This document provides an overview of the economic environment and performance of the European Union. It discusses: - Moderate GDP growth of 2.9% in 2006, the highest since 2000, driven by domestic demand. Unemployment is around 7.9% and inflation is low. - The 12 new EU members since 2004 have seen improved investment and growth, but unemployment remains high except in Slovenia. - Bulgaria and Romania have the lowest living standards in the EU at 60% of the average GDP. - Scandinavian countries have achieved high growth, employment, and social protection through investment in ICT, education, and R&D spending coupled with flexibility in labor markets and generous benefits.

1. European
Union
The European Union
International Economic Environment

2. European
Union
Introduction
• The world GDP or output has grown as of 5.1% a year
• US economy has kow a slow down especially with the
falling residential construction fiel having difficult and
the big debt burden over the households
• Europe as known a moderate growth of 2.9% in 2006
• It is the highest growth that europe has known since
2000
• Europe is expected to grow at 2.2% in 2007 and 2.5%
in 2008
• Recovery is driven by the domestic demand

3. European
Union
General facts
• Wages have improved and there are better labour
market conditions
• There is a significant growh in the private investment
• Unemployment in Europe is around 7.9%
• There is no major inflatio pressure despite rizing oil
price
• Inflate rate is around 2.2% in 2007
• Fiscal deficit decrease by 0.3% in 2006
• An expected decrease of 0.4% i forecatsed for the year
2007 which will place the deficit at 1.6% of GDP
• Increase tax revenues an decreased social spendings

4. European
Union
General facts (continued)
• Europe hopes to increase its R&D speding to 3% of its
GDP
• However the level reached now is 1.9%
• Education is a major strength to the European countries
• However the sepndings in educaion are stagnating
since 1999
• The euro has appreciated against the dollar of 10%

5. European
Union
New entrants
• In 2007 there are 12 new members to the European
Union
• 10 members have joined in May 2004 and 2 have joined
in January 2006
• Performance indicators proove that there is an
improved well been in these economies ‘increased
investment, construction, exporting…)
• However the labour market has not improved
• Only Slovenia is member of the euro zone
• These countries have encoutered inflation problems

6. European
Union
New entrants (continued)
• Hongary fiscal deficit is of 10% of GDP in 2004
• Poland and Baltic states suffer from fiscal deficits
• FDI is namely coming for western europe
• Another problem is the current account liability

7. European
Union
The two new member states
• Bulgaria and Romania are the poorest EU members
• The have the lowest living standards which equal to
60% of the EU GDP
• These two countries acknowledge a very high
unemployement and low employement rates

8. European
Union
Scandinivian Model
• High growth
• High employment
• Macroeconomic stability
• High social protection
• Outputgrowth has been better in Finland and in Sweden
than in big EU members
• However not in Danemark

9. European
Union
How does the Scandinavian Model works
• A lot of investment in ICT has been made
• Well educated work force which consumes the ICT
produced
• High R&D spending
• High productivity growth has lead to decreased prices
• Employment rates are among the highest in the OECD
countries
• Successful growth in employement

10. European
Union
Is he growth due to the good protection system?
• Scandinavia is :
– Low employment protection
– High flexibility
– Generous unemployement benefits
– High social benefits
• Are these the roots of success?
– The Anglosaxon model is been introduced to the
Scandinavian economies little by little

11. European
Union
Nationalist Economies
• European economies are subsidising their national
production
– They protect their national champions
– They alleviate their national losers
– They block cross mergers
– They dress barriers to trade