally confined to western Europe, the EU has expanded to include
several central and eastern European countries. At the time of its creation, the EU had 12 members:
Belgium, Denmark, France, Germany, Great Britain, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain. Nowadays the EU's members are Austria, Belgium, Bulgaria,
Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania,
Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The EU was created by the Maastricht
Treaty, which entered into force on November 1, 1993. The treaty was designed to enhance European
political and economic integration by creating a single currency (the euro), a unified foreign and
security policy, common citizenship rights, and by advancing cooperation in the areas of
immigration, asylum, and judicial affairs.

In addition to taking over the economic responsibilities of the EC, the EU was also charged with
forging a Common Foreign and Security Policy (CFSP) and creating closer cooperation among the
EU member states in the areas of justice, home affairs, and social policy Norwegian voters declined
EU membership in a national referendum in November 1994, but Austria, Finland, and Sweden were
admitted as of Jan. 1, 1995. Ten more countries—eight of them from the former Communist bloc of
Eastern Europe—became full members as of May 1, 2004. Two additional former Communist bloc
nations, Bulgaria and Romania, joined as of Jan. 1, 2007, bringing the total membership to 27
nations, having a combined population by then of around 300 million people (comparable to that of
the United States) and an annual gross domestic product exceeding $12 trillion (also comparable to
that of the United States, which has the largest total GDP of any individual nation). In 2004 EU
exports, excluding intra-EU trade, amounted to about $1.32 trillion; external imports came to $1.40
trillion. The principal outside trading partner was the United States; other major trading partners
included China, Russia, Switzerland, and Japan.
While not a political federation in the strict sense, the EU is far more than a free-trade association.
Member states give up a portion of their political and economic sovereignty in joining, and the
organization has some nation-like characteristics, including executive, legislative, and judicial
bodies, its own anthem and flag, a developing common foreign policy and security policy, and a
common currency shared by many member states.

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CHAPTER 2

Origins

The EU represents one in a series of efforts to integrate Europe since World War II. At the end of the
war, several western European countries sought closer economic, social, and political ties to achieve
economic growth and military security and to promote a lasting reconciliation between France and
Germany. To this end, in 1951 the leaders of six countries—Belgium, France, Italy, Luxembourg,
The Netherlands, and West Germany—signed the Treaty of Paris, thereby, when it took effect in
1952, founding the European Coal and Steel Community (ECSC). (The United Kingdom had been
invited to join the ECSC and in 1955 sent a representative to observe discussions about its ongoing
development, but the Labor government of Clement Attlee declined membership, owing perhaps to a
variety of factors, including the illness of key ministers, a desire to maintain economic independence,
and a failure to grasp the community's impending significance.) The ECSC created a free trade area
for several key economic and military resources: coal, coke, steel, scrap, and iron ore. To manage the
ECSC, the treaty established several supranational institutions: a High Authority to administrate, a
Council of Ministers to legislate, a Common Assembly to formulate policy, and a Court of Justice to
interpret the treaty and to resolve related disputes. A series of further international treaties and treaty
revisions based largely on this model led eventually to the creation of the EU.

Creation of the European Economic Community

On March 25, 1957, the six ECSC members signed the two Treaties of Rome that established the
European Atomic Energy Community (Euratom), which was designed to facilitate cooperation in
atomic energy development, research, and utilization, and the European Economic Community
(EEC). The EEC created a common market that featured the elimination of most barriers to the
movement of goods, services, capital, and labour, the prohibition of most public policies or private
agreements that inhibit market competition, a common agricultural policy (CAP), and a common
external trade policy.

The treaty establishing the EEC required members to eliminate or revise important national laws and
regulations. In particular, it fundamentally reformed tariff and trade policy by abolishing all internal
tariffs by July 1968. It also required that governments eliminate national regulations favoring
domestic industries and cooperate in areas in which they traditionally had acted independently, such
as international trade (i.e., trade with countries outside the EEC). The treaty called for common rules
on anticompetitive and monopolistic behavior and for common inland transportation and regulatory
standards. Recognizing social policy as a fundamental component of economic integration, the treaty
also created the European Social Fund, which was designed to enhance job opportunities by
facilitating workers' geographic and occupational mobility.

Significantly, the treaty's common market reforms did not extend to agriculture. The CAP, which was
implemented in 1962 and which became the costliest and most controversial element of the EEC and
later the EU, relied on state intervention to protect the living standards of farmers, to promote
agricultural self-sufficiency, and to ensure a reliable supply of products at reasonable prices.

Like the ECSC, the EEC established four major governing institutions: a commission, a ministerial
council, an assembly, and a court. To advise the Commission and the Council of Ministers on a broad
range of social and economic policies, the treaty created an Economic and Social Committee. In 1965
members of the EEC signed the Brussels Treaty, which merged the commissions of the EEC and
Euratom and the High Authority of the ECSC into a single commission. It also combined the councils
of the three organizations into a common Council of Ministers. The EEC, Euratom, and the ECSC—

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collectively referred to as the European Communities—later became the principal institutions of the
EU.

The Commission (commonly referred to as the European Commission) consists of a permanent civil
service directed by commissioners. It has had three primary functions: to formulate community
policies, to monitor compliance with community decisions, and to oversee the execution of
community law. Initially, commissioners were appointed by members to renewable four-year terms,
which were later extended to five years. The Commission is headed by a president, who is selected by
the heads of state or government of the organization's members. In consultation with member
governments, the president appoints the heads of the Directorate-Generals, which manage specific
areas such as agriculture, competition, the environment, and regional policy. The Commission has
shared its agenda-setting role with the European Council, which consists of the leaders of all member
countries. Established in 1974, the European Council meets at least twice a year to define the long-
term agenda for European political and economic integration.

