THE EUROPEAN UNION: A COMPLEX ECONOMIC ENTITY

Economics Major

Submitted by

Divyaraj Jain

SM0121021

3rd Year & 6th Semester

Submitted to

Dipakshi Das

Faculty in Charge

National Law University and Judicial Academy, Assam

 TABLE OF CONTENT

 INTRODUCTION...............................................................................................................3

o Aim and Objective...................................................................................................4

o Literature Review....................................................................................................4

o Research Question...................................................................................................4

o Research Methodology............................................................................................4

 HOW THE EUROPEAN UNION CAME TO BE?............................................................5

 WILL THE EUROPEAN UNION FAIL?...........................................................................7

 IS EUROPEAN UNION WORTH IT?..............................................................................11

 CAN AND SHOULD UK GO BACK TO EU?................................................................16

 CONCLUSION..................................................................................................................19

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 INTRODUCTION

The European Union, a joint group of member states that is collectively home to 447 million
people and the third largest economy in the world after China and the USA. The EU is also home
to 20 member countries that use the euro, the second most widely held reserve currency after the
US dollar, with approximately equal holdings to all other foreign currency reserves combined.
The euro is so popular, in fact, that six other countries and around a dozen autonomous regions
all around the world use the euro despite not actually being members of the EU and having no
control over monetary policy decisions. The region is certainly very economically important, but
it also has its problems. The free exchange of goods, services, labor, and currency works best
when participating economies have similar statistics. If one economy is clearly more prosperous
than the rest, it will attract all of the top talent, get all the investments, and slowly make itself the
center of a union that was supposed to be cooperative.

The EU has a much more egalitarian distribution of income and wealth than the world average,
but it's also much easier for things like brain drain and capital flight to take place amongst
countries that have very few restrictions in place for people moving to live, work, and invest.
Even when adjusted for purchasing power parity, the richest economy in the EU has a GDP per
capita five times higher than the poorest country, and some economists are starting to ask
questions about how sustainable that can be long term. These concerns came before considering
other major economic problems like the debt crisis that plagued the economy over the past
decade, Brexit, a war on their doorstep among their largest energy suppliers, and a general shift
towards less economic cooperation

Nobody knows what's going to happen, least of all economies. But in terms of genuine economic
threats to be aware of, the EU is not only more likely to break up than a sovereign state like
China, it would also probably have a larger impact on the economy if nothing else. As always,
exploring these economic problems can teach us a lot about how economic unions like the EU
operate. So what are the largest economic threats currently facing the European Union? How
likely are these problems to cause other nations to leave the union like the UK did? And finally,
what would a non-unified Europe do to the global economy?

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Aim and Objective

The main aim of this project is to understand the economics of European Union. It is to be
achieved by fulfilling certain objectives. Which are, firstly to understand ho the EU came to be?
Second is to see what are its benefit and disadvantages. Lastly to analyse as to whether it is a
success or a failure?

Literature Review

 Neal, L., & Barbezat, D. (1998). The economics of the European Union and the
economies of Europe. OUP Catalogue.
Beginning with the basic background and perspectives needed for non-European audiences,
the authors focus on the most striking aspects of European integration such as trade,
agriculture, and monetary unification. Part I of the paper ends with a capstone chapter that
describes current weaknesses in a wide range of EU policy affairs. Part II covers insights on
national and regional responses to the European Union policy recommendations, because the
bulk of relevant expenditures are made by individual countries and not the EU itself.
Students can appreciate difficulties, as well as the significant areas of agreement among EU
countries. The paper concludes with a discussion of the future of the European Union in an
evolving world economy.

Research Question

 How did European Union came to be?

 Is European Union going to fail?
 Is European Union worth it?
 Can and should UK join back EU?

Research Methodology

The paper is compiled using analytical research methodology. No primary sources were used.
Under secondary sources various statistical journals and articles by trusted publishing houses and
news portals were referred to attain the required information. For citation APA format is used.

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 HOW THE EUROPEAN UNION CAME TO BE?

