Economy of Europe
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The economy of Europe is comprised of more than 665 million people in 48 different states. Like other continents, the wealth of Europe's states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. The difference in wealth across Europe can be seen in a rough East-West divide. Whilst Western European states all have high GDPs and living standards, many of Eastern Europe's economies are emerging from the collapse of the USSR and the former Yugoslavia.
As a continent, Europe has the largest economy. Its largest single economy is that of Germany, which ranks third globally behind the United States of America and Japan. The European Union is the world's largest economy, surpassing even that of the United States of America.
Economic development
Pre-1945
Prior to World War II, Europe's major financial and industrial states were the United Kingdom, France and Germany. The Industrial Revolution, which began in England, had spread rapidly across Europe, and before long the entire continent was at a high level of industry. World War I had briefly led to the industries of some European states stalling, but in the run-up to WW2 Europe had recovered well, and was competing with the ever increasing economic might of the United States of America.
However, WW2 caused the destruction of most of Europe's industrial centres, and much of the continent's infrastructure was laid to waste.
1945-1990
Following World War II, Europe's economy and infrastructure was in tatters. The vast majority of Eastern European states came under the control of the USSR, and therefore a communist market-system (Yugoslavia also adopted this type of market-system but it was not under control of the USSR). Those states that retained free-markets were given vast amounts of aid by the USA in order to help rebuild their state of economy.
Many Western European governments moved to link their economies, laying the foundation for what would become the European Union. This meant a huge increase in shared infrastructure and cross-border trade. Whilst these Western European states rapidly improved their economies, by the 1980s, the economy of the USSR was struggling, mainly due to the massive cost of the Cold War. The GDP and living standard of Eastern European states were also behind those of their Western neighbours. Even free-market Greece, situated in South-Eastern Europe, struggled due to geographical isolation from Western Europe.
European nations by GDP per capita in 2002. Numbers in USD and from the UNDP
1991-2003
When communism collapsed in Eastern Europe and the USSR around 1991, these states struggled to adapt to free-market systems. There was, however, a huge variation in degrees of success, with Central European states such as Hungary, Slovenia and Poland adapting reasonably quickly, whilst post-Soviet states such as Belarus and Moldova struggling to reform their crumbling infrastructures.
Western Europe was quick to develop economic ties with the newly democratic East. Whilst the former USSR states dealt with change, Yugoslavia descended into civil war.
Europe's largest economy, Germany, initially struggled upon unification in 1991 with former communist East Germany. The Russian controlled Eastern part of the country had had much of its industrial infrastructure removed during the cold war, and for many years the West struggled to build the East upto an equal level.
Peace did not come to Yugoslavia for a decade, and by 2003, there are still many NATO peacekeeping troops present in Bosnia-Herzegovina, FYR Macedonia and Kosovo. War severely hampered economic growth, with only Slovenia making any real progress in the 1990s.
The economy of Europe was by this time dominated by the EU, a huge economic and political organisation with 15 of Europe's states as full members. EU membership was seen as something to aspire to, and the EU gave significant support and aid to those Eastern European states wishing to work towards achieving economies so as to pass the entry criteria. Most of the better developed EU countries are part of the Eurozone, a currency union launched in 2000, whereby each member uses a shared currency, the Euro, which replaced their former national currencies.
2004
In early 2004, 10 mostly former communist states joined the EU, enlarging the union to 25 members, with another eight making associated trade agreements.
Most European economies are in very good shape, and the continental economy reflects this. Conflict and unrest in some of the former Yugoslavia states and in the Caucasus states are hampering economic growth in those states, however.
Future
In 2005 the Russian dominated Commonwealth of Independent States (CIS) intends to create a rival trade bloc to the EU, open to any previous USSR state, (including both the European and Asian states). 12 of the 15 have signed up, with the three Baltic states deciding to align themselves with the EU.
Serbia & Montenegro are to hold a referendum in 2006 on whether to keep retain their union or become independent states.
Bulgaria, Romania and Croatia hope to join the EU in 2007, whilst Turkey and the remaining former Yugoslavian states hope to join sometime after 2010.