The main decision-making institution of the EEC and the European Community (as the EEC was
renamed later) and the EU has been the Council of Ministers (now the Council of the European
Union), which consists of ministerial representatives. The composition of the Council changes
frequently, as governments send different representatives depending on the policy area under
discussion. All community legislation requires the approval of the Council. The president of the
Council, whose office rotates every six months, manages the legislative agenda.

The Common Assembly, renamed the European Parliament in 1962, originally consisted of delegates
from national parliaments. Beginning in 1979, members were elected directly to five-year terms. The
size of members' delegations varies depending on population. For example, at the 2004 elections,
Germany had 99 representatives and Malta had 5. The Parliament is organized into transnational
party groups based on political ideology—e.g., the Party of European Socialists, the European
People's Party, the European Federation of Green Parties, and the European Liberal, Democrat and
Reform Party. Until 1987 the legislature served only as a consultative body, though in 1970 it was
given joint decision-making power (with the Council of Ministers) over community expenditures.

The European Court of Justice (ECJ) interprets community law, settles conflicts between the
organization's institutions, and determines whether members have fulfilled their treaty obligations.
Each member selects one judge, who serves a renewable six-year term; to increase efficiency, after
the accession of 10 additional countries in 2004 the ECJ was allowed to sit in a “grand chamber” of
only 11 judges. Eight impartial advocates-general assist the ECJ by presenting opinions on cases
before the court. In 1989 an additional court, the Court of First Instance, was established to assist
with the community's increasing caseload. The ECJ has established two important legal doctrines.
First, European law has “direct effect,” which means that treaty provisions and legislation are directly
binding on individual citizens, regardless of whether their governments have modified national laws
accordingly. Second, community law has “supremacy” over national law in cases where the two
conflict. Because national courts eventually accepted these legal doctrines, the ECJ has acquired a
supranational legal authority.

Throughout the 1970s and '80s the EEC gradually expanded both its membership and its scope. In
1973 the United Kingdom, Denmark, and Ireland were admitted, followed by Greece in 1981 and
Portugal and Spain in 1986. (The United Kingdom had applied for membership in the EEC in 1963
and in 1966, but its application was vetoed by French President Charles de Gaulle.) The community's
common external trade policy generated pressure for common foreign and development policies, and
in the early 1970s the European Political Cooperation (EPC; renamed the Common Foreign and
Security Policy by the Maastricht Treaty), consisting of regular meetings of the foreign ministers of
each country, was established to coordinate foreign policy. In 1975 the European Regional

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Development Fund was created to address regional economic disparities and to provide additional
resources to Europe's most deprived areas. In the same year, members endorsed the Lomé
Convention, a development-assistance package and preferential-trade agreement with numerous
African, Caribbean, and Pacific countries. Members also made several attempts to manage their
exchange rates collectively, resulting in the establishment of the European Monetary System in 1979.

Single European Act

The Single European Act (SEA), which entered into force on July 1, 1987, significantly expanded the
EEC's scope. It gave the meetings of the EPC a legal basis, and it called for more intensive
coordination of foreign policy among members, though foreign policy decisions were made outside
community institutions. The agreement brought the European Regional Development Fund formally
into the community's treaties as part of a new section on economic and social cohesion that aimed to
encourage the development of economically depressed areas. As a result of the act, there was a
substantial increase in funding for social and regional programs. The SEA also required the
community's economic policies to incorporate provisions for the protection of the environment, and it
provided for a common research and technological-development policy, which was aimed primarily
at funding transnational research efforts.

More generally, the SEA set out a timetable for the completion of a common market. A variety of
legal, technical, fiscal, and physical barriers continued to limit the free movement of goods, labour,
capital, and services. For example, differences in national health and safety standards for consumer
goods were a potential impediment to trade. To facilitate the completion of the common market by
1992, the community's legislative process was modified. Originally, the Commission proposed
legislation, the Parliament was consulted, and the Council of Ministers made a final decision. The
Council's decisions generally needed unanimity, a requirement that gave each member a veto over all
legislation. The SEA introduced qualified majority voting for all legislation related to the completion
of the common market. Under this system, each member was given multiple votes, the number of
which depended on national population, and approval of legislation required roughly two-thirds of
the votes of all members. The new procedure also increased the role of the European Parliament.
Specifically, legislative proposals that were rejected by the Parliament could be adopted by the
Council of Ministers only by a unanimous vote.

The Maastricht Treaty

The Maastricht Treaty (formally known as the Treaty on European Union), which was signed on
February 7, 1992, created the European Union. The treaty met with substantial resistance in some
countries. In Denmark, for example, voters who were worried about infringements upon their
country's sovereignty defeated a referendum on the original treaty in June 1992, though a revised
treaty was approved the following May. Voters in France narrowly approved the treaty in September,
and in July 1993 British Prime Minister John Major was forced to call a vote of confidence in order
to secure its passage. An amended version of the treaty officially took effect on November 1, 1993.

The treaty consisted of three main pillars: the European Communities, a common foreign and security
policy, and enhanced cooperation in home (domestic) affairs and justice. The treaty changed the
name of the European Economic Community to the European Community, which became the
primary component of the new European Union. The agreement gave the EC broader authority,
including formal control of community policies on development, education, public health, and
consumer protection and an increased role in environmental protection, social and economic
cohesion, and technological research. It also established EU citizenship, which entailed the right of
EU citizens to vote and to run for office in local and European Parliament elections in their country
of residence, regardless of national citizenship.