It's easy to think that given its size, influence, and importance, that the European Union has been
around for a long time. But the reality is that it's just 30 years old yet. It was celebrated its third
decade at the end of last year.

On November 1st, 1993, the Treaty of the European Union was signed by the original 12
member states. The plans outlined in a very hefty book called for shared European citizenship,
the eventual introduction of a shared currency, aligned foreign policies, and combined police and
judicial cooperation. The original 12 member states were not entirely random; they were all
members of the European Communities, which were three organizations: the European
Economic Community, the European Coal and Steel Community, and the European Atomic
Energy Community. The first two communities were rolled into the operations of the EU, and the
atomic energy community still to this day technically remains separate and focuses on safety and
development of nuclear energy, the control of nuclear weapons, and research into nuclear
technologies like nuclear fusion in collaboration with other international organizations like ESA.
1

Before the European Communities, there was the Council of Europe, the Western European
Union, and around a dozen other groups that came together with the goal of unifying European
countries on the grounds of economic cooperation. After the First World War, the benefit of
having a mutual community and some level of interdependence between the diverse group of
European countries with long and checkered histories and rivalries became clear.

After the Second World War, with the development of nuclear weapons and the growth of
communist powers to their East, the motivation to unify turned up to 11. Some proposals that
gained a surprising amount of traction even called to create the United States of Europe. But the
long-established nations that would become member states of that Union didn't like the idea of
giving up their sovereignty. The EU got the balance just right. It introduced a lot of the benefits
of being a single unified country but still let the members retain their sovereignty, national
identity, and a good amount of their political autonomy. The EU also came about at the right

1
Eichengreen, B. (1994). Institutions and economic growth: Europe after World War II (No. 973). CEPR Discussion
Papers.

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time. 1993 was post-Soviet Union and right as the world was well and truly into the swing of
international trade and economic cooperation. Of course, it's impossible to say for sure, but had
the EU been formed shortly after the end of the Second World War, it likely wouldn't have been
able to foster the level of interdependence and cooperation it has now because countries just
traded less back then. There wasn't modern financial infrastructure in place to make cross-border
businesses and transactions as easy as they are today. Travel was much harder for people to move
and work across borders, and language barriers were much higher. Economies were more self-
sufficient because global supply chains had not really become a thing yet.

Most of the stuff that people bought back then would have been produced in their own home
country, unlike today where most of the stuff we buy is produced abroad and shipped in. This is
important because the EU has policies in place to make trade amongst member nations easier, but
they also make trade amongst external nations harder. This means countries benefit from being
able to freely trade their goods and services and even labor forces around amongst other member
countries with no import tariffs, quotas, or working restrictions. And they also benefit from the
protections that the EU imposes so it's much harder for local industries to be undercut by cheaper
centers outside of the EU.

Combined, these are the factors that really hold the EU together, not the headline features. What's
really in it for the countries that have signed up? Those are the benefits of political cooperation,
the benefits of free trade, the benefits of a shared currency, and the benefits of being able to work
freely across borders. That last one is a benefit both to the countries in the EU who get to hire
from a larger pool of skilled labor and to the workers themselves who get access to job
opportunities all across the continent instead of just in their home country.

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 WILL THE EUROPEAN UNION FAIL?
It's important to remember that the EU is made up of democracies, and governments will make
decisions to stay or leave based on the will of their people, even if those decisions are not
entirely the best macroeconomic move. All of these benefits also come with striking the right
balance between a centralized authority and maintaining national autonomy. If the EU had much
more control over its member states, it would just become a country like the proposed United
States of Europe, and a lot of members wouldn't be happy with that, and they would just leave. If
the EU had less authority, it wouldn't be able to manage and enforce the rules it needed to make
sure that the member nations got these benefits.

