Introduction

History of Economic integration and European union

The European union has gone through many incretion since its origins fifty-seven years ago. the European union or EU is on international organization of European union states established by treaty on European union. The European union is the most powerful regional organization in existent in some ways it resembling a state. European Union was formed in 1957 by the so called Original Six group; they were member states of Benelux(Belgium, Netherlands and Luxembourg) and France, Germany and Italy, which signed the treaty to create European Economic Community. In consecutive years they were joined by Denmark, Ireland and Great Britain (1973), Greece (1981), Portugal and Spain (1986),Austria, Finland and Sweden (1995). In 2004 10countries: Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, and in 2007 Bulgaria and Romania obtained membership in the EU, thus increasing the number of the EU members up to27 states. This made the European Union one of the largest integrated groupings in the world with population of 490mln. and economy representing one-third of the global GDP, one-fifth of the global trade in goods and more Thana quarter of services in the world. During the last decade the EU reached significant results (European Communities, 2006): economic growth was 22.4%between 1995 and 2004 compared to 9.8% of Japan and33.9% of the US. Intra-European trade makes two-third of the overall volume of trade of the union in general. The EU is a leading exporter and second after the US importer in the world. After significant growth since the millennium development of the trade of the EU stays stable, with the last phase of growth started in 2004. The European Economic Community (EEC) had been founded in 1957-58 to oversee the economic integration of the nations of Western Europe. In 1967 the EEC joined together with the European Coal and Steel Community and the European Atomic Energy Community to form the European Communities, or EC (the plural was dropped from the name in the 1980s).

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The success of the liberalized trade and internal market policies sponsored by the EEC (or EC) in the 1960s, '70s, and '80s made its members more receptive to the greater integration of the EC. Subsequent efforts toward greater economic and political union of the EC's members eventually yielded the Treaty on European Union (Maastricht Treaty), concluded in December 1991. The treaty's enactment (Nov. 1, 1993) created the European Union out of the European Community; in addition, the European Economic Community was renamed the European Community, and the EC's Council of Ministers was renamed the Council of Ministers of the European Union. One of the main goals of the EC was the integration of its members' economies into a single frontier less market that would have a common currency and a common central bank. The measures the EC took in this regard were obtained by the unanimous consensus of its members. The EC oversaw the establishment of the European Monetary System (EMS) in 1978 to regulate currency exchange rates and aid monetary stability among its members. The EMS, which took effect in 1979, linked the currencies of the EC member countries (excepting those of the United Kingdom, Spain, and Portugal, who declined to participate) so as to avoid large day-to-day fluctuations in currency rates while permitting periodic realignments. In the interest of encouraging the mobility of labor, restrictions on the movement of labor among the EC countries also were effectively removed. In 1987 the EC member states adopted the Single European Act, by which they declared their eventual intention to create a unified, free-trade market in Western Europe. Measures implementing this declaration began in 1990 with the lifting of exchange controls and the elimination of barriers to Europe-wide banking, insurance, securities, and other financial services. The European Union and its Member States have been engaged in a process of market integration over a long period. A key objective of economic integration has been the removal or elimination of barriers between Member States' markets. A cornerstone of this process was the adoption and implementation of a major legislative programme, the Single Market Program, resulting in the elimination of non-tariff trade barriers by 1st January 1993.

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The removal of these barriers was targeted at creating a large integrated market for goods and services, allowing the realization of economies of scale. The fiercer competition in this integrated market was expected to result in (allocate and productive) efficiency gains. It was also aimed at providing increased incentives for European producers to invest in product and process innovations, thereby improving the dynamic efficiency of the European economy. For European consumers, the Internal Market was also seen as a source of benefits through wider choice and lower prices. While the Internal Market has contributed to promote integration and, to a certain extent, competition within the EU, its potential has not been fully exploited. Initial expectations that the Internal Market would be a launching pad for a more dynamic, innovative and competitive economy at world level have not been met. In the early 1980s, the convergence in the EU level of GDP per capita towards that of the US came to an end. Over the past ten years, the average annual per capita growth rate of the European Union has been even below that of the US. The on-going Single Market Review provides an opportunity to redefine the strategy for the Internal Market and to give it new impetus. This paper offers an economic perspective on the different issues currently under discussion within the context of the Review. This paper addresses the three following questions. First, to what extent is the environment in which the Internal Market operates today different from that of the late 1980s-early 1990s? Second, what is the latest empirical evidence on the economic impact of the Internal Market? Third, why has the Internal Market failed to live up to early expectations? The answers to these three questions should help to shed light on the economic principles underlying the Internal Market and offer ideas on how its potential can be further exploited.

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Four types of economic integration FTA (free trade area): no internal tariffs among members, but each country imposes its own external tariffs to the third country. NAFTA (North America Free Trade Agreement AFTA (ASEAN Free Trade Area) EFTA (European Free Trade Area)

Customs union: no internal tariffs and common external tariffs Mercosur (Southern Common Market), CACM (Central American Common Market) CARICOM (Caribbean Community and Common Market)

Common market: free movement of products and factors (resources), which is customs union plus factor mobility EU (European Union previously EEC) Economic union: common market plus common currency coordination of fiscal and monetary policy EMU (Economic and Monetary Union)

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Main Points Since the creation of the EU half a century ago, Europe has enjoyed the longest period of peace in its history. European political integration is unprecedented in history. EU enlargement has helped overcome the division of Europe contributing to peace, prosperity, and stability across the continent. A single market and a common currency conditions for companies and consumers. Three levels of economic integration Global: trade liberalization by GATT or WTO Regional: preferential treatment of member countries in the group Bilateral: preferential treatment between two countries Regional and bilateral agreements are against the MFN clause (normal trading relations), but allowed under WTO. Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states. The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist.

