Managerial EconomicsProf. Ahmed Zubair

Case Study 1Subject:

Economy of the European Union

Student Name :KhalifaHamadAlGhufliID Number :11111111111111

Introduction

The economy of the European Union generates a GDP of over €12.894 trillion (US$16.566 trillion in 2012) according to Eurostat, which would make it the largest economy in the world if it were considered a single economy. The European Union (EU) economy consists of an Internal Market and the EU is represented as a unified entity in the World Trade Organization (WTO).

Currency

The official currency of the European Union is the euro used in all its documents and policies. The Stability and Growth Pact sets out the fiscal criteria to maintain for stability and (economic) convergence. The euro is also the most widely used currency in the EU, which is in use in 17 member states known as the Eurozone.

All other member states, apart from Denmark and the United Kingdom, which have special opt-outs, have committed to changing over to the euro once they have fulfilled the requirements needed to do so. Also, Sweden can effectively opt out by choosing when or whether to join the European Exchange Rate Mechanism, which is the preliminary step towards joining. The remaining states are committed to join the Euro through their Treaties of Accession.

Budget

The operation of the EU has an agreed budget of €141 billion for the year 2011, and €862 billion for the period 2007–2013, this represents around 1% of the EU's GDP.

Economic variation

Below is a table showing, respectively, the GDP and the GDP (PPP) per capita for the European Union and for each of its 27 member states, sorted by GDP (PPP). This can be used as a rough gauge to the relative standards of living among member states, with Luxembourg the highest and Bulgaria the lowest. Eurostat, based in Luxembourg, is the Official Statistical Office of the European Communities releasing yearly GDP figures for the member states as well as the EU as a whole, which are regularly updated, supporting this way a measure of wealth and a base for the European Union's budgetary and economic policies. Figures are stated in euro.

Economic performance varies from state to state. The Growth and Stability Pact governs fiscal policy with the European Union. It applies to all member states, with specific rules which apply to the eurozone members that stipulate that each state's deficit must not exceed 3% of GDP and its public debt must not exceed 60% of GDP. However, many larger members have consistently run deficits substantially in excess of 3%, and the eurozone as a whole has a debt percentage exceeding 60% (see below).

The data for GDP and GDP per capita (PPP) are based on the World Economic Outlook, April 2013 (International Monetary Fund).

Member states GDP 2012millions of

euro

Populationin millions

GDP (PPP)per capita

2011euro

GDP (Nominal)per capita

2012euro

GDP (PPP)per capita

2012EU27 = 100

Eurozoneyes/no

 European Union 12,899,149 504.9 25,100 25,600 100% Germany 2,643,900 80.2 30,300 32,299 122% yes France 2,029,877 63.7 27,200 30,600(2011) 108% yes Italy 1,565,916 59.7 25,100 25,700 99% yes Spain 1,049,525 47.0 24,700 23,100(2011) 97% yes Netherlands 600,638 16.8 32,900 35,900 129% yes Sweden 408,467 9.6 31,800 42,900 129% no Poland 381,213 38.5 16,200 9,900 66% no

 Belgium 376,840 11.1 29,900 34,100 119% yes Austria 309,900 8.5 32,400 36,600 131% yes Denmark 244,535 5.6 31,500 43,700 125% no Greece 193,749(p) 10.8 20,100(p) 17,200(p) 78% yes Finland 194,469 5.4 28,800 35,900 115% yes Portugal 165,409(p) 10.6 19,500(p) 15,600(p) 75% yes Ireland 163,595 4.6 32,200 35,600 130% yes Czech 152,828 10.5 20,200 14,500 79% no Romania 131,747 20.1 11,400(2010) 5,800(2010) 49% no Hungary 97,756 9.9 16,500 9,800 65% no Slovakia 71,463 5.4 18,400 13,200 77% yesLuxembourg 44,425 0.5 68,100 83,600 271% yes Croatia 43,903(p) 4.3 15,200 10,500(p) 61% no Bulgaria 39,667 7.3 11,600 5,400 47% no Slovenia 35,466 2.0 21,000 17,200 82% yes Lithuania 32,781 3.0 16,600 11,000 70% no Latvia 22,258 2.0 14,700 10,900 62% no Cyprus 17,886 0.9 23,700 20,500 91% yes Estonia 16,998 1.3 16,900 12,700 69% yes Malta 6,755 0.4 21,500 16,100 86% yes

Economic growth

The twelve new member states of the European Union have enjoyed a higher average percentage growth rate than their elder members of the EU. Slovakia has the highest GDP growth in the period 2005–2011 among all countries of the European Union (See Tatra Tiger). Notably the Baltic states have achieved massive GDP growth, with Latvia topping 11%, close to China, the world leader at 9% on average for the past 25 years (though these gains have been in great part cancelled by the late-2000's recession).