The European Union is a joint group of member states with a population of 447 million and the
world's third-largest economy. It's also home to 20 member countries that use the euro, the
second most widely held reserve currency. The euro is so popular that other countries and
regions use it despite not being EU members. The free movement of goods, services, labor, and
currency works best when participating economies are similar. If one economy is much more
prosperous, it attracts talent and investments, becoming the center of a cooperative union. The
EU has a more egalitarian distribution of wealth than the world average, but this also makes it
easier for brain drain and capital flight to occur. Even adjusted for purchasing power, the richest
EU economy has a GDP per capita five times higher than the poorest. Some economists question
the long-term sustainability of this.2
These concerns existed before considering other major economic problems like the debt crisis,
Brexit, the war in Ukraine, and a general shift towards less economic cooperation.
Speculation about the EU's future is uncertain, but it's more likely to break up than a sovereign
state and would have a larger economic impact. Exploring these problems can teach us a lot
about how economic unions operate.
Let's delve into the largest economic threats facing the European Union:
 The likelihood of these problems causing member states to leave the union.
 The impact of a non-unified Europe on the global economy.

2
lesina, A., Angeloni, I., & Schuknecht, L. (2005). What does the European Union do?. Public Choice, 123(3), 275-
319.

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The EU was failing spectacularly or even just gradually losing members because it could no
longer provide these benefits or maintain that delicate balance or authority. And a lot of these are
already under threat.
The global pandemic broke a lot of production lines as governments acted to slow down the
spread of the virus by shutting down factories and controlling shipments. It also slowed down
workers crossing borders and made working from home much more common. The war in
Ukraine has further pushed the idea that countries should maintain their self-sufficiency so
they're not totally helpless when external shocks stop the delicate supply lines that they become
so dependent on.
Since the EU sells itself so heavily on the free trade that it enables, this trend is a major threat.
Working from home has also made working from anywhere possible. Of course, there are a lot of
jobs that require people to be there in person, but most economies in Europe are highly service-
based with roles that can be done remotely by foreign workers who don't need visas because
they'll never even enter the country. This is also making it possible for companies within Europe
to look outside of Europe for highly skilled workers or workers to do the job for a lot less than
their European [Link] kind of cross-border work was unimaginable so the benefit of
being able to hire workers from other countries and being able to work freely anywhere in
Europe was a much bigger deal than it is today.
For a lot of member states, the ease in which their workers can go and work elsewhere is also
becoming a burden. It makes sense for workers in highly valuating skilled roles from countries
with lower average salaries to move to other countries where they can be paid more for their
work. An engineer in Romania would earn a lot more by going to work in Germany than they
would by staying in their own home country. But this means that Romanian companies miss out
on workers and will have to increase their salaries to compete with their much more
economically established EU partners. This is a process called brain drain.
The benefits of a shared currency are another double-edged sword. On one hand, they make
trading commerce between member states much easier. They also give those states access to a
world reserve currency which attracts much more confidence internationally than any of their
own currencies would be possible individually (possible exceptions would have been the French
franc or the German Deutsche Mark and of course the British pound, not that particular example
is relevant anymore). All of the other countries in the EU would be forced to conduct their