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Basis of the European union

European Union Law
European Union law (historically called "European Community law") is a body of treaties and legislation, such as Regulations and Directives, which have direct effect or indirect effect on the laws of European Union member states. The three sources of European Union law are primary law, secondary law and supplementary law. The main sources of primary law are the Treaties establishing the European Union. Secondary sources include regulations and directives which are based on the Treaties. The legislature of the European Union is principally composed of the Parliament and the Council of the European Union, which under the Treaties may establish secondary law to pursue the objective set out in the Treaties. European Union law is applied by the courts of member states and where the laws of member states provide for lesser rights European Union law can be enforced by the courts of member states. In case of European Union law which should have been transposed into the laws of member states, such as Directives, the European Commission can take proceedings against the member state under the EC Treaty. The Court of Justice of the European Union is the highest court able to interpret European Union law. Supplementary sources of European Union law including case law by the Court of Justice, international law and general principles of European Union law. The European union is based on the rule law and democracy. it is neither a new state replacing existing ones nor is it comparable to other international organizations. Its member states delegate sovereignty to common institutions representing the invests of the union as a whole on questions of joint interest. All decisions and procedures are derived from the basis treaties ratified by the member states.

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The Single Market

The publication of the White Paper on the Single Market Programme (SMP) in 1985 signaled the end of a period of euro-pessimism associated with the political, economic and monetary crises of the 1970s and early 1980s. The 1988 Cecchini Report delved into the structural weaknesses underlying the poor performance of the European economy1. It highlighted the fact that European industry had a relatively weak specialization in sectors with high growth potential, which was associated with especially low productivity levels in those sectors and resulted in substantial losses in world market export shares (see Figure 2-1), problems that must not sound unfamiliar to current policy makers. At the time, the SMP initiative opened up perspectives for restoring confidence, increasing competition and improving the competitiveness of European enterprises. Since that time, the definitions of the Internal Market and the expectations towards it have been constantly changing, taking into account the newly arising opportunities and challenges of the global environment. While initially the measures foreseen in the SMP mainly concerned manufacturing industries, over time there has been a gradual widening of the SMP's scope. In following years precedents were set that liberalized cross-border delivery of services and freedom of establishment, culminating in the much discussed services directive. This development reflected the increased economic importance and tradability of services. The success of the liberalization process in the network industries 1 See: Cecchini (1988). 19 largely depended on market entry, including by competitors from abroad. These broader needs for market integration were reflected in the Internal Market Strategy, which set out the main policy objectives in the years following the completion of the SMP in 1992. GDP boosted by nearly 900 billion over 10 years period 1992-02 cover $1 trillion and 2.5 million jobs created from the single market alone.

The Single Market Based on Four Freedoms : Free movement of goods Free movement of capital Free movement of persons Free movement of services
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A single market is a type of trade bloc which is composed of a free trade area (for goods) with common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members is as easy as within them. The physical (borders), technical (standards) and fiscal (taxes) barriers among the member states are removed to the maximum extent possible. These barriers obstruct the freedom of movement of the four factors of production. A common market is a first stage towards a single market, and may be limited initially to a free trade area with relatively free movement of capital and of services, but not so advanced in reduction of the rest of the trade barriers. A single market has many benefits. With full freedom of movement for all the factors of production between the member countries, the factors of production become more efficiently allocated, further increasing productivity. For both business within the market and consumers, a single market is a very competitive environment, making the existence of monopolies more difficult. This means that inefficient companies will suffer a loss of market share and may have to close down. However, efficient firms can benefit from economies of scale, increased competitiveness and lower costs, as well as expect profitability to be a result. Consumers are benefited by the single market in the sense that the competitive environment brings them cheaper products, more efficient providers of products and also increased choice of products. What is more, businesses in competition will innovate to create new products; another benefit for consumers. Transition to a single market can have short term negative impact on some sectors of a national economy due to increased international competition. Enterprises that previously enjoyed national market protection and national subsidy (and could therefore continue in business despite falling short of international performance benchmarks) may struggle to survive against their more efficient peers, even for its traditional markets. Ultimately, if the enterprise fails to improve its organization and methods, it will fail. The consequence may be unemployment or migration.

