Economy of Europe
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| Population: | 814.1 million |
| GDP (PPP): | US$13.823 trillion |
| GDP (Currency): | $12.471 trillion |
| GDP/capita (PPP) : | $16,982 |
| GDP /capita (Currency) : | $15,321 |
| Annual growth of per capita GDP: |
0.61% (1990-2002) |
| Income of top 10%: | 27.5% |
| Millionaires: | 2.6 million (0.3%) |
| Unemployment | 9.26% (1992-2002 average) |
| Estimated female income |
56.7% of male |
| Most numbers are from the UNDP from 2002, some numbers exclude certain countries for lack of information. Statistics are for entire nations, not just the portions within Europe. | |
| See also: Economy of the world - Economy of Africa - Economy of Asia - Economy of Europe - Economy of North America - Economy of Oceania - Economy of South America | |
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 former Yugoslavia. Throughout this article "Europe" and derivatives of the word are taken to include selected states that are geographically in Asia, bordering Europe - such as Azerbaijan and Cyprus.
As a continent, Europe has the largest economy. Europe's largest national economy is that of Germany, which ranks third globally in nominal GDP, and fifth in purchasing power parity (PPP) GDP. The European Union is the world's largest economy, if counted as a single unit -- see List of countries by GDP (PPP).
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[edit] Economic development
[edit] Pre-1945: Industrial growth
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 Britain, 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 World War II Europe had recovered well, and was competing with the ever increasing economic might of the United States of America.
However, World War II caused the destruction of most of Europe's industrial centres, and much of the continent's infrastructure was laid to waste.
[edit] 1945-1990: The Cold War era
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 in what became the Council for Mutual Economic Assistance (COMECON), and therefore a communist market-system (Yugoslavia also adopted this type of market-system but it was not USSR-controlled). 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 COMECON 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.
The European Community grew from 6 original members following World War II, to 12 in this period. The emphasis placed upon resurrecting West Germany's economy led to it overtaking the UK as Europe's largest economy.
[edit] 1991-2003: Rise of the EU
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, Romania and Poland adapting reasonably quickly, whilst post-Soviet states such as Russia and Ukraine struggled to reform their crumbling infrastructures.
Western Europe was quick to develop economic ties with the newly democratic East. While the former Soviet states dealt with change, Yugoslavia descended into civil war.
Europe's largest economy, Germany, 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 up to an equal level.
Peace did not come to Yugoslavia for a decade, and by 2003, there were still many NATO and EU peacekeeping troops present in Bosnia-Herzegovina, 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 organization 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 Central and Eastern European states wishing to work towards achieving economies so as to pass the entry criteria. During this time, 12 of the 15 members of the EU became part of the Eurozone, a currency union launched in 1999, whereby each member uses a shared currency, the Euro, which replaced their former national currencies. Those three states to remain outside the Eurozone and continue with their own currency were Denmark, Sweden and the United Kingdom.
[edit] 2004-2007: EU expansion
In early 2004, 10 mostly former communist states joined the EU in its biggest ever expansion, enlarging the union to 25 members, with another eight making associated trade agreements. The acceding countries are bound to join the Eurozone and adopt the common currency Euro in the future. The process includes the European Exchange Rate Mechanism, which some of these countries are already part of.
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.
In response to the massive EU growth, in 2005 the Russian dominated Commonwealth of Independent States (CIS) created a rival trade bloc to the EU, open to any previous USSR state, (including both the European and Asian states). 12 of the 15 signed up, with the three Baltic states deciding to align themselves with the EU. Despite this the three causcus states have in the past said they would one day consider applying for EU membership, particuarly Georgia.
The EU remained committed to increasing membership to cover the Balkans. Romania and Bulgaria were given the accession date of January 2007, whilst FYR Macedonia, Turkey and Croatia had all been accepted as candidate countries too, leaving only Serbia and Montenegro, Albania and Bosnia. However, Montenegro decided in a referendum on May 21, 2006 to dissolve the state union of 'Serbia and Montenegro' leaving both Montenegro and Serbia as independent states, and the UN indicated it would favour independence for Kosovo; a decision on the future of Kosovo is expected sometime in 2006.
However, following the accession of Romania and Bulgaria the EU pledged to "slow down" its enlargement, as it copes with almost doubling in size within three years.
[edit] Future
Romania and Bulgaria are acceding to the EU and will join on January 1, 2007. Croatia hopes to join the EU in the next couple of years. FYR Macedonia also has candidate status, as does Turkey. The remaining former Yugoslavian states and Albania hope to join sometime before 2015, however Turkey is not likely to enter EU before 2018.
[edit] Regional variation
West Europe, with a long history of trade, a free market system, and a high level of development in the previous century, has been wealthier and more stable than the East, even though the gap is converging due to higher growth rates in the East.