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The Maastricht Treaty specified an agenda for incorporating monetary policy into the EC and
formalized planning that had begun in the late 1980s to replace national currencies with a common
currency managed by common monetary institutions. The treaty defined a set of “convergence
criteria” that specified the conditions under which a member would qualify for participation in the
common currency. Countries were required to have annual budget deficits not exceeding 3 percent of
gross domestic product (GDP), public debt under 60 percent of GDP, inflation rates within 1.5
percent of the three lowest inflation rates in the EU, and exchange-rate stability. The members that
qualified were to decide whether to proceed to the final stage—the adoption of a single currency. The
decision required the establishment of permanent exchange rates and, after a transition period, the
replacement of national currencies with the common currency, called the euro. Although several
countries failed to meet the convergence criteria (e.g., in Italy and Belgium public debt exceeded 120
percent of GDP), the Commission qualified nearly all members for monetary union, and on January
1, 1999, 11 countries—Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain—adopted the currency and relinquished control over their exchange
rates. Greece failed to qualify, and Denmark, Sweden, and the United Kingdom chose not to apply
for membership. Greece was admitted to the euro beginning in 2001. Initially used only by financial
markets and businesses, the euro was introduced for use by the general public on January 1, 2002.

The Maastricht Treaty significantly modified the EEC's institutions and decision-making processes.
The Commission was reformed to increase its accountability to the Parliament. Beginning in 1995,
the term of office for commissioners, who now had to be approved by the Parliament, was lengthened
to five years to correspond to the terms served by members of the Parliament. The ECJ was granted
the authority to impose fines on members for noncompliance. Several new institutions were created,
including the European Central Bank, the European System of Central Banks, and the European
Monetary Institute. The treaty also created a regional committee, which served as an advisory body
for commissioners and the Council of Ministers on issues relevant to sub national, regional, or local
constituencies.

One of the most radical changes was the reform of the legislative process. The range of policies
subject to qualified majority voting in the Council of Ministers was broadened. The treaty also
endowed the Parliament with a limited right of rejection over legislation in most of the areas subject
to qualified majority voting, and in a few areas, including citizenship, it was given veto power. The
treaty formally incorporated the Court of Auditors, which was created in the 1970s to monitor
revenue and expenditures, into the EC.

As part of the treaty's second pillar, members undertook to define and implement common foreign
and security policies. Members agreed that, where possible, they would adopt common defense
policies, which would be implemented through the Western European Union, a security organization
that includes many EU members. Joint actions—which were not subject to monitoring or
enforcement by the Commission or the ECJ—required unanimity.

The EU's third pillar included several areas of common concern related to the free movement of
people within the EU's borders. The elimination of border controls conflicted with some national
immigration, asylum, and residency policies and made it difficult to combat crime and to apply
national civil codes uniformly, thus creating the need for new Europe-wide policies. For example,
national asylum policies that treated third-country nationals differently could not, in practice, endure
once people were allowed to move freely across national borders.

Enlargement and post-Maastricht reforms

On January 1, 1995, Sweden, Austria, and Finland joined the EU, leaving Iceland, Norway, and
Switzerland as the only major western European countries outside the organization. Norway's

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government twice (1972 and 1994) attempted to join, but its voters rejected membership on each
occasion. Switzerland tabled its application in the early 1990s. Norway, Iceland, and the members of
the EU (along with Liechtenstein) are members of a free trade area called the European Economic
Area, which allows freedom of movement for goods, services, capital, and people.

Two subsequent treaties revised the policies and institutions of the EU. The first, the Treaty of
Amsterdam, was signed in 1997 and entered into force on May 1, 1999. Building on the social
protocol of the Maastricht Treaty, it identified as EU objectives the promotion of employment,
improved living and working conditions, and proper social protection; added sex-discrimination
protections and transferred asylum, immigration, and civil judicial policy to the community's
jurisdiction; granted the Council of Ministers the power to penalize members for serious violations of
fundamental human rights; and gave the Parliament veto power over a broad range of EC policies as
well as the power to reject the European Council's nominee for president of the Commission.

A second treaty, the Treaty of Nice, was signed in 2001 and entered into force on February 1, 2003.
Negotiated in preparation for the admission of new members from eastern Europe, it contained major
reforms. The maximum number of seats on the Commission was set at 27, the number of
commissioners appointed by members was made the same at one each, and the president of the
Commission was given greater independence from national governments. Qualified majority voting
in the Council of Ministers was extended to several new areas. Approval of legislation by qualified
voting required the support of members representing at least 62 percent of the EU population and
either the support of a majority of members or a supermajority of votes cast. Although national vetoes
remained in areas such as taxation and social policy, countries choosing to pursue further integration
in limited areas were not precluded from doing so.

After the end of Cold War, many of the former communist countries of eastern and central Europe
applied for EU membership. However, their relative lack of economic development threatened to
hinder their full integration into EU institutions. To address this problem, the EU considered a
stratified system under which subsets of countries would participate in some components of
economic integration (e.g., a free trade area) but not in others (e.g., the single currency). Turkey, at
the periphery of Europe, also applied for membership, though its application was controversial
because it was a predominantly Islamic country, because it was widely accused of human rights
violations, and because it had historically tense relations with Greece (especially over Cyprus).
Despite opposition from those who feared that expansion of the EU would stifle consensus and
inhibit the development of Europe-wide foreign and security policies, the EU in 2004 admitted 10
countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia,
and Slovenia), all but two of which (Cyprus and Malta) were former communist states; Bulgaria and
Romania joined in 2007. Negotiations on Turkey's membership application began in 2005 but faced
numerous difficulties.