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For euro area countries the instruments of an independent monetary policy and exchange rate realignments are no longer available and the use of their fiscal policy is limited by the Stability and Growth Pact. In the absence of national monetary policy, or the use of other instruments, the adjustment process that brings cyclical conditions back in line with the euro area average uses the so-called "competitiveness channel"3. As the national economy enters a boom phase relative to the euro area average, for example, the pressures on resources causes costs to increase; the real effective exchange rate appreciates; and this in turn slows activity until cyclical conditions move back in line with the euro area average. There is significant scope for polices to influence the adjustment process through the fiscal stance and, over the medium-term, structural policies. The main role of structural reforms is to speed up this often slow adjustment process. Wage and price setting behavior exerts an important influence of the speed and efficiency of adjustment. Recent surveys show that prices in the euro area change relatively infrequently. Prices of services are especially sticky, which is an indication of a lack of competition in services markets. Further structural reforms therefore appear to be needed to increase the responsiveness of domestic prices and wages to shocks. Even though the gap with the US has narrowed, euro area product and labour markets remain highly regulated. The creation of a more integrated and competitive Internal Market, particularly in services, should help ensure that prices adjust more rapidly to changing supply and demand conditions. More integrated markets also allow a more rapid dissipation of asymmetric shocks, as excess demand (or supply) for goods and services in one region within the euro area can by satisfied by supply (or demand) from another region. A more ambitious reform programme aimed at speeding up the process of adjustment via changes in prices, wages and production quantities in the euro area would therefore seem essential. From a longer term perspective, the adjustment to shocks requires moving production factors from declining sectors to sectors where the economy has a comparative advantage and where the factors can be used more efficiently. A more integrated Internal Market facilitates the reallocation of such factors, particularly in the case of more permanent supply shocks (such as technology shocks).

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The Internal Market, but also EMU and enlargement, have helped to reinforce the integration of European product markets. However, the empirical evidence gathered in this section shows that the pace of European market integration appears to have slowed down in recent years. This reallocation of resources can take place within industries via a process of entry and exit resulting in a shift in market shares towards most efficient firms. Alternatively it may occur via a process of industrial specialization and geographic concentration reflecting the competitive advantages of countries or regions. A well functioning and flexible Internal Market which allows for a rapid market based adjustment to correct asymmetric shocks has, thus, gained in importance with the establishment of the EMU. The free movement of labour between Member States of the European Community is possible since 1968. However, overall labour mobility in Europe has remained rather low. In the EU-15, only 0.1% of the working-age population change their country of residence in a given year. In comparison, in the US, about 3% of the working-age population moves to a different State every year. Also labour markets remain segmented, country by country. Within countries, regional mobility rates are around 1% of the total working-age population in 2005, with rates below 0.3% in several Member States. Language is one of the main barriers to geographical mobility. Across the EU, only every second person speaks another language than his or her mother tongue. In addition, there are large differences between Member States109. Other discouraging factors110 for individuals are the expected transaction costs and/or the lack or insufficient information about administrative and financial burdens associated with mobility; economic ties to the home country (e.g. homeownership); about the society and job prospects, legal requirements of the destination country; family concerns (disruption of family life, difficulties for the spouse, or children who want to join the migrant), etc. Another major difficulty is the lack of convergence between national regulations. The EU has 25 different social security, taxation and pension systems. Every Member State determines how to operate its own social security system, the benefits and conditions. There have been a number of initiatives to address these problems111.

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This includes a variety of Community language learning programmes; a European health insurance card; the coordination of social security schemes; a proposal for a directive on the portability of pension; and a vast information network to provide targeted information and personally tailored assistance to workers and their families. However, these initiatives have not succeeded in establishing a genuine policy of mobility at European labour market level. This was also reflected in the recent public consultation on the future of the Internal Market. Respondents mainly mentioned the lack of portability of pension rights, differences in social security systems and delays in the free movement of workers from the new Member States.

Action Plan of June 1997 This Action Plan aimed at removing the remaining obstacles in order to improve the performance of the Internal Market. It included four strategic targets: Tighter enforcement of existing Internal Market rules (e.g., in the area of public procurement) ; Dealing with key market distortions (e. g ., rigorous application of State aid control) ; Elimination of sect oral obstacles to market integration, especially in services ; Delivering an Internal Market for all citizens. An Internal Market Scoreboard is published to record the progress made in these areas. New strategy for the Internal Market of 1999 In 1999, the Commission has presented a new framework defining 4 strategic objectives for the Internal Market: To improve the quality of life of citizens ; To enhance efficiency of Community product and capital markets ; To improve business environment ; To exploit the achievements of the Internal Market in a changing world.

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The actions necessary to achieve these strategic objectives were defined and adapted every year to take into account the reactions of markets, business and citizens.

Strategy for the Internal Market: priorities 2003-2006 In 2003, the Commission presented a ten point action plan defining the priorities to improve the operation of the Internal Market over the period 2003-2006. This new strategy has been put in place to take into account the Lisbon objective, the challenges of enlargement and ageing. The ten priorities were: Facilitate the free movement of goods (e.g., by improving the implementation of the mutual recognition principle); Integrating services markets ; Ensuring high quality network industries; Reducing the impact of tax obstacles ; Expanding procurement opportunities ; Improving conditions for business (e. g., by adopting a Community patent) ; Meeting the demographic challenge (e. g., by improving the portability of pension rights) ; Simplifying the regulatory environment ; Enforcing the rules; Providing more and better information.

