The European Union: how does it work ?
What you want to understand… 🤔
- What is the history of the European Union?
- How did the treaties of Rome, Maastricht and Lisbon shape the EU?
- What does the EU represent on a global scale?
- How do the various EU institutions operate together?
- What are the challenges faced by the EU?
Let’s start off by defining few terms that you may come across in the media:
Deepening : reinforcing the collaboration between member states by adopting common policies and establishing federal institutions.
Enlargement : progressively accepting new members into the union. These countries must respect certain criteria (rule of law, democracy, viable market economy…) to be considered candidate and then potentially accepted.
Federalism : political current in favour of transforming the European Union into a federation of states. The latter would accept to cede a part of their powers to a supranational institution. Federalists thus promote a deepening of EU policies.
Functionalism : rather close to federalism, this political current advocates for a supranational authority based on functions and needs, not on territory or population. Functionalists push for a reinforced inter-state cooperation because states (and stakeholders) share common needs and interests. Functionalism is opposed to realism in the realm of international relations. Realism asserts that states are rational/pragmatic actors only motivated by their own interests and power.
Sovereignism : political current criticizing the pre-eminence of EU powers over national sovereignties. Sovereignists are also called unionists as they promote a “Europe of Nations” where states retain political autonomy. They are opposed to federalists and want to give less leverage to EU institutions.
I. History of the European Union
A. Key dates of the European Union construction
After World War II, a strong European community appeared to be the best way to rebuild Europe, prevent another war and fight communism. European leaders in favour of this project gathered during the Hague Congress in May 1948. This meeting gave birth to the Council of Europe in 1949.
The French Minister of Foreign Affairs, Robert Schuman, proposed Germany to pool their production of coal and iron. They thus formed the European Coal and Steel Community (ECSC) that lasted until 2002. These resources were monitored by an independent authority directed by the French general planning commissioner, Jean Monnet. Other countries joined France and Germany later: Italy, Belgium, Luxembourg and the Netherlands.
The French government proposed to set up the European Defence Community. This endeavour aimed at forming a supranational European army, hence preventing conflicts inside Europe. However, due to NATO’s involvement in the project, the treaty was rejected by the French parliament and not ratified by the Italian one. This failure of federalism recentred the European project on economic affairs.
The treaty of Rome created the European Economic Community (EEC). The goal was to create a common market as well as a free-trade area by removing tariffs.
It also established major institutions still present today:
- the European Atomic Energy Community (Euratom)
- the European Commission
- the Council of the European Union (aka Council of the Ministers)
- the European Parliament
- the European Court of Justice
During the first major crisis of the European project, France didn’t attend the CECA and EEC meetings during 6 months. The General de Gaulle advocated for a “Europe of Nations”. He was a sovereignist/ unionist opposed to the increasing use of the qualified majority voting system by European institutions.
Qualified majority : procedure in which each state’s voting power is proportional to its population. Since 2014, to adopt a decision only 55% of the member states representing at least 65% of the European population have to agree.
The United Kingdom, Ireland and Denmark joined the European organisation comprising the EEC and the ESCS. The UK relied primarily on its empire and American help to rebuild its economy in the wake of WW2. However, the thriving European economy attracted the UK. Despite two refusals issued by the French government, it eventually joined the European community.
The European Monetary System (EMS) was established. Its function was to stabilise European currencies that were linked together through the European Currency Unit (ECU) in order to prevent large exchange rate fluctuations.
In 1979, the first direct universal elections of the European Parliament took place.
Greece joined the European community as it freed itself from the Regime of the Colonels (aka Greek junta).
The Schengen Treaty was signed. It abolished internal border checks and allowed free movement of people within the Schengen area. The Schengen Treaty entered into force in 1995.
The Single European Act (SEA) programmed the creation of the Single European Market for 1993.
The Single Market : an economic space more unified than a common market. A uniformization of states’ regulations would be added to the free movement of goods, services, people and capital.
Spain and Portugal joined the European community as they moved away from dictatorship. In Spain, Franco died in 1975. In Portugal, even though Salazar died in 1968, the Carnation Revolution overthrew his dictatorial Estado Novo regime in 1974.
The fall of the Berlin wall led to a subsequent wave of applications from former communist countries. Besides, the Federal Republic of Germany (West) and the German Democratic Republic (East) got reunited in 1990. Henceforth, East Germany integrated the European community.
The Treaty of Maastricht was signed in February 1992 and entered into force in November 1993. The European Economic Community (EEC) became the European Union (EU).
We delve deeper into the content of the Maastricht treaty further down this article.
Austria, Sweden and Finland joined the European community.
The euro (€) became the European Union’s official currency. However, as we will see later, not all its members use it while Montenegro and Kosovo, that aren’t EU members, use it.