Building on the limited economic and political goals of the ECSC, the countries of western Europe
have achieved an unprecedented level of integration and cooperation. The degree of legal integration,
supranational political authority, and economic integration in the EU greatly surpasses that of other
international organizations. Indeed, although the EU has not replaced the nation-state, its institutions
have increasingly resembled a parliamentary democratic political system at the supranational level.

In 2002 the Convention on the Future of Europe, chaired by former French president Valéry Giscard
d'Estaing, was established to draft a constitution for the enlarged EU. Among the most difficult
problems confronting the framers of the document was how to distribute power within the EU
between large and small members and how to adapt the organization's institutions to accommodate a
membership that would be more than four times larger than that of the original EEC. The framers
also needed to balance the ideal of deeper integration against the goal of protecting members' national

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traditions. The drafting process evoked considerable controversy, particularly over the question of
whether the constitution should mention God and the Christian heritage of much of European society
(the final version did not). The proposed constitution was signed in 2004 but required ratification by
all EU members to take effect; voters in France and The Netherlands rejected it in 2005, thereby
scuttling the constitution at least in the short term. It would have created a full-time president, a
European foreign minister, a public prosecutor, and a charter of fundamental rights. Under the
constitution the powers of the European Parliament would have been greatly expanded and the EU
given a “legal personality” that entailed the sole right to negotiate most treaties on its members'
behalf.

Under the leadership of Germany, work began in early 2007 on a reform treaty intended to replace
the failed constitution. The resulting Lisbon Treaty, signed in December 2007, required approval by
all 27 EU member countries in order to be ratified as scheduled in 2008. The treaty, which retained
portions of the draft constitution, would have established an EU presidency, consolidated foreign
policy representation for the EU, and devolved additional powers to the European Commission, the
European Court of Justice, and the European Parliament. Unlike the draft constitution, the Lisbon
Treaty would have amended rather than replaced existing treaties. The treaty failed, at least in the
short term, in June 2008 after it was rejected by voters in a national referendum in Ireland. [1]

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 CHAPTER 3 Taxation trends in EU

The overall tax-to-GDP ratio1 in the EU272 was 39.8% in 2007, a slight increase from 39.7% in 2006.
The EU27 tax ratio, which stood at 40.6% in 2000, fell to 38.9% by 2004 and then started to rise.
The overall tax ratio in the euro area2 (EA16) was 40.4% in 2007, and also rose slightly from 40.3%
in 2006. Since 2000, taxes in the euro area have followed a similar trend to the EU27, although at a
slightly higher level.
In comparison with the rest of the world, the EU27 tax ratio remains generally high, exceeding those
of the USA and Japan by some 12 percentage points. However, the tax burden varies significantly
between Member States, ranging in 2007 from less than 30% in Romania and Slovakia (both 29.4%)
and Lithuania (29.9%), to a little less than 50% in Denmark (48.7%) and Sweden (48.3%).
Since 2000, significant changes in tax-to-GDP ratios have taken place in several Member States. The
largest falls were recorded in Slovakia, where the overall tax burden dropped from 34.1% in 2000 to
29.4% in 2007, and Finland (from 47.2% to 43.0%). The highest increases were observed in Cyprus
(from 30.0% to 41.6%) and Malta (from 28.2% to 34.7%).
This information comes from the 2009 edition of the publication Taxation trends in the European
Union3 issued by Eurostat, the Statistical Office of the European Communities and the
Commission’s Directorate-General for Taxation and Customs Union. This publication compiles
tax indicators in a harmonised framework based on the European System of Accounts (ESA 95),
allowing accurate comparison of the tax systems and tax policies between EU Member States.
This year's edition of the report includes an overview of the tax measures adopted in the Member
States to respond to the global economic and financial crisis.
Highest implicit tax rates on labour in Italy, on consumption in Denmark and on capital in
Cyprus
Labour taxes remain the largest source of tax revenue, representing close to half of total tax receipts
in the EU27. Taxes on capital accounted for approximately 23% of total tax receipts, and
consumption taxes for 28%.
The average implicit tax rate4 on labour, a broad measure of the tax burden falling on work income,
was unchanged in the EU27 at 34.4% in 2007 compared with 2006, after having declined steadily
from 35.9% in 2000. Among the Member States, the implicit tax rate on labour ranged in 2007 from
20.1% in Malta, 24.0% in Cyprus and 25.7% in Ireland to 44.0% in Italy, 43.1% in Sweden and
42.3% in Belgium.
Continuing an upward trend that started in 2002, the average implicit tax rate on consumption in the
EU27 increased marginally, from 22.0% in 2006 to 22.2% in 2007. Implicit tax rates on consumption
were highest in 2007 in Denmark (33.7%), Sweden (27.8%) and Hungary (27.1%), and lowest in
Greece (15.4%), Spain (15.9%) and Italy (17.1%).
In the EU27, the average implicit tax rate on capital for the Member States for which data are
available was 28.7% in 2007. The highest implicit tax rates on capital were recorded in Cyprus
(50.5%), Denmark (44.9%) and the United Kingdom (42.7%), and the lowest in Estonia (10.3%),
Lithuania (12.1%) and Latvia (14.6%).
Tax revenue and implicit tax rates by type of economic activity
Tax revenue,Implicit tax rate* on:
% of GDP Labour Consumption Capital
2000 2006 2007 2000 2006 2007 2000 2006 2007 2000 2006 2007
EU27** 40.6 39.7 39.8 35.9 34.4 34.4 20.9 22.0 22.2 25.5 25.7 28.7
EA16** 41.2 40.3 40.4 34.6 34.2 34.3 20.5 21.4 21.5 27.3 26.9 29.8