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Founding Members
In 1957, six core states (Founders) made up the European Economic Community, the forerunner of the European Union (EU). As of 2007, the EU has 27 member states: 1. Austria (1995) 2. Belgium (Founder) 3. Bulgaria (2007) 4. Cyprus (2004) 5. Czech Republic (2004) 6. Denmark (1973) 7. Estonia (2004) 8. Finland (1995) 9. France (Founder) 10. Germany (Founder) 11. Greece (1981) 12. Hungary (2004) 13. Ireland (1973) 14. Italy (Founder) 15. Latvia (2004) 16. Lithuania (2004) 17. Luxembourg (Founder) 18. Malta (2004) 19. Netherlands (Founder) 20. Poland (2004) 21. Portugal (1986) 22. Romania (2007) 23. Slovakia (2004) 24. Slovenia (2004) 25. Spain (1986) 26. Sweden (1995) 27. United Kingdom (1973)
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Before being considered for membership in the EU, basically, a nation must have a democratic, free market government, respect the rule of law and have appropriate freedoms and institutions. Geographically, only European countries are candidates, but since there is no unambiguous definition of "Europe", some countries, like Cyprus or Armenia could be argued either way. Once the appropriate conditions are met, the candidate state must adopt all EU laws and be accepted by all current EU members. Noticeably absent are Norway, Switzerland, Turkey and the former states of Yugoslavia.

Postwar European economic cooperation began with the establishment of the OEEC (Organization for European Economic Cooperation) in 1948 to allocate the Marshall Plan aid (named after George Marshall who was the Secretary of State, US). Marshall Plan With OEEC, quotas and payments restrictions were dismantled among member countries. The MP (a) allowed Europeans to purchase capital goods and raw materials to start up industries, (b) helped Europeans to acquire more reserves ($ and Gold). The Treaty of Paris established the ECSC (European Coal and Steel ECSC, 1952 Community) in 1952 which created a common market for coal, steel and iron ore, covering France, Italy, West Germany, Belgium, Netherlands, and Luxembourg. The Treaty of Rome (1957) establishing the EEC was signed by the EEC and Euratom, 1957 same countries and ratified. The treaty set the time table for a progressive development of a customs union. Also a separate Euratom treaty was signed to create European Atomic Energy Community.

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EFTA (European Free Trade Association) was formed in 1960 by UK, EFTA, 1960 the three Scandinavian countries (Norway, Sweden and Denmark), Switzerland, Austria and Portugal. European Community, 1967

Fusion of the three communities (EEC, Euratom, ECSC) into a single European Community was established in 1967.

Great Britain, Denmark and Ireland entered in 1973, Greece (1981), Spain and Portugal (1986). Signed the Treaty on European Union (1992). A.k.a. Maastricht Treaty. European Union, 1992 Common Foreign and Security Policy (CFSP) and Justice and Home Affairs were included. Together with the Community, they form three pillars of EU. Austria, Finland and Sweden joined the European Union (1995). Norway declined. euro, 2002 On January 1, 2002, euro is circulated in 11 countries. On May 1, 2004, 10 additional members join the EU (The Czech Republic, Estonia, Latvia, Lithuania, Cyprus, Malta, Hungary, Poland, Slovenia and Slovakia On January 1, 2007, Bulgaria and Romania joined the union. Financial crisis in Greece, followed by similar debt problems in other European countries.

Eastern and Central Europe

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Goals of European Union

As in 1949 when it was founded with the creation of the Council of Europe, the European Union's mission for today is to continue prosperity, freedom, communication and ease of travel and commerce for its citizens. The EU is able to maintain this mission through the various treaties making it function, cooperation from member states, and its unique governmental structure.

Goals of EU :-

1) To strengthen the democratic governing of participating nations. 2) To improve the efficiency of the nations. 3) To establish an economic and financial unification. 4) To develop the "Community social dimension." 5) To establish a security policy for involved nations. 6) Creating an information society for all 7) Developing a European area for innovation and R&D 8) Liberalization (completing the Single Market; state aid and competition policy) 9) Building network industries 10) Creating efficient and integrated financial services 11) Improving the enterprise environment 12) Increasing social inclusion 13) Enhancing sustainable development etc.

