Economy - overview: Internally, the 28 EU member states have adopted the framework of a single market with free movement of goods, services and capital. Internationally, the EU aims to bolster Europe's trade position and its political and economic weight.
Despite great differences in per capita income among member states (from $13,000 to $82,000) and in national attitudes toward issues like inflation, debt, and foreign trade, the EU has achieved a high degree of coordination of monetary and fiscal policies. A common currency – the euro – circulates among 19 of the member states, under the auspices of the European Economic and Monetary Union (EMU). Eleven member states introduced the euro as their common currency on 1 January 1999 (Greece did so two years later). Since 2004, 13 states acceded to the EU. Of the 13, Slovenia (2007), Cyprus and Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014), and Lithuania (2015) have adopted the euro; 7 other member states - not including the UK nor Denmark, which have formal opt-outs - are required by EU treaties to adopt the common currency upon meeting fiscal and monetary convergence criteria.
The EU economy is still recovering from the 2008-09 global economic crisis and the ensuing sovereign debt crisis in the euro zone in 2011. The bloc posted moderate GDP growth for 2014 through 2017, but the recovery has been uneven. Some EU member states (Czechia, Ireland and Spain) have recorded strong growth while others (Finland, Greece) are struggling to shake off recession. Only Greece remains under an EU rescue program, while Ireland, Portugal, Spain and Cyprus have successfully concluded their agreements. Overall, the EU’s recovery has been buoyed by lower commodities prices and accommodative monetary policy, which has lowered interest rates and the euro’s foreign exchange value. However, significant drags on growth remain, including persistently high unemployment in some member states, high levels of public and private debt loads, lackluster investment, and an aging population. These factors - in combination with low oil prices - have subdued inflation in the euro zone despite the European Central Bank’s (ECB) efforts to spur more lending and investment through its asset-buying program, negative interest rates, and long-term loan refinancing programs. The ECB in December 2016 announced it would extend its bond-buying program through 2017 to underpin the euro-zone economy and bring inflation to its statutory target of just under 2%.
Despite its fair performance, the EU economy is vulnerable to a slowdown of global trade and bouts of political and financial turmoil. In June 2016, the UK voted to withdraw from the EU, the first member country ever to attempt to secede. Uncertainty about the timing, scope, and implications of the UK’s exit could hurt consumer and investor confidence and dampen UK and euro-zone growth if trade, investment and demand suffers. Political disagreements between EU members on fiscal and economic policy may impair the EU’s ability to improve its crisis-prevention and resolution mechanisms. Risks also linger of a flareup between Greece and its euro-zone creditors that could be detrimental to a stronger recovery, especially if it damages the euro-zone’s credibility with international investors and sparks renewed fears of a broad dissolution of the single currency area. In addition, portions of the European banking sector, particularly in Italy and Portugal, are still struggling with bad loans, and the potential for mismanagement of ailing banks could lead to localized crises. Externally, the EU’s efforts to expand already large trade and investment flows through ambitious and comprehensive free trade agreements suffered some setbacks in 2016; for example, progress stalled on a US-EU deal and the European Commission’s exclusive competence to negotiate trade deals was curtailed by challenges from member states.
Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.
Source: CIA World Factbook - This page was last updated on January 20, 2018