Reasons for this massive growth include government commitments to stable monetary policy, export-oriented trade policies, low flat-tax rates and the utilisation of relatively cheap labour. For the last year (2011), Estonia had the highest GDP growth from all the states in EU (7,6%). The current map of EU growth is one of huge regional variation, with the larger economies suffering from stagnant growth and the new nations enjoying sustained, robust economic growth.

Although EU27 GDP is on the increase, the percentage of Gross world product is decreasing due to the emergence of economic powers such as China, India and Brazil. In the medium to long term, the EU will be looking forward to increase GDP growth in Italy and the UK to stabilise growth in European Union states. This is to ensure sustained economic prosperity.

EU Member States GDP growth ratesMember State 2005 2006 2007 2008 2009 2010 2011 2012 2005 – 2012 Austria 2.4 3.7 3.7 1.4 −3.8 2.1 2.7 0.8 13.7

 Belgium 1.8 2.7 2.9 1.0 −2.8 2.4 1.8 −0.3 9.8 Bulgaria 6.4 6.5 6.4 6.2 −5.5 0.4 1.8 0.8 24.5 Cyprus 3.9 4.1 5.1 3.6 −1.9 1.3 0.5 −2.4 14.7 Czech Republic 6.8 7.0 5.7 3.1 −4.5 2.5 1.9 −1.3 22.6 Denmark 2.4 3.4 1.6 −0.8 −5.7 1.6 1.1 −0.5 3.0 Estonia 8.9 10.1 7.5 −4.2 −14.1 3.3 8.3 3.2 22.5 Finland 2.9 4.4 5.3 0.3 −8.5 3.3 2.8 −0.2 10.0 France 1.9 2.7 2.3 −0.1 −3.1 1.7 2.0 0.0 7.2 Germany 0.7 3.7 3.3 1.1 −5.1 4.2 3.0 0.7 11.6 Greece 2.3 5.5 3.5 −0.2 −3.1 −4.9 −7.1 −6.4 −9.6 Hungary 4.0 3.9 0.1 0.9 −6.8 1.3 1.6 −1.7 2.9 Ireland 5.9 5.4 5.4 −2.1 −5.5 −0.8 1.4 0.9 10.2 Italy 0.9 2.2 1.7 −1.2 −5.5 1.8 0.4 −2.4 −1.3 Latvia 10.

111.2 9.6 −3.3 −17.7 −0.9 5.5 5.6 17.9

 Lithuania 7.8 7.8 9.8 2.9 −14.8 1.5 5.9 3.7 24.6 Luxembourg 5.3 4.9 6.6 −0.7 −4.1 2.9 1.7 0.3 17.6 Malta 3.6 2.6 4.1 3.9 −2.6 2.9 1.7 0.8 17.8 Netherlands 2.0 3.4 3.9 1.8 −3.7 1.6 1.0 −1.0 9.2 Poland 3.6 6.2 6.8 5.1 1.6 3.9 4.5 1.9 38.7

 Portugal 0.8 1.4 2.4 0.0 −2.9 1.9 −1.6 −3.2 −1.4 Romania 4.2 7.9 6.3 7.3 −6.6 −1.1 2.2 0.7 21.4 Spain 3.6 4.1 3.5 0.9 −3.7 −0.3 0.4 −1.4 7.0 Slovakia 6.7 8.3 10.5 5.8 −4.9 4.4 3.2 2.0 41.2 Slovenia 4.0 5.8 7.0 3.4 −7.8 1.2 0.6 −2.3 20.1 Sweden 3.2 4.3 3.3 −0.6 −5.0 6.6 3.7 0.7 17.0 United Kingdom 2.8 2.6 3.6 −1.0 −4.0 1.8 1.0 0.3 6.9 European Union 2.1 3.3 3.2 0.3 −4.3 2.1 1.6 −0.3 8.0