In order to reach these goals, the Treaty of Maastricht has various policies dealing with issues such as industry, education, and youth. In addition, the Treaty put a single European currency, the euro, in the works to establish fiscal unification in 1999. In 2004 and 2007, the EU expanded, bringing the total number of member states as of 2008 to 27. In December 2007, all of the member nations signed the Treaty of Lisbon in hopes of making the EU more democratic and efficient to deal with climate change, national security, and sustainable development. The assessment is based on publicly available statistics (e.g. Internet penetration rates, unemployment rates) and data from the World Economic Forums
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Executive Opinion Survey (EOS), an annual survey of business leaders that is carried out in over 130 countries, providing data for a variety of qualitative issues for which hard data does not exist (e.g. the quality of the educational system, the governments prioritization of information and communications technologies). Sweden remains the most competitive economy as measured by the European Unions (EU) own competition benchmark, the Lisbon criteria, followed by Finland, Denmark and the Netherlands, according to the World Economic Forums Lisbon Review 2010 released today ahead of the upcoming World Economic Forum on Europe. The World Economic Forums study is the fifth and final review in a biennial series that assesses the progress made by EU Member countries in the far-reaching goals of the EUs Lisbon Strategy of economic and structural reforms. In addition to assessing the performance of 27 existing EU Members, it also measures the competitive performance of EU candidates and potential candidate countries. Click on the picture to watch a four-minute interview with the author of the report, Jennifer Blanked, Senior Economist at the World Economic Forum. In 2000, the EU set for itself an ambitious action and development plan with the Lisbon Agenda. As this Review indicates, while some progress has been made, much remains to be achieved in order to fully harness Europes economic potential. As Europe and the world emerge from the most significant economic crisis in a half-century, accelerating the reform process articulated through efforts such as the new Europe 2020 Strategy will be critical for ensuring that the region gets back to growth, said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. The Nordic countries are the strongest European performers in the area of innovation, attributable to their companies aggressiveness in adopting new technologies and their level of spending on R&D, and the high degree of collaboration between universities and the private sector in research. Indeed, in terms of innovation output, they register among the highest rates of patenting per capita internationally. The Nordic countries have also achieved a high level of social inclusion, with low unemployment (especially in Denmark, pioneer of the flexicurity system) and strong participation of women in the workforce (especially in Finland and Sweden). These countries
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also have developed highly-skilled workforces through top-notch educational systems and strong on-the-job training programmes. Among the other countries in the top 10, performance is more mixed, with some notable strength in specific areas. For example, the Netherlands is ranked 2nd both for its information society and for the extent of liberalization. Germany and France have particularly strong network industries (ranked 1st and 3rd, respectively). The assessment of the United Kingdoms financial services has continued to worsen, a trend seen over the past few years, falling from 1st in this dimension in The Lisbon Review 2006 to 11th in 2008, and finally to 14th in the present assessment, no doubt related to weaknesses revealed and exacerbated by the recent financial crisis. According to the study, several 2004 accession countries are ranked ahead of many longerstanding EU Members, including Estonia, Slovenia and the Czech Republic. This implies that a number of these more recent Members are closer to meeting the Lisbon Goals than many of the longer-standing Members. Among potential future Members, Croatia and Montenegro outperform the four lowestranked EU Members Poland, Italy, Romania and Bulgaria and Turkey and Macedonia outperform Bulgari.

The European Commission today formally adopted a Roadmap for transforming the European Union into a competitive low carbon economy by 2050. It has already surpassed the targets set for 2012, and is on track to achieve the goals for 2020. Its next plan for achieving the needed 80% 95% cuts in greenhouse gas emissions is laid out in todays Roadmap for moving to a competitive low-carbon economy in 2050. (PDF) The introduction to the Roadmap reports that the European Union is on track to meet its target of reducing emissions to 20% below 1990 levels and getting 20% of electricity from renewable energy sources by 2020 (the 20/20/20 plan). The 2009 progress report to the UN noted that the EU was likely to actually exceed its 8% below 1990 levels by 2012 target, with 2007 levels already at 5% below 1990 levels. The reduction came largely before the economic crisis at the end of 2008, and during a period of years that the EU economy grew by 44% in total.
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By contrast the efficiency target how much actual energy use is reduced, for example, by more efficient appliances and insulation is not as encouraging, with the EU only half way to the goal. Surprisingly, as energy efficiency is widely thought to be the low hanging fruit the easy way to reduce carbon emissions, only the UK has reduced actual energy use more than 5%. Germany used as much as before, Frances energy use actually rose 7%, and the EU on average, increased energy use 4%. Of course, German housing was already superefficient, while British housing stock was not. Even so, by 2050, the Commission says, Europeans will have largely made the transition to a very low carbon economy; living and working in low-energy and low-emission buildings, with intelligent heating and cooling systems, driving electric and hybrid cars and living in cleaner cities with less air pollution and better public transport. The transition is expected to give the economy a boost thanks to increased investment in clean technologies and clean energy. Reducing energy consumption through efficiency could add 1.5 million jobs by 2020, and reduce energy consumption 30% by 2015, the Commission estimates. The Roadmap finds that, to achieve the target, governments will need to invest 270 billion Euros a year, on average, over the next four decades. During the same forty years, average savings would be greater than the investment, saving 320 billion Euros every year. Investment at that level which would be 1.5% of GDP - would bring Europe back to investment levels from before the economic crisis, and spur growth within a wide range of manufacturing sectors and environmental services in Europe.

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Principal Objectives of the EU

The promotion of peace and the well-being of the Unions citizens An area of freedom, security and justice without internal frontiers Sustainable development based on balanced economic growth and social justice A social market economy - highly competitive and aiming at full employment and social progress A free single market etc. Effective application of EU rules on worker protection and equality Promoting better standards of inspection, monitoring and enforcement by EU countries and reviewing how EU legislation has been applied Shared understanding and ownership of EU objectives EU countries have agreed to common guidelines and goals to inform, coordinate and strengthen national-level reforms Effective partnerships Involving stakeholders throughout the policy process: problem definition, information gathering, consultation, development of options, decision-making, implementation and evaluation. The increase of trade between member states of economic unions is meant to lead to higher productivity. This is one of the reasons for the global scale development of economic integration, a phenomenon now realized in continental economic blocks such as ASEAN, NAFTA, SACN, the European Union, and the Eurasian Economic Community; and proposed for intercontinental economic blocks, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area.

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Comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another. Comparative advantage was first described by David Ricardo who explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. Economies of scale refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. Economies of scale is also a justification for economic integration, since some economies of scale may require a larger market than is possible within a particular country for example, it would not be efficient for Liechtenstein to have its own car maker, if they would only sell to their local market. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to the local market.

