How the European Union Works

AntiBrexit march
People hold a placard saying 'Never gonna give EU up' and march to demand a people's vote against Brexit on Oct. 20, 2018, in London. Hundreds of thousands took part in this protest. John Keeble/Getty Images

In the summer of 2018, the United Kingdom's Prime Minister Theresa May traveled to the south of France to meet with French President Emmanuel Macron at his vacation retreat at Côte d'Azur's Fort de Brégançon. But she wasn't there just to enjoy the view of the Mediterranean. May hoped to get Macron's help with a delicate problem. Two years before, U.K. voters had surprised the world by narrowly deciding to leave the European Union (EU). Now, May wanted to work out a compromise, in which the U.K. technically would leave the EU but would stay in Europe's economic marketplace and not have its exports subjected to customs checks and restrictions [source: Judah].

But Macron wasn't having it. The U.K. was the first nation ever to quit the EU, and it was going to have to do it the hard way. As Macron later told his diplomats, he wouldn't agree to any deal that came "at the expense of the European Union's integrity" [source: Merrick].


The organization that Macron was so keen on protecting is one that's helped bring peace, stability and prosperity to a continent once full of bitter rivals. The EU is a political and economic partnership of 28 member nations, in which each country keeps its sovereignty but all cooperate closely. The EU nations function as a single market in which capital, goods and services move freely, and share a common trade and agricultural policy. In addition, 19 of the 28 nations have adopted a common currency, the euro, and 22 of them participate in something called the Schengen area of free movement, in which they don't impose any internal controls at their borders. The EU also has been branching out into setting up cooperation in defense and internal security policy [source: Archick].

In some ways, the EU is one of modern history's great successes. Not only has it eliminated strife among countries that fought numerous wars amongst themselves over the centuries, but it's also created an economic juggernaut that produced $19.9 trillion in economic activity in 2017. If the EU was a country, it would have the world's second biggest economy, just ahead of the United States' $19.4 trillion and behind only China's $23.1 trillion [source: Amadeo]. And EU countries have banded together to clean up the continent's environment and to impose stringent privacy policies that the world's tech giants have been obliged to follow.

But in recent years, the EU also has been rocked by growing internal tensions and outside challenges, from dealing with an influx of immigrants and refugees to rising internal opposition from populist and nationalist movements, including those who won the Brexit (the word is a compound of the term "British exit") referendum in the U.K. [source: Archick]. At the same time, the EU has clashed over trade issues with U.S. President Donald Trump, and the longtime relationship between the EU and the U.S. has grown decidedly more tense [source: Rogin].

In this article, we'll look at what the EU does, how it developed, and whether it will survive and prosper in the future.

How the European Union Functions

Emmanuel Macron
French President Emmanuel Macron talks to the media at the end of an EU chief of state summit in the Europa, the EU Council headquarters on Oct. 18, 2018, in Brussels, Belgium. Thierry Monasse/Getty Images

The 28 nations that belong to the EU work together by participating in a number of common institutions, which set policy and promote their common interests. Here are some of the major ones [source: Archick]:

  • The European Council develops the strategies that guide EU policies, and is composed of the heads of state of the member countries, in addition to the president of the European Commission (whose function we'll explain in a minute). The council also has its own president, who is appointed by the member countries.
  • The European Commission in some ways is like the executive branch of the U.S. government, in that carries out the policies developed by the European Council. It's composed of one commissioner from each EU nation. One serves as commission president, while the others handle various portfolios, from agriculture to trade policy.
  • The Council of the European Union, aka the Council of Ministers, represents the national governments of EU members. The council might bring together all of the nations' agriculture ministers to discuss farm policy, for example, or convene foreign ministers to talk about how to deal with the Middle East. The council enacts legislation, usually based upon proposals offered by the commission and approved by the European Parliament.
  • The European Parliament represents the ordinary citizens of EU countries. It has 751 members who are elected to five-year terms, and countries are represented in proportion to population size. Unlike, say, U.S. Congress, the EU parliament can't write or enact legislation by itself, but in conjunction with the council, it helps decide how the EU's budget is spent.
  • The Court of Justice interprets EU laws and issues binding rulings.
  • The European Central Bank controls the euro and manages the union's monetary policy.