2004 represented a Big Bang with regards to the EU enlargement. The 10 new EU members were: Cyprus, Malta, Slovenia, the Czech Republic, Slovakia, Hungary, Poland, Estonia, Latvia and Lithuania. These countries were in the middle of a political and economic transition. Their level of development was much inferior to the other member states. Besides, the centre of gravity shifted eastward which favoured Germany that became the geographical centre of the union.
It was then the turn of Romania and Bulgaria to join the EU.
Croatia was the last country to join the EU.
UK citizens voted their way out of Europe in what is called the Brexit. Nonetheless, the UK only officially left the EU on the 31st of December, 2020.
B. The Maastricht Treaty and the creation of the European Union (1992-1993)
The early 1990s represented a turning point in international relations in many regards. We can in particular note that the fall of the USSR implied both a US rise to hegemonic power and a necessity for Europe to find a new balance of power. Besides, neo-liberalism was spreading at the time. It resulted in the creation of free-trade areas in South-America (MERCOSUR, 1991) and North America (NAFTA, 1992).
In this context, Jacques Delors, the president of the European Commission between 1985 and 1995, endeavoured to turn Europe, as a whole, into a global power so as to counter-balance the US hegemony and the emergence of new powers like China.
That’s why the EEC became the European Union (EU) in February 1992.
2. The Treaty
The Maastricht Treaty had 5 objectives :
- Creating a European citizenship to reinforce EU institutions’ democratic legitimacy
- Adopting common foreign and security policies leading to an eventual adoption of a common defence
- Establishing an economic and monetary union with the introduction of a single currency
- Improving EU institution’s efficacy and granting more power to the Parliament
- Broadening EU institutions’ competences to social areas: education, environment, public health, culture…
These objectives hinged upon 3 pillars :
- “The European Communities” pillar: a deeper integration of European nations into the European Union through the ECSC, the EURATOM and the European Community (EC formerly the EEC). The EC deals with a wide range of issues from customs union and single market to Schengen-related policies including for example education, environmental, public health and asylum policies.
- A Common Foreign and Security Policy (CFSP)
- A judicial and police cooperation
3. The Maastricht criteria
References to these criteria were all over the news during the Euro crisis in 2010-2012. The Maastricht criteria have to be met in order for a country to enter the EU economic and monetary union and adopt the euro as its currency. However, it is worth noting that many countries within the EU currently don’t meet these criteria, and even less during the COVID-19 crisis…
The 4 Maastricht criteria are :
- Price stability (inflation)
- Sound and sustainable public finances
- Government debt below 60% of the GDP
- Government deficit below 3% of the GDP
- Durability of convergence (nominal long-term interest rates’ consistency with other member states’ ones)
- Exchange rate stability (fluctuation of relative currency value)
4. Its adoption
The Treaty of Maastricht entered in force in November 1993 after facing some resistance. For instance, only 51% of French citizens accepted it by referendum, and in Denmark a second referendum was needed to secure its adoption.
Eventually, all of the 12 countries of the European community ratified the Treaty of Maastricht:
5. Why didn’t the UK adopt the euro?
In 1990, the UK entered the European Exchange Rate Mechanism (ERM) which was meant to limit exchange rate fluctuations in Europe. Entering the ERM was a prerequisite for adopting the euro. Nevertheless, the pound sterling suffered several major speculative attacks causing a crash in September 1992 (the “Black Wednesday”). Therefore, the UK decided to leave the ERM and managed to get an opt-out in the Maastricht Treaty.
By doing so the UK avoided offending its European partners while perfectly knowing it wouldn’t adopt the euro.
Brown’s economic tests:
That’s why in 1997, before the euro got introduced, the UK Chancellor of the Exchequer, Gordon Brown, designed 5 economic tests to know whether the UK should adopt the euro. However, many economists considered these tests too difficult to pass. Based on these tests’ results, Gordon Brow decided that it was not viable for the UK to enter a currency union with the rest of Europe. Most importantly, the UK was not ready to abandon both its monetary and fiscal independence:
- Accepting the common interest rates of the European Central Bank (ECB) = loss of monetary independence in the face of asymmetric economic shocks
- Respecting the Maastricht criteria in terms of debt-to-GDP ratio = limiting the UK’s domestic fiscal options
C. The Lisbon Treaty and the project of a European Constitution (2007)
By the beginning of the XXIth century, the EU’s organisation and functioning have become too complex. Therefore, the decision-making process had to be simplified and cooperation had to be reinforced. In fact, the EU was losing political power relatively to the US and China. The treaties of Amsterdam (1997-1999) and Nice (2001-2003) had pushed, with a limited impact though, for the extension of qualified-majority voting to more policy areas.