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international trade and borrowing in an alternative reserve currency, which can be expensive,
complicated, and very risky. If countries can't get access to foreign currencies that they trade in,
they can be put in a position where they can no longer pay for vital imports or make repayments
on their loans. These desperate situations are playing out right now in countries like Sri Lanka
and Pakistan.
Sharing access to the world's second most widely traded and widely held reserve currency means
that the countries in the EU will never find themselves in that sort of position even if they do
have debt problems. So it sounds like the benefits of a shared currency are pretty compelling, but
the drawbacks are also quite serious, especially for countries that are not more responsible with
their debt burdens. When Greece got into trouble in the early 2010s, it brought the Eurozone
down with it. Now, other countries in the EU certainly weren't free of blame, but most of them
probably could have avoided the protracted economic stagnation that came with having to make
monetary decisions to look after the weakest economic link. Greece itself was also hurt by using
the Euro during this time. Normally, when an economy experiences a downturn, its currency will
be devalued, which actually helps to attract foreign investment, trade, and tourism. Because if the
Greek drachma fell by 30%, then suddenly a trip to the Greek Islands becomes 30% cheaper for
international visitors. This would give the country a source of income to help pay its debts, buy
vital imports, and keep its citizens' quality of life from completely collapsing. Of course, this
works best if the country has highly attractive investment opportunities, exports, or tourist
destinations. Pakistan's currency has fallen significantly in recent months, but the price wasn't
really what was keeping people from booking their next family holiday in Islamabad.
This process doesn't work at all if the country doesn't have its own free-floating currency. During
the time that Greece was days away from bankruptcy, other economies in the EU, most notably
Germany, were doing just fine and exporting highly desirable goods and services. Maintaining
the price of the euro in foreign exchange markets meant the Euro didn't get as cheap as it would
have if it was exclusively the national currency of Greece. And Greece didn't get the self-
correcting market forces that they would have from a normal free-floating currency. The
inflexibility of a singular currency is having similar problems today. Even though 20 countries
use the same currency, they all have different rates of inflation. Luxembourg's most recent
inflation rate is 4.8%, which is high but not too far outside of the target range. If they managed
their own monetary policy, they probably wouldn't need to take drastic action. Estonia, on the

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other hand, has an inflation rate of 17.6%, which is a problem and would warrant some pretty
drastic monetary policy action. The European Central Bank has to set interest rates to
accommodate for everyone, which during periods of high inflation like right now, ends up being
ideal for nobody from a macroeconomics point of view.3
The advantages of the EU outweigh the disadvantages for the member states. Countries that have
recently become members have enjoyed increased growth rates, and overall Europe has become
a wealthier place because of the Union. But people tend to see problems more than they see
benefits, and it won't be macroeconomists deciding if member states stay in or not, it will be their
voting populations. So the next question becomes what happens if the EU collapses.
The only correct answer is, of course, that nobody knows and it depends on what that collapse
looks like. A slow and steady exodus of countries from the union like a slow trickle of Brexit
would hurt economic growth over the next decade, just like Brexit itself is projected to do in the
UK. The estimates for the economic cost of Brexit range from around two and a half to eight
percent of the UK's GDP, but it had some advantages that other countries would not. It never
adopted the Euro and it kept its own currency, the pound, which is also a well-recognized and, at
least up until recently, rightly respected Global Currency. Other countries would need to create a
new currency from scratch, which would make even the most basic economic functions
impossible until that system was set up. Conservatively, that would put economic losses at the
higher end of the estimates only scaled up to all of Europe. More realistically, it would cause a
severe continent-wide recession that would make the Eurozone crisis look insignificant in
comparison. Important questions would also need to be answered about what happens to
countries with foreign reserves of euros and how are debts denoted in obsolete currency be
settled? Dozens of European currencies have come and gone just in the past century, and while
the EU has obviously been the most influential and successful, it's just bad economic planning to
assume that it will go on forever. Every country in the EU should at least have a plan for what
happens if their country decides to leave or what happens if the union just falls apart. Hopefully,
those plans will never need to be put into action, but the job of a good economist is to know how
to minimize the damage if they do.4

3
Windhoff-Héritier, A. (2001). Differential Europe: the European Union impact on national policymaking. Rowman
& Littlefield.
4
Neal, L. (2007). The economics of Europe and the European Union. Cambridge University Press.

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 IS EUROPEAN UNION WORTH IT?
The European Union (EU) is one of the largest, but also one of the strangest economic entities to
have ever existed. It has become a policymaker and authority acting in a way not too dissimilar
to the federal government of the USA. Economically the similarities are so close that the idea of
a European Federation or the United States of Europe has seriously been proposed before it's
realized that it kind of already exists. A collection of states that share the same currency, agree on
policy together, make trade deals collectively, have joint departments, and yet still fall back on
the independence and rights of those individual states does sound familiar. But of course, there
are obvious difference which gives the EU all the drawbacks of a federation with not too many of
the bonuses, something that is a problem for more than just the member countries. Those 27
member countries have a collective output of almost 20 trillion US Dollars, which is surpassed
only by the USA itself in ram nominal GDP. For a non-sovereign entity it’s not afraid to throw
the economic weight around either. Whether intentionally or not it uses its size as a large global
producer and consumer to wield significant control over countries within and beyond its borders
and that power presents a risk as it faces major external and internal challenges. The largest of its
member economies have seen mostly stagnant economic growth and the story may not be much
better for its smaller developing economies either. 5