Decisions taken by the EU regarding economic and social policies are legally binding on all member nations, as long as the majority votes for them. However, for issues relating to security, agreement must be unanimous. One government can veto a decision and end it. For issues relating to justice policy, unanimity was also required, but in 2009, the Treaty of Lisbon changed that to a majority agreement.


How and Why Was the EU Created?

The EU was created in the aftermath of World War II, as a way to at last put an end to the long history of economic strife and bloody warfare across the continent. In 1950, six nations — Belgium, France, Germany, Italy, Luxembourg and the Netherlands — formed something called the European Coal and Steel Community, with the idea of cooperating economically and politically. The Cold War conflict that pitted the U.S. and western Europe against the Soviet Bloc nations to the east only reinforced the need for Europe's democratic nations to unify. In 1957, they signed the Treaty of Rome, which created the European Economic Community, also known as the Common Market [source: EU].

In the 1960s, that cooperation led to prosperity. EU countries stopped charging customs duties when they traded with one another, which boosted trade. They also agreed to coordinate their food cultivation, which eliminated shortages and ensured that people across the European continent got enough to eat.


In the 1970s, the EU gradually expanded its geographical reach, with the U.K., Denmark and Ireland joining in 1973, bringing the total number of members to nine. But just as importantly, the organization began setting and carrying out policy in new areas, such as enacting stringent anti-pollution laws and introducing the principle that polluters had to pay to clean up environmental damage. By the middle of the decade, the EU also was spending a lot of money to create jobs and infrastructure in poor parts of Europe and reduce economic inequity. The European Parliament became more important, and in 1979, citizens of EU countries began electing their representatives directly for the first time [source: EU].

The 1980s saw more expansion of the EU, with Greece joining in 1981 and Spain and Portugal in 1986. That same year, the EU nations signed the Single European Act, a treaty that sought to eliminate trade conflicts and create a "single market" for the entire continent in which goods and services could move more freely without border checks. In 1989, the collapse of the communist regime in East Germany and the tearing down of the Berlin Wall, which led to the eventual reunification of Germany, signaled the start of a new period of evolution for the EU.

The Fall of Communism and the Growth of the EU

Poland referendum on EU
A woman rides her bicycle past a billboard May 9, 2003, urging people to vote for membership in the European Union in Wroclaw, Poland. Poland was holding a national referendum in June 2003 on whether to join the EU; it passed. Sean Gallup/Getty Images

At the beginning of the 1990s, as communist regimes disintegrated in central and Eastern Europe, the EU countries became even more closely knit. In 1992, EU nations signed the Maastricht Treaty, one of the constitutional documents that created the EU from the earlier European Community. In 1995, three more nations — Austria, Finland and Sweden — joined the EU, and the Schengen agreements gradually allowed Europeans to travel across the continent without having their passports checked at national borders [source: EU].

In the decade that followed, the EU grew even larger. Ten new nations — the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovakia and Slovenia — joined in 2004, and Bulgaria and Romania in 2007. Croatia joined in 2013, increasing the membership of the EU to 28 nations [source: EU].


But by then, the EU was also experiencing stresses both from external and internal forces. Unrest and warfare in the Middle East created a surge of refugees, which Europe struggled to figure out how to accommodate. Terror attacks by extremist groups put European countries on edge [source: EU]. And in numerous countries, right-wing nationalist movements arose to challenge the idea of European unity.

What Is the Euro?