The poorest states are those that just emerged from communism and civil wars, namely those of the former Soviet Union and Yugoslavia not including Slovenia.
[edit] Trade blocs
In general European nations are members of larger and more powerful trade blocs 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.
[edit] European Union
The European Union or EU is a supranational union of 25 European states + 2 acceding countries Romania and Bulgaria which already signed the adherence treaty in early 2005. They are to become full members in January 1, 2007. It has many activities, the most important being a common single market, consisting of a customs union, a single currency (adopted by 12 of the original 15 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 European Union has the largest economy in the world. 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. It is estimated that the Eurozone will grow around 2.6 per cent this year (2006)[1], like other industrialized nations such as the United States at 2.6% (Q2 2006) and 1.6 (Q3 2006) [2].
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.
[edit] 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.
[edit] 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.
[edit] 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 democratization and cross-border crime prevention.
[edit] 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.
[edit] Currency and Central Banks
The most common currency within Europe is the Euro, the currency 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 French overseas territories and departments of Mayotte and Réunion in the Indian Ocean, Guadeloupe and Martinique in the Caribbean and French Guiana in South America all use the Euro, among many other islands in the Pacific, Caribbean and indeed around the globe that are ruled directly by European countries.
Some countries while maintaining their own national currency have pegged its value to the Euro. In some of these countries, there is a fixed exchange rate between the national currency and the Euro and in this case the currency is actually a submultiple of the Euro. In other countries, the national currency's value fluctuates within a band (generally 15%) around a set rate. Currencies pegged to the Euro include the currencies of Bulgaria, Estonia, Lithuania, Bosnia and Herzegovina and Cape Verde. Denmark, Slovenia, Cyprus and Hungary have a foreign exchange band tied to the Euro. Malta has an exchange band tied to a currency basket but is planning on changing it to the Euro.
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 Euro is the official currency in the autonomous Kosovo region and is the currency primarily used.
Table correct as of 17th July 2005
[edit] Stock exchanges
There are many stock exchanges within Europe.
- Pan-European:
- Armenia
- Armenian Stock Exchange (Armex)
- Austria:
- Belgium:
- Bosnia and Herzegovina
- Bulgaria:
- Croatia:
- Cyprus:
- Cyprus Stock Exchange (CSE)
- Czech Republic:
- Prague Stock Exchange (PSE)
- Denmark:
- Copenhagen Stock Exchange (KFX) (part of OMX)
- Estonia:
- Tallinn Stock Exchange (part of OMX)
- Faroe Islands:
- Faroese Securities Market, in cooperation with Iceland Stock Exchange
- Finland:
- Helsinki Stock Exchange (part of OMX)
- France:
- Euronext Paris ("La Bourse de Paris") (CAC40)
- Georgia
- Georgian Stock Exchange (GSE)
- Germany:
- Frankfurt Stock Exchange (part of Deutsche Börse) (DAX)
- Greece:
- Athens Stock Exchange (General)
- Hungary:
- Budapest Stock Exchange (BSE)
- Iceland:
- Iceland Stock Exchange (Kauphöll Íslands)
- Ireland:
- Italy:
- Latvia:
- Riga Stock Exchange (part of OMX)
- Lithuania:
- Vilnius Stock Exchange (part of OMX)
- Luxembourg:
- Luxembourg Stock Exchange
- Macedonia:
- Macedonia Stock Exchange
- Malta:
- Malta Stock Exchange
- Montenegro
- Netherlands:
- Norway:
- Portugal:
- Poland:
- Warsaw Stock Exchange (WSE)
- Romania:
- Bucharest Stock Exchange (BVB - Bursa de Valori Bucureşti)
- Rasdaq
- Russia:
- Serbia:
- Belgrade Stock Exchange (BELEX)
- Slovakia:
- Bratislava Stock Exchange (BSSE)
- Slovenia:
- Ljubljana Stock Exchange (LJSE)
- Spain:
- Sweden:
- Nordic Growth Market
- Stockholm Stock Exchange (part of OMX)
- Switzerland:
- Turkey Turkish Republic
- Istanbul Stock Exchange (ISE)
- Ukraine:
- Ukraine Stock Exchange
- United Kingdom:
- Alternative Investment Market (AIM)
- London Stock Exchange (LSE) (FTSE)
[edit] Economic sectors
[edit] Agriculture and fishing
Europe's agricultural sector is in general highly developed, especially in Western Europe. The process of making Eastern Europe's agriculture, which is recovering from forty years of communism, more efficient is well underway and is helped by the accession of Eastern European states to the EU. The agricultural sector in Europe is helped by the Common Agricultural Policy (CAP), which provides farmers with a minimal price for their products and subsidizes their exports, which increases competitiveness for their products. This policy is highly controversial as it hampers free trade worldwide (protectionism sparks protectionism from other countries and trade blocs: the concept of trade wars) and is violating the concept of fair trade. This means that because of the protectionist nature of the CAP agricultural products from developing countries are rendered incompetitive in both Europe (an important export market for developing countries) and on their home markets (as European agricultural products are dumped on developing countries' markets with help from European agricultural subsidies). This controversy surrounds every system of agricultural subsidies (the United States' policy of subsidizing farmers is also controversial). The CAP is also controversial because 40% of the EU's budget is spent on it, and because of the overproduction caused by it.