Unifying a collection of sovereign states with such diverse political, cultural, and economic
backgrounds was always going to be a difficult challenge. The USA, arguably the most similar
economy to the collective European Union, was formed over almost two centuries and its
independent states, for the most part, didn't have their own long-established economies to merge
into the collective system. Now of course, that was partially because any societies that did exist
in these regions before they were claimed and turned into states weren’t really market economies
in western sense. For a lack of a less delicate way of putting it, the states that became the ISA
really were starting from the scratch.

The countries that have formed the EU and have joined its ranks over the past three decades had,
and still have, extremely different economies that all realistically call for equally diverse
economic management styles. The proper economic policy to implement when managing a large,
wealthy, established, and more stagnant economy like Germany, France, or Italy should be very
5
Frey, B. S., & Eichenberger, R. (1993). American and European economics and economists. Journal of Economic
Perspectives, 7(4), 185-193.

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different from the policies used to manage a small, rapidly developing economy like Romania or
Slovenia. Yes, the countries still maintain a lot of domestic independence, but collective
decisions like monetary polkucy and trade restrictions are done by the EU, and striking a
comparision between countries that hace highly competitive exports and those that need
protection is always going to be exactly that, a compromise. A country like Germany has highly
advanced industries and extremely valuating products that it could use to negotiate favourable
trade deals for itself, whereas a smaller country like Romania, which is still developing and
producing commodity outputs, would probably really struggle if it had to genuinely compete in
the global market for its exports. Extremely basic manufactured items like insulated wire and
commodity crops like wheat and corn are basically completely fungible, which is just a fancy
economics word for interchangeable. It might be possible to tell apart a German-made car or
aircraft from one made in another country based off quality, but copper wires and corn from
Romania are effectively going to be identical to the same products from any other country, and
without proper trade agreements global consumers are going to buy it from the cheapest source
available to them. Given these different objectives it's very hard to create a trade deal that's going
to work for all of the countries in the EU as well as it could for the most dominant economies
individually. The same problem happens with monetary policy. Interest rates across the EU are
different for different countries, but the overnight rate or the cash rate set by the European central
bank is the same for all of Europe. So why is that?

Well, each of the individual governments have their own risk profile. A country like Germany is
far less likely to default on their loans than a country like Greece, so Greece has to offer
investors higher returns on their bonds if they want to raise money to compensate them for the
risk that that country will default on its debts. Again. A central bank is supposed to account for
this while also managing inflation, which in the EU varies wildly from country to country thanks
to different market conditions, different tax systems, and even different cultures. What this all
means is that, again, any policy is going to be a compromise between what this rather diverse
group of nations really needs. This has already been a problem with the Greek financial crisis
being amplified by the high value of the euro. Normally when a country faces significant
financial strain like this, the value of its currency drops, which means it becomes cheaper to buy
the country's exports, which helps it to receive more income to service their debt. When a whole
group of countries are using the same currency, that doesn't happen, or at least it doesn't happen

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as significantly. Now, the really interesting lesson here, and something that's important to
recognize, is that the same thing happens to all economies. The EU probably isn't even the most
extreme example of things like monetary policy and trade deals needing to compromise for
regional differences. The difference between the most and least productive states in the USA, for
example, is now around the same as the difference between the most and least productive
countries in the EU on a per capita basis, especially when outliers like Luxembourg and
Washington DC are removed. And yes, of course DC isn't a state, but it's still an economic entity
not too dissimilar from a lot of micro-economies within Europe. Minutiae aside, the poorest
countries in the EU are actually on average catching up to the richest by GDP per capita metrics,
where the opposite is happening in a place like the USA. The richest US states are pulling even
further ahead of the poorest states by worker output, and that's in part at least because these
regions have even less flexibility around their economic policy, and more restrictions on how
industry moves around the economy. But they are still subject to decisions made at the federal
level.6