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The European Union Global Role

The world as we knew it only a few years ago has changed radically. While some changes have been unsettling, they have also created new opportunities for the European Union and its citizens. Whereas the world is struggling with conflict and poverty in many places, Europe has shown that a continent once ravaged by war and hardship can achieve sustainable peace and prosperity. Europe has remained so far a pole of attraction standing as it does for democracy, social progress, good governance, and economic openness. The Treaty of Lisbon has given us the structures to act flexibly and coherently in response to the challenges we face. The creation of the post of the high Representative for Common Foreign Affairs and Security Policy and the setting-up of an European External Action service have laid the foundations for the EU to act stronger and with a single united voice in the world. Today, when all headlines are full about the crisis in Europe, I would like to remind you about some figures, which seem to be more and more ignored. The EU is still the world's largest economy, accounting for almost a quarter of global GDP and fifth of world trade. Even in relation to the rising economies of China and other BRIC countries, EU's GDP stands for around 12 trillion Euros, beating both the GDP of the USA (10.7 trillion) and the combined BRIC GDP (8 trillion). Moreover, the EU-US trade relationship represents the largest market in the world and is incomparable to US's relationship with India and China for example, which together only corresponds to US's relationship with Belgium. Furthermore, the EU and its member states contribute over 55% of global development assistance and humanitarian aid. The EU plays despite its current internal challenges - a major role in addressing global problems and is a favored partner of many countries, both in our neighborhood and beyond. Massive changes are taking place around the world, most immediately in North Africa, where the EU has seized the moment, responding to the historic events that we have witnessed. We are also contributing to the promotion of security in the Middle East, the Caucasus and many parts of Africa and have responded quickly to natural catastrophes such as those in Haiti or Pakistan. Europe has become throughout the years a global player and a major shaper of world governance. However it is in our neighborhood that the EU wields greatest influence and where the success of a post-Lisbon EU will be to a large extent measured.
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The political and economic development of the countries in our closest vicinity is a process that we seek to embrace. Enlargement has been so far one of the EUs most successful policies. It has enabled us to reunite a large part of the European continent and to project stability and prosperity at our borders. However also here there are critical choices to make. As a vibrant country with a young population and a common history, we cannot ignore the role that Turkey in particular could play as a full actor in the EU. Turkeys past and future belong in Europe. But Turkeys unique 3 location at the cross-roads between East and West may tempt it to look strategically towards the Middle East and Asia, as the source of new opportunities. If we let the chance slip away, both sides would be losers. I am sure that you as students of the formerly called "Oriental Academy" are particularly sensitive for these issues. Last but not least, fulfilling the European perspective of the countries in South Eastern Europe remains a key objective of the EU. This is essential to consolidate stability, achieve progress and ensure regional reconciliation. Developments in North Africa and the Middle East and the changes occurring in Eastern Europe show that Europes immediate neighborhood faces truly historic political, social and economic challenges. These need to be addressed with a view to creating an enlarged region of peace, sustainable democracy and economic development. We need to build and develop a Partnership for Democracy and Shared Prosperity. The credibility of the EU to count in global strategic issues also depends on our ability to get the new partnership with our neighbors right. We need therefore to develop stronger incentives-based approach founded on more differentiation and positive conditionality.

We are living in an increasingly inter-independent and complex world. But it is also clear that our "internal governance" has a decisive impact on Europe's resolve and leadership in the world. It is not exaggerated to say that we are facing the biggest challenge in the history of our Union. This crisis is financial, economic and social. But it is also a crisis of 6 confidence. A crisis of confidence in our leaders, in Europe itself, and in our capacity to find solutions. The roots of the crisis are well-known. Europe has not met the challenges of competitiveness. Some of our Member States have lived beyond their means. Some behaviors in the financial markets have been irresponsible and inadmissible. We have allowed imbalances between our Member States to grow, particularly in the euro area.
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Tectonic shifts in the world order and the pressures of globalization have made matters even worse. The result is clear: concern in our societies. Fear among our citizens for the future. A growing danger of a retreat into national, not to say nationalist, feeling. Populist responses are calling into question the major successes of the European Union: the euro, the single market, even the free movement of persons. The EU is widely perceived as a benevolent power, and we provide an example of successful supranational co-operation. But we cannot take that reputation for granted. The key to our future success lies in maintaining our position as an influential player and a source of inspiration, while ensuring that we make effective use of all the tools available to us to promote and protect our values and interests worldwide. It will be critical to overcome policy silos and to achieve greater integration between our external policies, including trade, development, and the neighborhood policy on the one hand and the internal policies such as the single market, energy policy and home affairs on the other.

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Development of Economic Integration and European Union

The EU is a global player. Its soft power promotes stability, prosperity, democracy and human rights, delivers concrete results in the fight to eradicate poverty, and in achieving sustainable development. Helping others to help themselves More than half the money spent on helping poor countries comes from the EU and its member countries, making it the world's biggest aid donor. But development policy is about more than just providing clean water and surfaced roads, important though these are. The EU also uses trade to drive development by opening its markets to exports from poor countries and encouraging them to trade more with each other.

Peace & Security Works for global peace and security alongside the United States and multilateral organizations including NATO and the United Nations. Undertakes humanitarian and peacekeeping missions and has provided military forces for crisis management around the globe.