European nations by growth in GDP per capita in from 1990 to 2002. Numbers from the UNDP
Trade unions
In general European nations have larger and more powerful trade unions than anywhere in the world. Many credit this with Europe's reduced gap between the rich and poor. However, the rigidity of the European labour market has also been blamed for the higher unemployment and slower growth than North America.
European Union
The European Union or EU is a supranational union of 25 European states. It has many activities, the most important being a common single market, consisting of a customs union, a single currency (adopted by 12 out of 25 member states), a Common Agricultural Policy and a Common Fisheries Policy. The European Union also has various initiatives to co-ordinate activities of the member states.
The EU, considered as a unit, has the largest economy in the world, with a 2002 GDP of 9.613·10¹² euro. The EU economy is expected to grow further over the next decade as more countries join the union - especially considering that the new States are usually poorer than the EU average, and hence the expected fast GDP growth will help achieve the dynamic of the united Europe.
The union has evolved over time from a primarily economic union to an increasingly political one. This trend is highlighted by the increasing number of policy areas that fall within EU competence: political power has tended to shift upwards from the Member States to the EU.
European Free Trade Association
The European Free Trade Association (EFTA) was established on 3 May 1960 as an alternative for European states that did not wish to join the European Union, creating a trade bloc with fewer central powers.
Today only Iceland, Norway, Switzerland and Liechtenstein remain members of EFTA, as the other members have gradually left to join the EU.
European Economic Area
The European Economic Area (EEA) came into being on 1st January 1994 following an agreement between the European Free Trade Association (EFTA) and the European Union (EU). It was designed to allow EFTA countries to participate in the European Single Market without having to join the EU.
In a referendum, Switzerland (ever keen on neutrality) chose not to participate in the EEA (although it is linked to the European Union by bilateral agreements similar in content to the EEA agreement), so the current members are the EU states plus Norway, Iceland and Liechtenstein.
A Joint Committee consisting of the non EU members plus the European Commission (representing the EU) has the function of extending relevant EU Law to the non EU members.
Commonwealth of Independent States
The Commonwealth of Independent States (CIS) is a confederation consisting of 12 of the 15 states of the former Soviet Union, (the exceptions being the three Baltic states). Although the CIS has few supranational powers, it is more than a purely symbolic organization and possesses coordinating powers in the realm of trade, finance, lawmaking and security. The most significant issue for the CIS is the establishment of a full-fledged free trade zone / economic union between the member states, to be launched in 2005. It has also promoted cooperation on democratisation and cross-border crime prevention.
Central European Free Trade Agreement
The Central European Free Trade Agreement (CEFTA) is a trade bloc of former Communist countries in central and eastern Europe. The countries that participated and the few that continue to participate in CEFTA have used this form of integration to help them prepare for full membership in the European Union.
Currency
The most common currency within Europe is the Euro, the currency union of the European Union. To join, each new EU member must meet certain criteria, when these are met their own currencies will be replaced by the Euro. Becoming a member of the EU involves a pledge to work towards Eurozone membership, (except in the cases of the United Kingdom and Denmark who have opt-outs). Currently, 12 of the 25 EU member states use the Euro. Each EU member's central bank is part of the European System of Central Banks), and in addition, those that use the Euro are part of the European Union's central bank, the European Central Bank.
There are some non-EU members who have elected to use the Euro as their national currency, either with or without specific agreements with the EU to do so, (those with agreements with the EU may mint their own Euro coins).
The CIS is also planning to introduce a single currency among its members.
Below is a list of the central banks and currencies of Europe, with exchange rates between each currency and both the Euro and US Dollars as of 17th November 2004.
1 Whilst most of Serbia uses the Dinar, the autonomous Kosovo region primarily uses the Euro.
Table correct as of 17th November 2004
Economic sectors
Agriculture
to be completed
Manufacturing
to be completed
Investing and banking
to be completed
Global trade relations
The EU is the world's biggest trading bloc, surpassing even NAFTA.
Economy by country
Economy of:
See also
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