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BE 45.2 44.5 44.0 43.9 42.7 42.3 21.8 22.3 22.0 29.3 32.0 31.1
BG 32.5 33.2 34.2 38.7 30.6 29.9 19.7 25.5 25.4 : : :
CZ 33.8 36.7 36.9 40.7 41.1 41.4 19.4 21.1 21.4 20.9 25.9 25.6
DK 49.4 49.6 48.7 41.0 37.1 37.0 33.4 34.0 33.7 36.0 44.8 44.9
DE 41.9 39.2 39.5 40.7 39.0 39.0 18.9 18.3 19.8 28.9 23.9 24.4
EE 31.3 31.3 33.1 37.8 33.9 33.8 19.8 23.4 24.4 6.0 8.3 10.3
IE 31.6 32.1 31.2 28.5 25.4 25.7 25.9 26.5 25.6 : 21.1 18.5
EL 34.6 31.3 32.1 34.5 35.1 35.5 16.5 15.2 15.4 19.9 15.9 :
ES 33.9 36.5 37.1 28.7 30.8 31.6 15.7 16.4 15.9 29.7 40.9 42.4
FR 44.1 43.9 43.3 42.1 41.9 41.3 20.9 19.9 19.5 38.1 40.8 40.7
IT 41.8 42.1 43.3 43.7 42.5 44.0 17.9 17.4 17.1 29.6 34.2 36.2
CY 30.0 36.5 41.6 21.5 24.1 24.0 12.7 20.4 21.4 23.8 30.6 50.5
LV 29.5 30.4 30.5 36.7 33.1 31.0 18.7 20.1 19.6 11.2 11.0 14.6
LT 30.1 29.4 29.9 41.2 33.6 32.3 18.0 16.7 17.9 7.2 11.6 12.1
LU 39.1 35.8 36.7 29.9 30.7 31.2 23.1 26.3 26.9 : : :
HU 38.5 37.2 39.8 41.4 38.8 41.2 27.5 25.8 27.1 15.9 16.3 :
MT 28.2 33.7 34.7 20.6 21.3 20.1 15.9 19.9 20.3 : : :
NL 39.9 39.1 38.9 34.5 34.6 34.3 23.7 26.5 26.8 20.8 17.2 16.4
AT 43.2 41.7 42.1 40.1 40.8 41.0 22.1 21.2 21.6 27.3 24.4 26.1
PL 32.6 33.8 34.8 33.6 34.2 35.0 17.8 20.2 21.4 20.5 22.8 :
PT 34.3 35.9 36.8 27.0 28.6 30.0 19.2 21.0 20.3 32.7 30.8 34.0
RO 30.4 28.6 29.4 32.2 30.4 30.1 16.8 17.7 18.1 : : :
SI 37.5 38.4 38.2 37.7 37.4 36.9 23.5 23.8 24.1 15.7 22.0 23.1
SK 34.1 29.4 29.4 36.3 30.5 30.9 21.7 20.2 20.6 22.9 18.2 17.5
FI 47.2 43.5 43.0 44.1 41.6 41.4 28.6 27.2 26.5 36.0 24.0 26.7
SE 51.8 49.0 48.3 47.2 44.5 43.1 26.3 27.4 27.8 43.4 29.1 35.9
UK 36.7 36.9 36.3 25.3 25.8 26.1 19.4 18.6 18.4 44.7 44.4 42.7
NO 42.6 44.0 43.6 : 37.9 37.8 : 29.9 30.3 : 43.2 41.8

* Implicit tax rates (ITR) express aggregate tax revenues as a percentage of the potential tax base for
each field (see footnote 4).
** EU27 and EA16 overall tax ratios are calculated as GDP-weighted average of the Member
States. For ITRs the aggregates are calculated as arithmetic averages of the Member States for
which the respective annual data are available.
: Data not available
Highest top tax rate on personal income in Denmark, on corporate income in Malta
The top personal income tax rate5 differs substantially within the EU. The highest top rates on 2008
personal income are found in Denmark (59.0%), Sweden (56.4%) and Belgium (53.7%), and the
lowest in Bulgaria (10.0%), the Czech Republic (15.0%) and Romania (16.0%). Since 2000, top
personal income tax rates have fallen or remained unchanged in all Member States, except Sweden
(from 51.5% in 2000 to 56.4% in 2008) and Portugal (from 40.0% to 42.0%). The largest decreases
were registered in Bulgaria (from 40.0% to 10.0%), Romania (from 40.0% to 16.0%) and Slovakia
(from 42.0% to 19.0%), all of which moved to flat rate systems.
The highest statutory tax rates6 on 2009 corporate income are recorded in Malta (35.0%), France
(34.4%) and Belgium (34.0%), and the lowest in Bulgaria and Cyprus (both 10.0%) and Ireland
(12.5%). Since 2000, top corporate income tax rates have fallen or remained unchanged in all
Member States, except Hungary (from 19.6% in 2000 to 21.3% in 2009). The largest decreases were
registered in Bulgaria (from 32.5% to 10.0%), Germany (from 51.6% to 29.8%) and Cyprus (from
29.0% to 10.0%).
Top statutory income tax rates, %
Tax on personal income Tax on corporate income
Difference 2000- Difference 2000-
2000 2007 2008 2000 2008 2009
2008 2009