Marks versus Euros
An elderly person compares a current 100 German mark note to the new euro bank notes at a promotion of the euro in Berlin, in 2001. The euro entered public hands on Jan. 1, 2002. Sean Gallup/Getty Images

Starting in 1999, some EU member nations began adopting a common currency, the euro, to replace their own national currencies. As of 2018, 19 of the EU's 28 members — a group called the eurozone — use the euro. In addition to having the same paper money and coins, eurozone participants share a common central bank, the European Central Bank, which sets a common monetary policy for them all [source: Archick].

While having a common currency has advantages, in recent years it's become evident that there are major downsides as well. The eurozone nations still set their own fiscal policies, and essentially retain authority over their national spending, taxes and international borrowing. That can mean that if a national government mismanages its finances, problems can ripple through the eurozone system.


In the 2000s, for example, the Greek government borrowed heavily from international lenders to cover its budget and trade deficits. Greece's debt load grew so huge that by 2010, it was in danger of not being able to keep up the payments, which got the markets worried about other eurozone nations that also had high debt loads. And Greece could not devalue its currency nor cut interest rates to attract more business.

Eventually, the EU had to organize a bailout, which included having the European Central Bank purchase a lot of debt from those financially strapped countries and extend more credit. Some of the countries that received EU help eventually recovered. But Greece's economy and banking system kept struggling, and by 2015 its government was demanding more debt relief and an easing of austerity measures that it had been forced to accept. There even were rumblings that Greece might stage a "Grexit," though eventually, a deal was reached in 2017 that provided more assistance and averted a departure. Even so, the crisis raised questions about the eurozone's long-term stability [source: Archick].

Having a single currency makes things easier for trade and eliminates currency volatility but it can also make things harder when economies are in trouble. EU members who don't use the euro say that this allows them to set monetary policies customized for their country's conditions rather than for Europe as a whole. Some experts believe the U.K. was able to recover from the 2008 global financial crisis quicker than say, Greece, because it could cut interest rates immediately.

EU members are required to enter the eurozone (i.e. use the euro) once they meet the requirements of admission. But they can put off meeting the requirements, which effectively means they do not adopt the euro. The U.K. and Denmark are two EU members who don't use the euro [source: Seth].

How Do National Borders Work in the EU?

Since 1999, 22 of the EU's member states — Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, and Sweden — have chosen to get rid of their own internal border controls.

Instead, they've formed the Schengen Area, named after the town in Luxembourg where the agreement was signed. For travel and immigration purposes, the area essentially functions as one big country, with common rules for visas, asylum requests and border checks. There's an exception built in the rules that allows a country to reimpose its own controls for a short time when there's a major security threat or some international event, such as a sports championship or a big conference of world leaders [source: Archick].


Despite the freedom of movement that the Schengen Area allows, it doesn't result in as much migration as you might expect. Politico's European edition reported in 2018 that only 11 percent of people in the EU are living outside the country of their birth, compared to 13 percent in the U.S. And many of those immigrants actually come from other EU countries [source: Cokelaere].

But the EU has faced growing internal tensions over what to do about refugees from the Middle East and Africa, nearly 2 million of whom have arrived since 2014. Italy and Greece have taken most of the migrants, in large part due to their geographic location. Some countries want refugees to be distributed more evenly among all nations. Other countries don't want to accept any immigrants and have pushed for more restrictive EU immigration policies [source: Henley]. The issue is threatening the "freedom of movement" agreement within the EU and was one issue behind Brexit.

Why Would Countries Want to Leave the EU?

Leave Means Leave
People listen to speakers at the 'Leave Means Leave' rally on Oct. 15, 2018, in Bournemouth, England. 'Leave Means Leave' is a pro-Brexit campaign, holding a series of rallies and events across the United Kingdom. Matt Cardy/Getty Images

Article 50 of the Treaty of Lisbon, signed by member nations back in 2007 and effective in 2009, requires the EU to negotiate a severance with any nation that gives at least two years notice that it intends to leave [source: Lisbon Treaty].

So far, though, only one nation has opted to do that. In June 2016, the U.K. held a referendum on whether it should invoke Article 50, though most people knew it as Brexit. Though polls had predicted otherwise, U.K. voters shocked Europe by voting 52-48 percent to leave the EU [source: Archick].