That’s why, in 2002, the Convention on the Future of Europe, presided by the French President Valéry Giscard d’Estaing, aimed at drafting a constitution for the EU. In 2004, the heads of states and governments in the EU gathered in Rome and voted in favour of this project of constitution.
2. The Project of Constitution (2005)
This constitution contained the following notable points:
- The violation of EU values (e.g. equality, democracy, respect of human dignity, rule of law, respect of minority rights…) by a member can lead to the suspension of some its rights. This point was inspired by the Treaty of Amsterdam, 1997.
- Most decision are made using the qualified-majority voting except for foreign affairs, taxes, trade deals about culture, education and health.
- Giving more decision power to the Parliament regarding justice, migration and security issues
- Creation of the functions of President of the European Council and of Minister of Foreign Affairs
- Reducing the number of members in the European Commission
However, all member states had to ratify this constitution. The French (54.7%) and the Dutch (61.54%) voted against this project in referenda.
3. The Treaty of Lisbon (2007)
In order to get out of this constitutional deadlock, EU state members adopted the treaty of Lisbon in December 2007.
The treaty includes various elements from the 2005 project of constitution. As a matter of fact :
- the Parliament enjoyed extended powers
- the heads of states and governments elected Herman Van Rompuy for 2.5 years as the first President of the European Council
- Catherine Ashton became the first High Representative of the Union for Foreign Affairs and Security Policy
To avoid another popular rejection, the treaty had to be ratified by national parliaments only (except in Ireland). The treaty of Lisbon eventually entered into force in 2009 in total disregard for EU citizens’ opinion expressed four years earlier.
II. European institutions
A. The European Council
The heads of states and governments of the 27 member states constitute the European Council along with its President and the President of the European Commission. They meet at least 4 times a year to define the priorities and objectives of the EU.
B. The European Commission
The European Commission is made up of 27 commissioners, one for each member state. It is the executive branch of the EU and it works like a cabinet government. Moreover, only the European Commission can initiate legislations. Besides, it upholds legislations across the EU once they are voted by the European Parliament.
The commissioners are not elected, they are appointed by their country and then approved by the EU Parliament. They make an oath to represent EU interests and not their country’s particular interests.
The President of the European Commission is proposed by the European Council and elected by the European Parliament.
C. The European Parliament
Through universal suffrage, voters across all 27 member states elect the 705 European deputies every 5 years according to a proportional system.
Even though the European Parliament has legislative power, it can only amend and vote legislations. It cannot initiate them as it is a prerogative of the European Commission only. Nevertheless, EU deputies can adopt a motion of censure to force the Commission to resign.
D. The European Council of Ministers (aka Council of the European Union)
It gathers the 27 national ministers of a given policy area (e.g. industry, agriculture…). The Presidency of the Council of Ministers, assumed by a country, rotates every 6 months.
It has legislative power, like the European Parliament, hence it can amend and vote legislations. For a legislation to pass, both the Council of Ministers and the Parliament have to approve it
E. The European Court of Justice
Located in Luxembourg, the European Court of Justice (ECJ) is made up of 27 judges, one for each member state. The ECJ interprets EU laws and monitor their application across the EU.
EU laws have precedence over any national law, including constitutional laws. We can see EU laws as a framework within which national legislation have to fall.
F. The European Central Bank
The European Central Bank (ECB) decides and implements monetary policies for the EU. One of its main tasks, if not the principal, is to maintain price stability. To do so, the ECB has set an inflation target at 2% per year. The ECB controls the money supply, the exchange rate as well as interest rates in the euro area.
As the central bank of a currency area, the ECB takes charge of:
- Bank supervision: the ECB is an overarching financial regulator that monitors banks’ financial stability in the union
- Bank resolution: during financial distress, the ECB has to bailout banks in the EU in order to ease pressure on national governments’ debt burden and avoid an increase of their risk premium
III. What actually is the European Union?
Here are some figures for you to better grasp what the EU represents on a global scale.
Number of countries: 27
Total Population (2021): 447 million = 5.6% of world population
Total GDP (2021): $17.1 trillion = 18% of global GDP
GDP ranking (2021): Germany (1st), France (2nd), Italy (3rd) … Estonia (25th), Cyprus (26th) and Malta (27th)
GDP per capita ranking (2021): Luxembourg (1st), Ireland (2nd), Denmark (3rd) … Poland (25th), Croatia (26th) and Bulgaria (27th).
Main Global Financial centres (2022): Paris (11th in the world), Frankfurt (16th), Madrid (18th) and Amsterdam (19th)
Trade partners – export (2021): USA, UK, China, Switzerland, Russia
Trade partners – import (2021): China, USA, Russia, UK, Switzerland
Intra-EU trade: in 2016, so before the UK leaves, EU exports towards other EU countries were 78% higher than exports towards non-EU countries.