11
EU27* 44.7 39.1 37.8 -6.9 31.9 23.6 23.5 -8.4
EA16* 48.4 42.1 42.1 -6.3 34.9 26.0 25.9 -9.0
BE 60.6 53.7 53.7 -6.9 40.2 34.0 34.0 -6.2
BG 40.0 24.0 10.0 -30.0 32.5 10.0 10.0 -22.5
CZ 32.0 32.0 15.0 -17.0 31.0 21.0 20.0 -11.0
DK 59.7 59.0 59.0 -0.7 32.0 25.0 25.0 -7.0
DE 53.8 47.5 47.5 -6.3 51.6 29.8 29.8 -21.8
EE 26.0 22.0 21.0 -5.0 26.0 21.0 21.0 -5.0
IE 44.0 41.0 41.0 -3.0 24.0 12.5 12.5 -11.5
EL 45.0 40.0 40.0 -5.0 40.0 25.0 25.0 -15.0
ES 48.0 43.0 43.0 -5.0 35.0 30.0 30.0 -5.0
FR 59.0 45.8 45.8 -13.2 37.8 34.4 34.4 -3.3
IT 45.9 44.9 44.9 -1.0 41.3 31.4 31.4 -9.9
CY 40.0 30.0 30.0 -10.0 29.0 10.0 10.0 -19.0
LV 25.0 25.0 25.0 0.0 25.0 15.0 15.0 -10.0
LT 33.0 27.0 24.0 -9.0 24.0 15.0 20.0 -4.0
LU 47.2 39.0 39.0 -8.2 37.5 29.6 28.6 -8.9
HU 44.0 40.0 40.0 -4.0 19.6 21.3 21.3 1.6
MT 35.0 35.0 35.0 0.0 35.0 35.0 35.0 0.0
NL 60.0 52.0 52.0 -8.0 35.0 25.5 25.5 -9.5
AT 50.0 50.0 50.0 0.0 34.0 25.0 25.0 -9.0
PL 40.0 40.0 40.0 0.0 30.0 19.0 19.0 -11.0
PT 40.0 42.0 42.0 2.0 35.2 26.5 26.5 -8.7
RO 40.0 16.0 16.0 -24.0 25.0 16.0 16.0 -9.0
SI 50.0 41.0 41.0 -9.0 25.0 22.0 21.0 -4.0
SK 42.0 19.0 19.0 -23.0 29.0 19.0 19.0 -10.0
FI 54.0 50.5 50.1 -4.0 29.0 26.0 26.0 -3.0
SE 51.5 56.6 56.4 4.9 28.0 28.0 26.3 -1.7
UK 40.0 40.0 40.0 0.0 30.0 30.0 28.0 -2.0
NO 47.5 40.0 40.0 -7.5 28.0 28.0 28.0 0.0
* Arithmetic average
Energy taxes represented 1.8% of GDP in the EU27 in 2007
Energy taxes include taxes on energy products such as mineral oils, gas and electricity for both
transport and stationary purposes. They are by far the most important environmental taxes,
representing around three quarters of environmental tax receipts in the EU. In the EU27, energy taxes
amounted to 1.8% of GDP in 2007, and ranged from 1.2% of GDP in Greece and Ireland to 3.0% in
Bulgaria.
From this year onwards, the publication will include data on transport fuel taxes separately from
other energy taxes. Taxes on transport fuels are the most important part of energy taxes, and
represented more than 80% of energy taxes in the EU27 in 2007. The highest transport fuel taxes as a
percentage of total energy taxation were found in Latvia (100%), Lithuania and Luxembourg (both
98%), and the lowest in Denmark (52%), Sweden (56%) and the Netherlands (68%).
Energy and transport fuel taxes, 2007
Energy taxes Transport fuel taxes
% of GDP % of total taxation % of GDP % of energy taxes
EU27* 1.8 4.5 1.4 81
EA16* 1.7 4.2 1.4 80
Belgium 1.3 3.0 1.2 88
Bulgaria 3.0 8.9 : :
Czech Republic 2.3 6.3 2.2 94
Denmark 2.3 4.6 1.2 52

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Germany 1.9 4.7 1.4 78
Estonia 1.9 5.7 1.8 96
Ireland 1.2 3.8 1.1 94
Greece 1.2 3.7 1.1 92
Spain 1.4 3.8 1.2 86
France 1.4 3.3 1.3 87
Italy 2.1 4.8 1.5 75
Cyprus 1.8 4.3 1.4 79
Latvia 1.7 5.6 1.7 100
Lithuania 1.6 5.4 1.6 98
Luxembourg 2.4 6.7 2.4 98
Hungary 2.1 5.2 1.9 93
Malta 1.8 5.2 1.7 95
Netherlands 1.8 4.7 1.2 68
Austria 1.6 3.9 1.3 78
Poland 2.4 6.9 1.9 81
Portugal 2.0 5.6 1.9 94
Romania 1.7 5.8 : :
Slovenia 2.3 6.1 2.2 92
Slovakia 1.8 6.2 1.8 96
Finland 1.7 3.9 1.3 77
Sweden 2.2 4.6 1.2 56
United Kingdom 1.8 5.0 1.7 94
Norway 1.3 2.9 0.8 61