Advocates of Brexit argued that the EU was a bad deal for the British, because it allowed workers from elsewhere in Europe to migrate to the U.K. and drive wages there down. They also felt that the EU had too much say over the affairs of the U.K. [source: Lee].

Others complained that the EU's regulations for fighting climate change and increasing renewable energy use were costly burdens to the U.K. economy. One thinktank calculated that the annual cost of fulfilling the 100 "most burdensome" EU regulations was 33.3 billion pounds (U.S. $42.6 billion) [source: BBC News].

The Brexit decision had all sorts of consequences and complications, many of which voters probably didn't foresee. For instance, the governor of the bank of England said in May 2017 the U.K. had already lost 2 percent of predicted growth and 4 percent from household incomes since the referendum [source: The Guardian]. And the thinktank's calculation, others noted, didn't account for the annual 58.6 billion pounds ($75.12 billion) in benefits Britain gained from being in the EU [source: BBC News].

On the other hand in December 2017, the firm EY predicted the U.K. would lose 10,500 financial industry jobs on day one of Brexit, as banks, brokerages and other financial companies started moving their operations to the continent to ensure that they'd still have unfettered access to European customers. But the City of London Corp. downgraded that loss to just 5,000 in August 2018 [sources: Musaddique, Contiguglia]. The real number, of course, is still a mystery.

Another unsettled matter is what happens to the border between Northern Ireland (part of the U.K.) and the Republic of Ireland, which is remaining in the EU. The 1998 Belfast Agreement, which put an end to the fighting in Northern Ireland, also did away with border checks. Neither the U.K. nor Ireland wants a return to border checks, but as of late 2018, they hadn't figured out a way to resolve this [source: Carswell].

The Future of the EU

Theresa May
U.K. Prime Minister Theresa May arrives for an EU Summit on Oct. 17, 2018, in Brussels, Belgium. Thierry Monasse/Getty Images

Another uncertainty in the EU's future (besides Brexit) is its relationship with the U.S., with which it traditionally has worked to develop trade with other parts of the world. But in 2017, the U.S. got a new president, Donald Trump, who disliked multilateral trade agreements and wanted to make bilateral deals between the U.S. and other countries [source: Archick]. According to Washington Post columnist Josh Rogin, at one point Trump even boldly asked French President Macron why he didn't quit the EU, and offered France a better trade deal if it left.

After Trump hit Europe with steel and aluminum tariffs in 2018, many feared that a trade war would erupt. But in July of that year, Trump and EU officials seemed to call a truce. European Commission President Jean-Claude Juncker and Trump stood side by side at the White House to announce a deal in which the EU agreed to buy billions of dollars in U.S. exports such as soybeans and natural gas, and the U.S. agreed to work with the Europeans to avoid additional tariffs [source: Smith and Rushe].


If those negotiations fail, the U.S. and the EU could continue to drift apart. Some experts think the EU might seek a closer relationship with China instead [source: Archick]. But never has the EU's future seemed so rife with uncertainties.

It wasn't too hard to understand why Macron and other European leaders seem determined to make the U.K. feel economic pain for leaving. That's because if the EU made it easy and painless to quit, there was a danger that other countries — especially ones with rising far-right, anti-immigration nationalist political movements, such as Sweden — might follow [sources: Kirk, Hix and Sitter].

Lots More Information

Author's Note: How the European Union Works

When I was a boy, I read a lot about World War I and II and the terrible price that so many people paid in those conflicts. So it was interesting to learn more about Europe's effort to create institutions that promote cooperation rather than conflict.

Related Articles

More Great Links


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  • Archick, Kristin. "The European Union: Questions and Answers." Congressional Research Service. Feb. 23, 2018. (Sept. 6, 2018)
  • BBC News. "Reality Check: What is the cost of EU regulations?" June 1, 2016. (Sept. 6, 2018)
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