Even within unitary countries that don't have individual states, policies that are good for
advanced industries and city centres, might not be good for manufacturers in regional settings, or
farmers in rural areas. The difference is though, that single national economies, even large
federations like the USA which gives a lot of independence to its member states, can still take
federal tax money and redistribute it to poorer regions, either directly through transfers, or
indirectly through subsidies and contracts. Regional subsidies to farmers are so common but
these payments are not necessarily economically efficient but they are made anyway because it
stops regional inequality between cities and rural areas getting too out of whack. Similarly to
regional output, inflation is different in different areas of all economies as well. The inflation rate
in a major city centre like New York, Tokyo, or Sydney would be different at any given time to
the inflation rate in the rural areas of the countries those respective cities are in. The only reason
this looks like a problem with the EU specifically is that normally a currency is specific to one
country, and that country will measure its inflation rate once collectively for the whole economy.
But since the EU has the euro, which is used by dozens of different countries with regional
differences, they all report different inflation numbers, which is really more indicative of reality,

6
Neal, L., & Barbezat, D. (1998). The economics of the European Union and the economies of Europe. OUP
Catalogue.

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whereas other national economies kind of naively assume that prices are going up everywhere
across the country at exactly the same rate. So while this sounds like a positive for the EU,
collecting precise economic figures won't do it much good if it can't take precise action to control
them. Compared to the federal government of the USA, the EU has a very modest budget that's
mostly just used to keep administrative functions operating, so even if it had the authority to use
its own spending to balance for things like compromised trade deals and monetary policy, it
couldn't.7

The strange divide between what economic policies get handled by the individual national
economies and what policies get handled by the EU centrally has created a system where
economic management is very difficult, especially in extreme situations like debt crises, energy
restrictions with Russia, and Brexit. This difficulty also applies to businesses within this
economic region. Theoretically, the EU with its almost completely free movement of goods,
services, and personnel within and between member countries should have made things easier for
businesses to operate and grow without the restrictions of tightly-packed national borders.
Unfortunately, there have been some major challenges to this assumption. The EU has added an
extra layer of regulations that businesses have to adhere to on top of their own national
regulations. This is one area where they do not take a light hand. Regulations around technology
especially has meant that even international companies have had to make big changes so they
can continue to operate in one of the most lucrative consumer markets in the world.

Now the regulations themselves, at least the ones that make headlines, are mostly pretty pro-
consumer and pro-worker. Things like demanding that smartphones all use the same charging
port reduce the barriers to competition in that space. The reason that Apple begrudgingly got rid
of their objectively inferior proprietary connector is because the EU said they had to or else they
wouldn't be allowed to sell their phones there, a law that the rest of the world has also benefited
from. But while these laws may be a net positive for the world, it makes it very hard for
businesses founded within the EU to compete globally against ones that don't have as many
restrictions.8

7
Alesina, A., Angeloni, I., & Schuknecht, L. (2005). What does the European Union do?. Public Choice, 123(3),
275-319.
8
El-Agraa, A. M. (2011). The European Union: economics and policies. Cambridge University Press.