Counterterrorism & Homeland Security Taken steps to improve intelligence sharing, enhance law enforcement and judicial cooperation, curtail terrorist financing.

Boosts trade and transport security to support the struggle against terrorism. Democracy & Human Rights Works globally for free elections and open democratic processes. Fights racism and intolerance at home and abroad. Campaigns globally against capital punishment.

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Development Assistance & Humanitarian Relief The EU and its Member States are the worlds largest aid donor, providing 55% of total official development assistance.

Provides billions of dollars in humanitarian aid to more than 100 countries in response to crises and natural disasters.

Trade European Commission represents all 27 EU Member States before the World Trade Organization. Supports free trade and open markets, within the rules-based structure of the WTO, to promote growth and jobs in both industrialized and developing countries. The world's most open market for products and commodities from developing countries 40% of all EU imports are from developing countries.

Environmental Protection A leader in global efforts to protect the environment, maintaining rigorous and comprehensive systems at home. Plays a key role in developing and implementing international agreements, such as the Kyoto Protocol on Climate Change. Executing a cap and trade system to reduce greenhouse gas emissions Takes the lead in the fight against global warming with the adoption of binding energy targets (cutting 20% of the EUs greenhouse gas emissions by 2020).

Freedom & Democracy Support free elections, good governance, human rights, and the rule of law around the world.

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Security Cooperate to fight terrorism, limit the spread of nuclear weapons, and work for global peace.

Development Together, EU and U.S. provide 80% of global development assistance and an even larger share of global humanitarian aid in times of disaster and conflict.

Economic Integration and Eu Development and Expansion

Eu supported the multi-ethnic fabric of Macedonia through continued insistence on the full implementation of the Ohrid Framework Agreement. We encourage all political parties to adhere to its spirit, in particular in the areas of: language, education, decentralization of budgets, interethnic relations and religion. The UKs public administration effectiveness project enables more transparent and effective management within the civil service, including on recruitment of minorities under the provisions of the Framework Agreement.

Albania Has focused on transparency, democracy and equality. We have funded a high-level mentoring project which works closely with judges to improve the efficiency and transparency of the Albanian Supreme Court. We also pushed for a settlement to the longstanding political impasse between the government and the opposition. In addition, we worked with the British Council to promote diversity and equality in Albania. The London 2012 Diversity Champion David Morris visited Albania in 2010, and the Embassy will again support the British Councils Inclusion Week in April 2011. Our support has helped the Inclusion Week to achieve a markedly higher profile for disability issues in Albania, as demonstrated by an unprecedented public rally of disabled peoples groups in Tirana as well as action from the Tirana authorities to improve wheelchair access across the city.

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Turkey EU accession process and strongly encouraged them to make progress with their reform agenda. The September Constitutional Reform referendum was a positive step and demonstrated wide support for judicial and military reform. We will continue to emphasize to the Turkish government the importance of swift and effective implementation of the reform package. Turkey has made progress in certain areas of human rights, but there is more work to be done before it meets EU standards, particularly on freedom of expression and the rights of ethnic and religious minorities. We supporter keys efforts to address these issues and in 2010 we agreed to fund the largest ever number of human rights projects across the widest ever range of Issues in Turkey, including on LGBT, children, women and disability, and helping refugees and asylum seekers better understand their rights and access legal remedies. The year 2011 promises to be an important year for Turkey. Several key pieces of legislation have been drafted and will pass-through the Turkish parliament, including on anti-discrimination, data protection and human rights. There is a parliamentary election in June, and should the current government retain power it has announced it will draft a new constitution. This would give renewed impetus to Turkeys reform programme. We will continue to encourage

the government of Turkey to make progress towards EU standards.

The European Neighborhood Policy The European Neighborhood Policy is the EUs main framework for engaging with the 16 countries which share its borders to the east and south. Human rights and democracy are a central part of the policy. EU funding to support reform in the neighborhood

is approximately 12 billion for 20072013.Each year, the EU and partner countries agree action plans which detail reforms in democratization, human rights and the rule of law. Progress under each action plan is monitored through sub-committees. Progress

reports are published annually. The second round of the EUArmeniahuman rights dialogue took place on 7December.