* GDP-weighted average of the Member States for which the respective annual data are available.
: Data not available
The overall tax-to-GDP ratio measures the tax burden as the total amount of taxes and compulsory
actual social security contributions as a percentage of GDP. This definition differs slightly from the
one used in the Statistics in Focus, Economy and Finance, 43/2009, "Tax revenue in the EU", which
includes voluntary and imputed social contributions. The difference between the two measures
amounts to around 1.1 percentage points for the EU and euro area aggregates.
1. EU27: Belgium (BE), Bulgaria (BG), the Czech Republic (CZ), Denmark (DK), Germany (DE),
Estonia (EE), Ireland (IE), Greece (EL), Spain (ES), France (FR), Italy (IT), Cyprus (CY), Latvia
(LV), Lithuania (LT), Luxembourg (LU), Hungary (HU), Malta (MT), the Netherlands (NL),
Austria (AT), Poland (PL), Portugal (PT), Romania (RO), Slovenia (SI), Slovakia (SK), Finland
(FI), Sweden (SE) and the United Kingdom (UK). Euro area (EA16): Belgium, Germany,
Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria,
Portugal, Slovenia, Slovakia and Finland.
2. "Taxation trends in the European Union", EUR 30 (excl. VAT), only available in English. This
publication is based on data available on 9 February 2009. It can be purchased from authorised
sales agents or downloaded free of charge in PDF format from the Eurostat or the DG TAXUD
websites:
3. Implicit tax rates (ITR) measure the average tax burden on different types of economic income or
activities, i.e. on labour, consumption and capital. ITR express aggregate tax revenues as a
percentage of the potential tax base for each field.
The ITR on labour is the ratio between taxes and social contributions paid on earned income and
the cost of labour. The numerator includes all direct and indirect taxes and social contributions
levied on employed labour income, while the denominator amounts to the total compensation of
employees working in the economic territory increased by taxes on wage bills and the payroll. It is
calculated for employed labour only (so excluding the tax burden falling on social transfers,
including pensions). The average may conceal important variations in the tax burden across the
income distribution.

13
 The ITR on consumption is the ratio between the revenue from consumption taxes and the final
consumption expenditure of households on the economic territory.
The ITR on capital includes, in the numerator, the taxes levied on the income earned from savings
and investments by households and corporations and taxes related to stocks of capital stemming
from savings and investment in previous periods. The denominator of the capital ITR is a proxy of
the world-wide capital and business income of Member States' residents for domestic tax
purposes. Trends in the capital ITR reflect a wide range of factors and should be interpreted with
caution.
All ITRs for the EU and the euro area are calculated as arithmetic averages.
4. The top personal income tax rate refers to the tax rate for the highest income bracket adding
surcharges of general application.
5. The adjusted statutory tax rate on corporate income takes into account corporate income tax
(CIT) and, if they exist, surcharges, local taxes, or even additional taxes levied on tax bases that
are similar but often not identical to the CIT. [2]

14
CHAPTER 4

Major Trade Partners and Trade in Goods and Services

USA
The EU and US form the largest bilateral trade partnership in the world if you look at goods and
services combined. Goods trade alone in 2007 amounted to over €440 billion.
The EU enjoys a surplus of €80 billion in goods trade with the US, importing €181 billion while
exporting €261 billion. While the US remains the first destination for EU goods, the EU now imports
more from China. EU trade with the USA is dominated by manufactured goods. In 2007, more than
two-fifths of trade with the USA were machinery and vehicles, with chemicals and other
manufactured each accounting for more than a fifth of trade.
Largest investment partners: The European Union (EU) and United States are each other’s largest
foreign investor. [3]

China

From January to November 2004, the trade volume between China and Europe had reached
US$159.3 billion, 34.7 percent higher as against the same period in 2003. The EU has surpassed
Japan and the US to become China's largest trade partner; and China has become the second largest
trade partner of the EU.

In addition, the EU is the fourth largest source of foreign investment of the Chinese mainland (Hong
Kong, the US and Japan being the top three sources) and the No 1 source of techniques.

EU is also the largest technologies exporter to China so far. By the end of October last year, China
had introduced 18530 items of technologies which involved US$80 billion worth of contracts. From
January-October, 2004, China bought 1728 technologies from EU with contracts valuing US$4.6
billion, making up 25.4 percent and 41 percent of China's total imports of technologies respectively.

Investment
European companies invested €4.5 billion in China in 2008 (down from €7,1 billion in 2007).
Chinese companies invested €0,1 billion in Europe in 2008 (down from €0,6 billion in 2007). EU
investment stocks are one of the largest foreign investment stocks in China, worth more than €32
billion in 2006. Almost half of EU foreign direct investment to China goes to manufacturing.[4]
Russia
Russia is the EU’s third biggest trade partner, with Russian supplies of oil and gas making up a large
percentage of Russia’s exports to Europe.
More than 40% of EU exports in the first half of 2009 were machinery and vehicles and another
quarter were other manufactured goods, while energy accounted for nearly three-quarters of imports.
The main EU exports included medicine, motor cars and parts, aircraft and mobile phones, while the
main imports included oil, gas and coal.[5]

Switzerland

The EU is Switzerland's most important trading partner, with 60% of Swiss exports going to EU
member states.