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The European Union has fallen significantly behind the USA and even developing Asian
economies in technical innovation, which means it's missing out on competing in one of the most
lucrative economic drivers in the world. US and even Chinese tech companies have been able to
spread their influence around and generate revenues from a product that has almost zero
marginal cost. If a German manufacturing company wants to increase revenue, it needs to sell
more manufactured goods, which means it needs to employ more staff, buy more materials, and
potentially even build more factories. If a tech company signs up a new customer, the additional
resources required could be as simple as some data entry into an electronic record, which makes
these businesses far more scalable. The EU itself recognizes its shortcoming in this industry and
has used some of its limited budget to try and make it easier to develop another Spotify. But
outside of that one example, at least for now, it's hard to think of another European technology
company that is dominant beyond the borders of the EU. Now in the interest of fairness, it's
important to recognise that there are other factors apart from EU regulations stifling
technological development in Europe. Its diversity of languages means that it's harder to reach a
critical mass of users like it is in China or the USA, but companies have hundreds of millions of
domestic customers before they need to expand out internationally. It also suffers from brain
drain and lower investment because skilled developers and risk-taking investors within Europe
can use their talent or cash remotely in the US market, which generally pays better. And of
course, the EU itself has in many ways made that more popular by introducing a major world
currency that makes this kind of cross-border work and investment easier. So with all of these
issues, it's easy to think that perhaps the EU was a bad idea, but it's also important to assess it
was just in the wrong place at the wrong time.9

9
Hodson, Dermot, Uwe Puetter, John Peterson, and Sabine Saurugger, eds. The institutions of the European Union.
Oxford University Press, 2022.l

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 CAN AND SHOULD UK GO BACK TO EU?

Polling suggests that more and more voters think Brexit was a mistake and a majority of Brits
now want another referendum on the issue. The latest polling shows a record 56% of Brits,
including 22% of Brexiteers, think that Brexit was a mistake, while just 31% think that it was the
right decision. However, at this moment in time, no major UK party is advocating rejoining the
EU at the next general election. Even Labour, which is supposed to be the more pro-EU of the
two main parties, has ruled out rejoining the single market and Customs Union, and the Liberal
Democrats were only advocating rejoining the single Market, not the EU itself. Clearly, there's
little appetite for rejoining the EU amongst the UK's political class. While there might be
growing pro-EU sentiment amongst the UK electorate, the chances of the UK actually rejoining
anytime soon are pretty slim, both because no mainstream party has it as a policy and because it's
an open question as to whether the EU would even agree to it. However, Michel Barnier, the
former Chief EU negotiator for Brexit, said that, contrary to our apparent doom mongering, the
door is open and the UK could genuinely apply to rejoin anytime. What would happen if the UK
did actually take Barnier's advice and apply to rejoin, and whether the EU would ever let the UK
back into the bloc.10

So let's get straight into it. Would the EU let the UK back in? Well, from an EU perspective,
there are a couple of arguments for and against the UK rejoining. Let's first take a look at the
arguments against.

First, the UK rejoining would be an obstacle to further EU political integration. When the UK
was a member of the EU, many inside the EU, particularly the French, saw the UK as a
hindrance to the idea of political integration. As a member, the UK preferred widening
(expansion of the EU to include Eastern Europe) over deepening (just focusing on single
currency, Schengen, etc.). The UK also loved its opt-outs and never joined the Schengen area or
10
Reuters. (2024, May 18). Majority of Britons support rejoining the EU single market - pol

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the Euro. Some analysts even believe that the coronavirus bailout, where member states agreed
to jointly borrow 715 billion euros to respond to the pandemic, would never have been agreed to
if the UK was still a member. Many inside the EU believe it needs to change first before it
accepts anyone new, and the UK's size and general weariness of further integration would hinder
that project.

Second, it could become another unwanted troublemaker. This might sound obvious, but the EU
would need to be very convinced that Brexitism has been completely purged from the UK body
politic before it would even open talks. For example, they would not welcome a membership
application from a potential Starmer government if the Conservative opposition remained
opposed to the EU. That's because there would be a danger of Britain joining and leaving every
few years. There needs to be a stable, sustained, and unambiguous commitment in the UK to
membership, as there's no appetite from the EU side to reintroduce a troublesome member state.

Now let's take a look at the major reasons why the EU would allow the UK back in.

 First and most obviously, the UK would be one of the largest economies in the EU and
that contributed to the EU budget and would be great news for the single market.
 Second, the UK has one of the largest militaries in Europe, and its presence could go
some way to help the EU develop a feasible defense policy.

