European Capital Formation

The European Union is an economic and political confederation of 27 states.  The original Community was formed with 6 members in 1958.  It has grown in the interim and the Maastricht Treaty founded the powerhouse with its current name in 1993.

The EU operates through a network of independent and governmental institutions where decisions are reached by a consensus between member states. A single market system was established with standardized laws which apply to all member states.  The Schengen Area has been created where there are no passport controls and the aim of ensuring the free and unfettered movement of people, goods and capital. Its aims also establish a universal justice system and common trade policies.  The Eurozone (common currency union) was established in 1999 and by January 2012 had 17 member states.

It has a population of a half billion inhabitants and a GDP of 16,242 billion US Dollars – which is about 20% of Global GDP. 


The EU has a single market system spread across different territories and countries. It is the largest economy in the world and also the world’s largest exporter, importer of goods and the biggest trading partner to all the biggest economies in the world.  2007 saw unemployment numbers to the tune of 7% and investment was 21.4% of net GDP.  Incomes within individual EU states range between 11,000 Euros to 70,000. 

Internal Market Structure:

The EU was founded with 2 main objectives –

  • Development of a single market system which allows free movement of capital, goods and people.
  • The customs union which applies a common tariff on all goods imported. Once they are in, goods cannot be levied customs duties or quotas as they travel within the EU.

Free movement of capital permits investments in different countries.  This is unique as it is granted equally even to non member states.  The free movement accorded to people lets them work and live or even retire in other countries. This is possible because professional qualifications are recognised everywhere.  Services account for more than 60% of GDP and this is not a highly mobile sector as of yet.

EU Monetary Union:

The European Central Bank is based in Frankfurt. The Euro was launched in 1999 and officially in circulation from January 1st, 2002, replacing all the national currencies of member countries.

Economic Sectors:

Since the EU covers a vast area, it is very strong in manufacturing, agriculture, tourism, telecommunications and other sectors. Many companies are able to enter into Joint Ventures and also find financing through banks and other institutions.  EU countries also get financing through FDI and other sources to develop a strong economy.  The challenges are unique for this system.