The Common Fisheries Policy is surrounded by an extensive system of rules (mainly consisting of quotas) to protect the environment from overfishing. Despite of these rules the cod is becoming increasingly rare in the North Sea. Strict fishing rules are the main reason for Norway and Iceland to stay out of the European Union (and out of the Common Fisheries Policy). Price guarantees and subsidizing of fishermen is implemented in the same way as agricultural subsidies are.
[edit] Manufacturing
Europe has a thriving manufacturing sector, with a large part of the world's industrial production taking place in Europe. Most of the continent's industries are concentrated in Western Europe (mainly in the zone that comprises England, the Benelux, western Germany, northeastern France, Switzerland and northern Italy). However, because of the higher wage level and hence production costs Western Europe is suffering from deindustrialization and offshoring in the traditional (labour intensive) manufacturing sectors. This means that manufacturing has become less important in Western Europe and that jobs are moved to cheaper regions (mainly China and Eastern Europe).
Eastern Europe has been industrialized since the early to mid 20th century but suffered from contraction in the 1990s when the inefficient heavy industry based manufacturing sector crippled after the collapse of communism and the introduction of the market economy. In the 21st century the manufacuring sector in Eastern Europe picked up because of the accession of Eastern European states to the EU and resulting accession to the European Common Market. This caused Western European firms to move jobs from their manufacturing sector to Eastern Europe (see above), which sparked Eastern European industrial growth and employment.
Some of the world's largest manufacturers are European, such as BP, Royal Dutch Shell, DaimlerChrysler, Maersk and Volkswagen.
[edit] Investing and banking
Europe has a well developed financial sector. Many European cities are financial centres with the City of London being the largest. The European financial sector is helped by the introduction of the euro as common currency. This has made it easier for European households and firms to invest in companies and deposit money on banks in other European countries as exchange rate fluctuations are now non-existent in the Eurozone. In Eastern Europe the financial sector is somewhat less developed (mostly because of the communist legacy), but is rapidly developing to Western European standards helped by economic growth in Eastern Europe and the commitment of Eastern European governments to achieve these high standards.
European banks are amongst the largest and most profitable in the world (Credit Agricole, HSBC, Royal Bank of Scotland, HBOS, BNP Paribas, Banco Santander Central Hispano).
[edit] Global trade relations
The bulk of the EU's external trade is done with the United States of America, China, India, Russia and non-member European states.
EU members are represented by a single official at the World Trade Organization.
The EU is involved in a few minor trade disputes. It had a long running dispute with the USA of allegedly unfair subsidies the US government gives to several companies, such as Boeing. There is also a dispute with China over textile exports, and the EU has a long running ban prohibiting arms trade with the Chinese.
[edit] Economy by country
Albania · Andorra · Armenia1 · Austria · Azerbaijan1 · Belarus · Belgium · Bosnia and Herzegovina · Bulgaria · Croatia · Cyprus1 · Czech Republic · Denmark · Estonia · Finland · France · Georgia1 · Germany · Greece · Hungary · Iceland · Ireland · Italy · Kazakhstan1 · Latvia · Liechtenstein · Lithuania · Luxembourg · Republic of Macedonia · Malta · Moldova · Monaco · Montenegro · Netherlands · Norway · Poland · Portugal · Romania · Russia1 · San Marino · Serbia · Slovakia · Slovenia · Spain · Sweden · Switzerland · Turkey1 · Ukraine · United Kingdom · Vatican City
Dependencies, autonomies and other territories
Abkhazia1 · Adjara1 · Åland · Akrotiri and Dhekelia · Crimea · Faroe Islands · Gibraltar · Guernsey · Isle of Man · Jersey · Nagorno-Karabakh1 · Nakhichevan1 · Turkish Republic of Northern Cyprus1
1 Has significant territory in Asia.
see also: Economy of England - Economy of the European Union - Economy of Northern Ireland - Economy of Kosovo - Economy of Scotland - Economy of Wales
[edit] See also
- Europe
- History of Europe
- European Union
- Euro
- European Free Trade Association
- European Economic Area
- Commonwealth of Independent States
- Regions of Europe
[edit] Lists
Culture of Europe • Demographics of Europe • Economy of Europe • Geography of Europe • History of Europe • Politics of Europe