Third, if the UK were to rejoin, it would be possibly the best advert there is for EU membership
and would help prevent further anti-EU sentiment inside the EU. A country that democratically
decides to leave but then changes its mind and democratically decides to rejoin would
demonstrate to the rest of the EU members, if it hasn't done so already, that going alone is very
difficult in today's globalized and interconnected world.11

11
Hix, S. (2018). Brexit: Where is the EU-UK relationship heading. J. Common Mkt. Stud., 56, 11.

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Assuming that both sides were keen, what would the UK actually have to do to rejoin?First, the
conditions. Assuming the UK didn't get any special treatment, it would need to prove that it can
meet what's called The Copenhagen criteria, which consists of the following:

- Political: EU values, sound institutions, and robust checks and balances

- Economic: a functioning and resilient market economy

- Administrative and institutional: the capacity to implement and absorb the full sum of EU law

Given it used to be a member, the UK would almost definitely satisfy these criteria. But it runs
into more trouble with the Euro and the Schengen area, which are both requirements for new
member states. Even if they didn't ask for all the previous opt-outs, it's hard to imagine the UK
giving up any border controls for Schengen or the pound for the Euro. And any UK government
that applied to rejoin would almost definitely try to carve out exemptions here, which could
scupper their application.

Now, technically, there's no specific time limit for these measures, and they can be phased in
later if at all once the UK becomes a member. For example, Cyprus, Romania, and Bulgaria have
yet to join the Schengen area but technically are legally obligated to, and seven countries
(Bulgaria, the Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden) are EU
members but do not use the Euro. However, the EU would probably want guarantees that the UK
wasn't going to do this, not least because it would make further EU integration significantly more
difficult.

Whatever compromises the two sides end up agreeing to, it's hard to see it getting unanimous
support from the EU as would be required. It's hard, for example, to imagine Macron agreeing to
anything apart from full-fledged membership for the UK given his aspirations for deeper
political integration within the EU. So that's what it would actually require for the UK to join the
EU. While it's technically and legally possible, the political barriers here mean it's unlikely to
happen anytime soon.

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 CONCLUSION
By the standards of an economy this large, the European Union is incredibly young, only
formally being created just over three decades ago, and in that time it's endured a lot of
headwinds, which have probably stopped it from living up to its full potential. Of course, nobody
can predict alternative paths, least of all economists, but even assuming that Europe maintains
systems like the European Economic Community, a precursor to the EU, or maintained complete
independence between its nations, there are no guarantees that it would have fared better through
things like the GFC, the eurozone crisis, covid, and now the conflict on its border with Eastern
Europe.

In return, the EU has given a lot of opportunities for people to live and work more freely across
the union. It's made tourism easier as visitors don't have to juggle dozens of currencies and
mountains of visa paperwork to travel around. and it's also given the countries the euro. The
currency is a double-edged sword certainly, but having the world's second most held reserve
medium of exchange has made operations within the EU and beyond easier for most businesses,
even if they do have to account for extra regulations. The collective economy of the EU has been
mostly stagnant for well over a decade now, but so too have most other major advanced
economies like Canada, Australia, Japan, and even places like the UAE. The USA, the logical
comparison to the collective EU, is more of an outlier in the growth it's been able to achieve over
this time. And while technology, the industry that has been primarily responsible for that
outstanding growth has a long list of advantages over more traditional industries, it's also far
more fickle. There isn't much physically holding tech companies down, and without being overly
glib, the value that these companies truly create is much harder to qualify. The EU has its
problems, sure, but it's also been a great stabilising force within Europe and around the world,
and sometimes that's more important than headline economic figures that only really benefit a
small handful of highly skilled workers and already wealthy capital investors. The European
Union is a complex economic beast. It's brought wealth and stability to many countries, but it
also faces serious challenges. Whether the EU can overcome these challenges and remain a
unified economic force is a question that only time can answer. But one thing is for certain: the
decisions made about the future of the EU will have a major impact on the economies of Europe
and the entire world.

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