In 2007, total EU agro-food exports to Switzerland amounted to € 4.7 billion, whereas the
corresponding value of EU import from Switzerland was € 2.7 billion. Switzerland is the EU's 3rd

15
biggest trade partner in the sector. 70% of Swiss agricultural exports go to the EU market while 7%
of the EU's agro-food exports go to Switzerland.[6]

Japan

In 2006, Japan was the EU's fifth major trade partner (after the U.S.A., China, Russia and
Switzerland). Japan is the fifth largest import partner of the EU and its sixth largest export partner.

On the other side, the EU is Japan's third major trade partner (after the U.S.A. and China). The EU
was Japan's third major importer and second largest export partner in 2006.

Japan's exports to the EU over the last five years have been stable at around €74 billion per year.
There was a slight increase to €75.63 billion in 2006. This represents 5.61% of the share of total EU
imports. Exports from the EU to Japan have been stable at around €43 billion per year, with a slight
increase in 2006 to €44.59 billion. This is 3.83% of total EU exports. The balance is thus around €30
billion in favour of Japan.

Three quarters of the EU's imports from Japan consist of machinery and motor vehicles, particularly
motor vehicles and parts, and digital cameras. The import of primary products (agriculture, energy)
was minimal.

One third of Japan's imports from the EU were machinery and vehicles, and 30% were other
manufactured articles (2006). Other major imports were pharmaceuticals and pork. Japan also
imports a considerable amount of agricultural products from the EU, amounting to €4.7 billion
(10.5% of the EU total exports to Japan).[7]

16
CHAPTER 5 Conclusions

Because one of the main roles of the union is to oversee economic cooperation between members, it
plays a very large role in how business is conducted throughout Europe. It has established a single
market trading system with low, or no, taxes and tariffs, and it encourages economic development.

The most important economic changes in the union have occurred in the last few decades. In 1979,
the European Monetary System (EMS) was established to create greater price stability between the
currencies of all union members. The core of the EMS was the Exchange Rate Mechanism (ERM), a
voluntary system that fixed the price of currencies against each other; rates could be adjusted within a
narrow range of prices. Every nation except England participated in the ERM when it was launched.
England did eventually participate, beginning in 1990, but it joined Italy in pulling out of the ERM in
1992 on a day that is now remembered as "Black Wednesday."

The ratification of the Maastricht Treaty in 1992 launched the union's current economic policy by
creating a timetable to enact a three-stage plan for implementing a single market economy across
Europe. Stage 1 of the plan took effect when the treaty was ratified. It officially recognized that the
goal of the European Union was to create an Economic and Monetary Union (EMU) of all member
states in which members would strive to cooperate more closely than in the past in managing their
economies.

Stage 2 of the Maastricht plan was launched in 1994 with the creation of the European Monetary
Institute in Frankfurt, Germany. This was a central banking institution that was the forerunner of the
European Central Bank (ECB), which now oversees the control of currencies throughout the union.
The Central Bank is the hub of the centralized banking system that also includes 15 national Central
Banks that serve as the main bank in each of the member states.

One year after stage 2 was completed, union members agreed that stage 3 would begin on January 1,
1999. On that day, the union officially began the move towards a single European currency unit,
which is called the euro. Currency conversion rates in participating member states were fixed, and a
single monetary policy and foreign exchange rate were implemented. A "euro zone" was created that
included the following participating countries: Belgium, Germany, Spain, France, Ireland, Italy,
Luxembourg, the Netherlands, Austria, Portugal, and Finland; Greece agreed to participate, but did
not become an active member until 2001. Noticeably absent were the United Kingdom, Denmark,
and Sweden. As of 2001, those countries still had not joined the euro zone.

Between January 1, 1999 and 2001, countries in the euro zone began the conversion to the single
currency. The euro was still a non-cash currency during that transition period, but it was used for
almost all non-cash transactions, such as bank transfers, credit card payments, and check or money
order payments. Dual pricing systems were set up, establishing prices in national currencies and in
euro dollars. Changes were made in software, automatic teller machines, vending machines, and other
components to prepare for the euro, and consumers were allowed to open euro bank accounts.

On January 1, 2002, the transition will be completed and the euro will become the official currency of
the participating nations. For a two-month period, national currencies and the newly launched euro
coins and paper bills will remain in circulation at the same time. At the end of that period, only the
euro will be accepted for all financial transactions. Plans call for 12 billion euro banknotes and 50
billion euro coins to go into circulation initially. The full changeover to the new currency is expected
to be completed no later than July 1, 2002. At that point, the European Union will have completed its
greatest achievement. By converting to a single currency, union leaders hope to achieve benefits that
include price stability, greater confidence among investors, a simpler single market economy, a
reduction in transaction costs due to the absence of currency exchanges, and an integrated banking

17
system. It is expected that international business and currency transactions will also become simpler
and more efficient under the euro. The ultimate goal is a strong and stable Europe that features open
markets. [8]

References

1. http://www.history.com/topics/european-union-eu

2. http://ec.europa.eu/taxation_customs/taxation/index_en.htm

3.http://europa.eu/rapid/pressReleasesAction.do?
reference=MEMO/08/381&format=HTML&aged=0&language=EN&guiLanguage=en

4.http://europa.eu/rapid/pressReleasesAction.do?
reference=MEMO/09/375&format=HTML&aged=0&language=EN

5. http://www.europolitics.info/externa-policies/russia-remains-eu-s-third-largest-trading-partner-
art254588-42.html

6. http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1625

7.http://www.deljpn.ec.europa.eu/relation/showpage_en_relations.trade.partners.php

8.http://www.referenceforbusiness.com/small/Eq-Inc/European-Union-EU.html

18