The Goose That Laid The Golden Egg: Analysis of the Economic Benefits of the EU

Has the EU created a golden egg in terms of economic benefits for its member states? Or is it a gilded egg that is slowly falling apart?

By Avi Gupta

The EU is a supranational organization that finds its roots in the 1951 treaty of Paris that established the European Coal and Steel Community. Ever since its establishment, the seed of a closer European partnership has grown to eventually become the European Union with 27 member countries. The EU spans more than just an economic partnership – it is also a dream of unification of political, legal, and economic institutions. Such a dream is unprecedented and is the world’s greatest experiment of unification of people from different national identities and backgrounds into one state. However, while created with an ambitious goal, has the EU been successful? Analyzing the EU’s political and legal ramifications are beyond the scope of this article, but evaluating the economic impact of the EU on member countries is the start of a new conversation of the future of the EU.

There are three possible beneficiaries for economic change: consumers, firms, and the government. It is difficult to weigh the importance of economic gain to each beneficiary, thus it is best to look at possible benefits and negatives for EU membership and then evaluate overall economic impact. The impact of EU Membership is as follows:

First, the EU incentivizes greater internal trade within the EU which inevitably lowers consumer prices. With the lack of any tariff and free movement of goods across state borders, inter-EU trade has increased by 6% as a percentage of GDP from 1993 to 2005. As there are less barriers to trade, firms are forced to compete more which lowers prices and improves innovation. That being said, domestic industry that relied on trade protections are hurt and even forced to file for bankruptcy as they are undercut by competitors 

Second, the movement of labor inside the EU enables worker shortages to be met and overall improving employment. With no restrictions and the protection of individual rights throughout all EU countries, workers can move to meet demand for selective jobs, while also providing the flexibility to live and work everywhere, increasing support for local economies. From 1992 to 2002, employment in the EU rose 1.46%, which can partially be attributed to the movement of labor. There are some downsides as movement of labor can create competition and lower wages. Furthermore, each individual country has its own system of entitlements which supports its citizens no matter which country inside the EU they reside. This places an economic burden on some countries with mass migration and was one of the points of contention with the UK prior to Brexit. 

Third, the Euro and by the extension the EU has created a stable and prosperous environment for foreign investment and demand for the Euro. With the unification of European countries, smaller economies joined the bigger economies in creating the world’s second largest economy by GDP. This has led to a large influx of foreign investment to the account of 159 billion per year in 2005 – from 23 billion in 1992. The large economy has also created a strong Euro which is the world’s second most consumed currency and is considered safe and reliable as a possible replacement of the US Dollar, if it could surpass its current hurdles. 

Overall there are many individual benefits of the EU, but if it is beneficial to each country’s economy requires an analysis of GDP. Most scholars agree that the EU is beneficial to its member states. A report generated by the European Commission in 2002 showed that GDP grew by 1.8% more than if the Single Market never existed. Another report by economists at Vox EU CEPR suggests that GDP per Capita is 12% higher than if the EU did not exist. Other scholars argue that GDP of the EU would be approximately the same even if the EU did not exist. All of these reports employ different means of calculating the impact of the EU, and their inconsistency can be explained by the lack of a crystal ball. No matter the conflicting reports of the economic impact of the EU on GDP, all three reports do agree on the indirect economic impact of the EU on the betterment of society and the lives of its citizens.

The EU has created a union that has one of the highest standards across the industries and protection for its citizens. It is difficult to quantify the economic value of higher standards, but the citizens of the EU benefit from higher health standards and product standards that create better quality goods and services. Furthermore, the EU has a codified constitution that protects individual rights across the 25 member states, while also providing the liberty to move around freely and live anywhere without national restrictions. These are benefits that positively impact every citizen’s lives, but there are broader impacts of the EU that benefit the governments.

The EU provides a unified front that projects greater world power to foreign adversaries and global companies. The EU is the second largest economy and that in itself is too valuable of an asset to possibly be left out of. Although the EU does have common trade tariffs with the rest of the world, the EU is still an active trading partner with the world. Furthermore, the EU holds a respected position in current foreign affairs and that will only grow in the future. The EU has even taken a stronger stance on monopolization and global corporations that have forced smaller countries into submission, most notably seen with the EU’s regulation of Facebook and battle with Apple and Google. That being said, its greatest strength is also its greatest weakness. The EU lacks a strong executive and is stifled with the contradiction of national sovereignty and a single European state. Such weakness has brought questions about the future of political unification, but also weakens the EU’s economic foreign policy with regards to world powers and corporations.

Although the EU faces new challenges, some that even threaten the possibility of further EU integration, the EU’s history has shown that it is an economic powerhouse and the EU benefits its member states. Further research and study is necessary to evaluate the macro economic impact in terms of GDP, but it is clear that the economic development in product standards and quality of life benefits all EU citizens. □


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