Eurozone 1.7 3.2 3.0 0.4 −4.4 2.0 1.4 −0.6 6.7

EU Member States GDP growth ratesMember

State2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

 Austria 23,974

23,834

25,679

23,446

30,381

33,948

35,992

40,470

49,679

45,859

44,916

49,581

47,226

 Belgium 22,697

22,601

24,465

30,039

34,707

36,011

37,919

43,255

47,374

43,843

43,000

46,513

43,413

 Bulgaria 1,579

1,729

2,031

2,642

3,249

3,733

4,313

5,498

6,798

6,403

6,335

7,287

6,986

 Cyprus 13,422

13,797

14,862

18,429

21,381

22,431

23,864

27,860

31,928

29,428

27,889

29,372

26,315

 Czech Republic

5,725

6,289

7,685

9,336

11,157

12,706

14,446

17,467

21,627

18,806

18,867

20,580

18,608

 Denmark

29,980

29,946

32,344

39,443

45,282

47,547

50,462

57,021

62,596

56,227

56,486

59,889

56,210

 Estonia 4,144

4,573

5,386

7,270

8,913

10,330

12,503

16,393

17,738

14,264

14,062

16,534

16,316

 Finland 23,530

24,025

25,994

31,509

36,163

37,319

39,487

46,538

51,186

44,838

43,864

48,843

46,179

 France 21,775

21,812

23,494

28,794

32,785

33,819

35,457

40,342

43,992

40,488

39,186

7.2

 Germany

3.7 3.3 1.1 −5.1 4.2 3.0 0.7 11.6

 Greece 2.3 5.5 3.5 −0.2 −3.1 −4.9 −7.1 −6.4 −9.6 Hungar

y4.0 3.9 0.1 0.9 −6.8 1.3 1.6 −1.7 2.9

 Ireland 5.9 5.4 5.4 −2.1 −5.5 −0.8 1.4 0.9 10.2 Italy 0.9 2.2 1.7 −1.2 −5.5 1.8 0.4 −2.4 −1.3 Latvia 10.1 11.2 9.6 −3.3 −17.

7−0.9 5.5 5.6 17.9

 Lithuania

7.8 7.8 9.8 2.9 −14.8

1.5 5.9 3.7 24.6

 Luxemb 5.3 4.9 6.6 −0.7 −4.1 2.9 1.7 0.3 17.6

ourg Malta 3.6 2.6 4.1 3.9 −2.6 2.9 1.7 0.8 17.8 Netherla

nds2.0 3.4 3.9 1.8 −3.7 1.6 1.0 −1.0 9.2

 Poland 3.6 6.2 6.8 5.1 1.6 3.9 4.5 1.9 38.7 Portugal 0.8 1.4 2.4 0.0 −2.9 1.9 −1.6 −3.2 −1.4 Romani

a4.2 7.9 6.3 7.3 −6.6 −1.1 2.2 0.7 21.4

 Spain 3.6 4.1 3.5 0.9 −3.7 −0.3 0.4 −1.4 7.0 Slovakia 6.7 8.3 10.5 5.8 −4.9 4.4 3.2 2.0 41.2 Slovenia 4.0 5.8 7.0 3.4 −7.8 1.2 0.6 −2.3 20.1 Sweden 3.2 4.3 3.3 −0.6 −5.0 6.6 3.7 0.7 17.0 United

Kingdom2.8 2.6 3.6 −1.0 −4.0 1.8 1.0 0.3 6.9

 European Union

2.1 3.3 3.2 0.3 −4.3 2.1 1.6 −0.3 8.0

Eurozone 1.7 3.2 3.0 0.4 −4.4 2.0 1.4 −0.6 6.7

Energy resources

The European Union has large coal, oil, and natural gas reserves. There are six oil producers in the European Union, primarily in North Sea oilfields. The United Kingdom by far is the largest producer, however Denmark, Germany, Italy, Romania and the Netherlands all produce oil. If it is treated as a single unit, which is not conventional in the oil markets, the European Union is the seventh largest producer of oil in the world, producing 3,424,000 (2001) barrels a day.

It is also the world's second largest consumer of oil, consuming much more than it can produce, at 14,590,000 (2001) barrels a day. Much of the difference comes from Russia and the Caspian Sea basin. All countries in the EU have committed to the Kyoto Protocol, and the European Union is one of its biggest proponents. The European Commission published proposals for the first comprehensive EU energy policy on 10 January 2007.

Trade

The European Union is the largest exporter in the world and as of 2008 the largest importer of goods and services. Internal trade between the member states is aided by the removal of barriers to trade such as tariffs and border controls. In the eurozone, trade is helped by not having any currency differences to deal with amongst most members.

The European Union Association Agreement does something similar for a much larger range of countries, partly as a so-called soft approach ('a carrot instead of a stick') to influence the politics in those countries. The European Union represents all its members at the World

Trade Organization (WTO), and acts on behalf of member states in any disputes. When the EU negotiates trade related agreement outside the WTO framework, the subsequent agreement must be approved by each individual EU member.

Reference:

http://en.wikipedia.org/wiki/Economy_of_the_European_Union