International representation: the EU is present in the United Nations, the World Trade Organisation, the G7 and the G20. Moreover, it has 139 diplomatic representations in the world. Besides, the EU participates in 20 diplomatic/humanitarian/military operations across the world.
Religions (2018): Catholicism (44.5%), Non-believer/Agnosticism/Atheism (26.3%), Orthodox Christianity (10.2%), Protestantism (9.9%), other Christian currents (5%), Islam (2.1%), Hindu (1%), Buddhism (0.6%), Judaism (0.2%), other religions (0.2%)
IV. Challenges to the European Union
A. Further enlargements?
1. Diversity in the EU
The 2004 “Big Bang” not only brought 10 new members but also concerns for many EU member states.
This shift eastwards created great economic and political discrepancies within the union which implied redesigning solidarity programs. Since the 10 new-comers had lower levels of economic development than the rest of the union, they became the main beneficiaries of EU funds. That’s why Ireland, Greece, Portugal and Spain, that were among the poorest before 2004, feared losing EU financial support.
The 2007 enlargement to Romania and Bulgaria also sowed discord. In fact, the EU size started resembling that of a continent which raised concerns about its governance, especially when unanimity is required for many decisions. Furthermore, small states like Luxembourg or Denmark also worried about the loss of their political influence in a larger union.
Besides, diversity defines Europe. Its member states don’t share the same history and culture. As a consequence their outlooks on certain questions like racial and religious diversity, homosexuality or abortion rights vary greatly. Therefore, tensions arise when national laws contradict EU laws.
2. Who is next in line?
Current candidates to EU membership are : Albania, the Republic of North Macedonia, Montenegro, Serbia and Turkey. Albeit these countries have the status of candidate, no date has been given regarding a potential integration into the EU. The EU also engaged discussions with Bosnia-Herzegovina and Kosovo, 2 Balkan countries wishing to join it.
If Turkey were to join the EU, it would raise serious questions regarding the geographical boundaries of Europe, the respect of political criteria as well as the cultural identity of the union since Turkey is a Muslim country (like Kosovo by the way).
Ukraine and Moldova have also obtained the status of candidates on June 23rd, in the context of the war launched by Russia in February 2022. The 27 member states approved their demand unanimously. Granting membership to Ukraine would have major geopolitical consequences with regards to EU-Russian relations. Nevertheless, President Vladimir Putin stated on June 17th, 2022, that he doesn’t see any problem in Ukraine joining the EU since the latter is not a military organisation. Georgia has also initiated discussions with the European Union in order to start implementing necessary reforms to prepare its demand of membership.
B. A difficult governance in a multi-speed European Union
European states seek first and foremost to defend their own interests, with less regards for the interests of the EU as whole. Therefore, they have tried to tailor their European membership to their national interests. That’s why 26 states belong to the Schengen area while only 22 of them are EU member states. We can also mention the fact that only 19 countries have adopted the euro as they official currency.
Various associations/groups cohabit along the EU while sharing common members. The following diagram illustrates their complex interactions.
As a consequence, the EU has difficulties speaking as one coherent and united body. In fact, its member states don’t always share the same goals and don’t belong to the EU for the same reasons.
C. The lack of enthusiasm of European citizens
The EU also finds it hard to get European peoples actively involved in the European project. The abstention rate (many very interesting graphs and maps if you follow this link) reflects EU citizens’ lack of enthusiasm. Here again, we can wonder whether this decreasing electoral participation stems from the multiple EU enlargements and the feeling of dilution in a continent-wide organisation.
Not only European peoples worry more about national issues, but they also tend to mistrust the EU. As a matter of fact, most of the power lies in the hands of 27 non-elected bureaucrats in the European Commission who initiate legislations and govern from afar. Besides, EU citizens regard the EU policy-making process as opaque and technocratic. This lack of transparency makes it more likely for them to misunderstand the role of the EU and its impact on their daily lives.
D. Divergence of opinions regarding the future of the European Union
As mentioned earlier, EU member states favour their national interests over EU interests. Therefore, they hold different views as for the future of the EU.
For instance, some member states, who also belong to NATO like Baltic states, take a dim view of the European project of Defence. They would rather reinforce their cooperation with the US that they deem more able to protect them, against Russia in particular, than a European army. Others like France advocate for a greater diplomatic and military independence from the US in order to regain sovereignty.
Divergences also arise when it comes to the EU’s political future. Some countries want to turn the EU into a true global power whereas others only want a free-trade area without community policies. Furthermore, many sovereigntist political parties support the idea of leaving the EU as they oppose, what they consider, Brussels’ illegitimate authority.