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Armenia The importance of human rights as an essential element for Armenia development into a fully democratic society. On 15 June the OSCE Representative on Freedom of the Media commented that amendments to the law on television and radio broadcasting in Armenia were not sufficient to improve media pluralism. The EU encouraged the Armenian government and legislators to continue to work closely with civil society, the Council of Europe and OSCE experts to ensure that its Broadcasting law promotes media freedom and is in line with international standards. In March, the OSCEs Office for Democratic Institutions and Human Rights issued its report on the conduct of the trials that took place in the aftermath of the March 2008 post-election violence in Yerevan. The report revealed shortcomings in Armenia's justice system and made a number of recommendations. It is important that the Armenian government implements these recommendations as part of its judicial reform programme. Although Armenia has ratified the Convention on the Elimination of All Forms of Discrimination against Women and its principles are addressed in the constitution, women continue to suffer significant discrimination in economic and political life. On 25 November, the International Day for the Elimination of Violence against Women, the EU announced the launch of 10 new human rights and democracy projects including one that aims to reduce gender -based domestic violence in Armenia. Azerbaijan, EU member states continued to express concern about the restrictions to freedom of assembly, including in the run-up to the November parliamentary elections. The High Representative shared the concern of the OSCEs Office for Democratic Institutions and Human Rights that the conduct of the elections was insufficient to constitute meaningful progress in the democratic development of the country and called on the Azerbaijani authorities to address these shortcomings. In November the EU welcomed the release of the youth activist bloggers Emin Milli and Adnan Hajizada, but expressed concern over Azerbaijanis reluctance to implement the European Court for Human Rights judgment on Eynulla Fatullayevs conviction for alleged terrorism. Association Agreement negotiations between the EU and Armenia and Azerbaijan were launched in July.
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The European Consensus on Development18, which marks a milestone in the history of EU development cooperation, expresses the will of the European Union and its Member States to make a decisive contribution to poverty eradication and the Millennium Development Goals. It sets out for the first time a common EU vision on development based on more aid, better aid, improved policy coherence and a focus on Africa. In 2010, the EU undertook several major policy initiatives to further implement its common vision on development. In April, the Commission issued a comprehensive set of proposals on EU action to help developing countries achieve the MDGs by 2015 (see section 1.1.1). After its fourth College to College meeting with the African Union Commission, the European Commission adopted in June 2010 a communication on future EU-Africa relations in the lead-up to the third EU-Africa summit in Tripoli in November. On that occasion, leaders from both continents confirmed their commitment to the Africa-EU Joint Strategy by adopting the second action plan (20112013) covering its eight thematic partnerships and underlining their will to strengthen cooperation on global challenges. The Commission launched several consultation initiatives in 2010 to generate a broad reflection on the future of EU development policy, in the light of the challenges and opportunities in a fast-moving international context and of the EUs new institutional framework. Consultations launched at the end of 2010, included a Green Paper on EU.

The future of EU development policy The Green Paper "EU development policy in support of inclusive growth and sustainable development" explored ways in which EU development policy could be a catalyst for building developing countries' own capacities to generate inclusive and sustainable growth and mobilize their economic, natural and human resources in support of poverty reduction strategies. It considered the possible development of partnerships for inclusive growth involving the public and private sectors and looked at climate change and energy policies as possible drivers of sustainable development as well as the role of agriculture in achieving food security and boosting growth. The results of this consultation will feed into the Commission's policy proposals during the course of 2011, including a Communication on modernizing European development policy.

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The Commission services also launched a public consultation on the future of financial instruments for external relations. The objective was to gather ideas and opinions on a wide range of issues such as the added value of EU financial intervention in some areas, the options for new forms of cooperation and delivery mechanisms with partner countries, as well as the efficiency, impact and visibility of EU external cooperation. The results of these consultations will contribute to the debate over whether the European Consensus or EU development policy in general needs updating in order to reflect better new development realities which have emerged since its adoption in 2005. As for policy research, the second edition of the European Report on Development (ERD) was issued in December 2010. Drawn up under the lead of the European University Institute with extensive input from European and African researchers, it focused on social protection as a key tool to reduce poverty and vulnerability and to stimulate inclusive development and proper growth in SubSaharan Africa.

Trade, Growth & Development Tailoring trade and investment policy for those countries most in need European Commission adopts Communication on Trade, Growth & Development The rise of emerging economies like India, China and Brazil shows that trade-driven development is possible and that open markets can play a major role in generating growth. Yet those trailing behind need help. World tariffs have never been this low and the EU already offers very favorable market access to poor countries. What will make a difference are non-tariff issues - such as standards, services, intellectual property rights, public procurement, infrastructure and packaging facilities. None of this can work without political governance. Said EU Trade Commissioner Karel De Gucht. The European Commission recommends a greater focus in trade and investment policies in favour of countries most in need.

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Trade has long been considered as vital for a countrys development. One needs only to look at the rise of emerging economies like India, China and Brazil to see the impact that tradedriven development can have. Millions have been lifted out of poverty. Yet, while showing positive growth and increased trade, some other developing countries have been further marginalized in an increasingly competitive global landscape. They are often held back by lack of productive capacity, difficulties in diversifying their economy, poor infrastructure and export conditions. The Communication "Trade, growth and development", redefines how the EU's trade and development policy will work for the development of those poorer countries in particular, Least Developed Countries (LDCs) - ensuring they can increasingly enjoy its benefits. The Commission proposes a number of ways to improve the effectiveness of EU trade and development tools for those countries most in need, including

reforming the EU's preferential trade schemes to focus more on the poorest countries, stepping up negotiations on free trade agreements with our developing country partners, including Economic Partnership Agreements (mainly in sub-Saharan Africa).

increasing the use of EU instruments to promote foreign direct investment, including relevant provisions in free trade agreements to enhance legal certainty,

facilitating developing country exporters, especially small operators, to enter the EU, for instance through the Export Helpdesk, and

assisting developing countries to improve governance, meet international standards and take better advantage of trade opportunities offered by world markets.

At the same time, the Communication underlines that developing countries' leadership and sense of ownership of their own development is crucial for growth. Developing countries need to undertake domestic reforms to ensure that the poor benefit from trade-led growth. The EU leads the way in providing trade policy support to the neediest countries, inter alia with the Everything But Arms initiative, and development assistance, in particular on Aid for Trade.

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