Economy of the European Union

Currency

Main article: Euro, Eurozone, Single Euro Payments Area

Since 1999, 21 EU states use the euro as official currency in a currency union. The remaining 6 states continue to use their own currency with the possibility to join the euro later. The euro is the most widely used currency in the EU.

Since 1992, the Maastricht Treaty sets out rigid economic and fiscal convergence criteria for the states joining the euro. Starting 1997, the Stability and Growth Pact has been started to ensure continuing economic and fiscal stability and convergence.

Denmark is not a part of the eurozone due to its special opt-outs concerning the later joining of the euro. In contrast, the remaining states can effectively opt out by choosing when or whether to join the European Exchange Rate Mechanism, which is the preliminary step towards joining. They are, however, committed to join the euro by their Treaties of Accession.

Starting with Greece in 2009, five of the 20 eurozone states have been struggling with a sovereign debt crisis, commonly called the European debt crisis. All these states started reforms and got bailout packages (Greece, Ireland, Portugal, Spain, Cyprus). As of 2015, all countries but Greece have recovered from their debt crisis. Other non-eurozone states also experienced a debt crisis and also went through successful bailout programmes, i.e. Hungary, Romania and Latvia (the latter before it joined the eurozone).

Budget

The EU has a long-term budget, named Multiannual Financial Framework (MFF), of €1,082.5 billion for the period 2014–2020, representing 1.02% of the EU-28's GNI.

The overall budget for the period 2021-2027 is of €1.8 trillion combining the MFF of €1,074.3 billion with an extraordinary recovery fund of €750 billion, known as Next Generation EU, to support member states hit by the COVID-19 pandemic.

Sectors

Services

Main article: Capital Markets Union, European Single Market

The services sector is by far the most important sector in the European Union, making up 64.7% of GDP, compared to the manufacturing industry with 23.8% of GDP and agriculture with only 1.5% of GDP.

Financial services are well developed within the Single Market of the Union. Companies have a greater reliance on bank lending than in the United States, although a shift towards companies raising more funding through capital markets is planned through the CMU initiative, the EU plan put forward by the Commission in September 2015 to mobilise the free movement of capital within the EU. The plan aims "to establish the building blocks of an integrated capital market in the EU by 2019". The CMU initiative comprises 33 measures in all. The plan was updated in 2017 and in 2019, since not a single legislation will deliver the CMU. The Commissioner for Financial Stability, Financial Services and Capital Markets Union, Mairead McGuinness, former vice-president of the European Parliament, is responsible for delivery of the initiative.

According to the Global Financial Centres Index, the two largest financial centres in Europe, London and Zürich, are outside the European Union. The two largest financial centres remaining within the EU will then be Frankfurt and Luxembourg.

In the European Investment Bank's Investment survey 2021, 58% of firms in the service sector were expecting long term effects of COVID-19. 56% of EU enterprises received governmental help to handle the pandemic's effects.

The COVID-19 pandemic had a significant effect on sales. 49% of all EU enterprises claimed that their sales decreased since the start of 2020. The pandemic has affected sectors differently, with the number of enterprises losing money in the hotels, restaurants, arts, and leisure industries reaching roughly 25% compared to previous times, and transportation also being affected.

Without government assistance, 35% of European small and medium-sized firms (SMEs) in manufacturing and services indicated their businesses would not have survived the effects of the pandemic.

In 2020, 86% of enterprises reported previous-year investment activity, while in 2021 only 79% reported investment. 23% of EU firms changed their investment plans in 2021, with only 3% reporting a higher amount. The highest proportion of enterprises that have reduced their investment plans due to a drop in sales are in Poland, where 49% of firms have reduced investment, and in Belgium, where 47% of firms stated the same.

Most green or digital businesses in the EU operate in manufacturing (33%) or infrastructure (30%). The service sector has the greatest percentage of businesses that have not engaged in digitalisation or the green transition (41%).

EU enterprises were growing in terms of innovation in 2023. 39% of EU enterprises created or introduced new goods, processes, or services in the previous fiscal year, compared to 57% of US firms. In the EU, over 12% of businesses introduced ideas that were novel to the country or the global market. Investment in intangible assets (research and development, software, training, or business processes) by EU enterprises accounted for around 38% of overall investment. Businesses in the EU were also optimistic about 2023, with 14% more predicting an increase rather than a drop in investment.

Agriculture

The agricultural sector is supported by subsidies from the European Union in the form of the Common Agricultural Policy (CAP). In 2013 this represented approximately €45 billion (less than 33% of the overall budget of €148 billion) of the EU's total spending. It was used originally to guarantee a minimum price for farmers in the EU. This is criticised as a form of protectionism, inhibiting trade, and damaging developing countries; one of the most vocal opponents was the United Kingdom, the second largest economy within the union until its withdrawal in January 2020, which repeatedly refused to give up the annual UK rebate unless the CAP should undergo significant reform; France, the biggest beneficiary of the CAP and the union's third largest (now its second-largest) economy, is its most vocal proponent. The CAP is however witnessing substantial reform. In 1985, around 70% of the EU budget was spent on agriculture. In 2011, direct aid to farmers and market-related expenditure amount to just 30% of the budget, and rural development spending to 11%. By 2011, 90% of direct support had become non-trade-distorting (not linked to production) as reforms have continued to be made to the CAP, its funding and its design.

Tourism

The European Union is a major tourist destination, attracting visitors from outside of the Union and citizens travelling inside it. Internal tourism is made more convenient by the Schengen treaty and the euro. All citizens of the European Union are entitled to travel to any member state without the need of a visa.

France is the world's number one tourist destination for international visitors, followed by Spain, Italy, and Germany. It is worth noting, however, that a significant proportion of international visitors to EU countries are from other member states.

Energy

Main article: Energy policy of the European Union

The European Union has uranium, coal, oil, and natural gas reserves. There are six oil producers in the European Union, primarily in North Sea oilfields. The United Kingdom, whilst it was a member of the European Union was by far the largest producer; Denmark, Germany, Italy, Romania and the Netherlands produce oil. The European Union produced 19.8 million tonnes of oil equivalent (Mtoe) of crude oil in 2019. The EU is one of the largest consumers of oil, consuming much more than it can produce. It consumed about 350 Mtoe in 2019, importing 96.8% of the oil. The largest suppliers are Russia, Iraq, Nigeria, Saudi Arabia, Kazakhstan, and Norway. Transport is the largest consumer of oil, at 66.1% in 2019.

All countries in the EU have committed to the Kyoto Protocol, and the European Union is one of its biggest proponents. The European Commission published proposals for the first comprehensive EU energy policy on 10 January 2007.

During the green transition, workers in carbon-intensive industries are more likely to lose their jobs. In the years to come, the transition to a carbon-neutral economy will put more jobs at danger in regions with higher percentages of employment in carbon-intensive industries. Employment opportunities by the green transition are associated with the use of renewable energy sources or building activity for infrastructure improvements and renovations.

Energy costs remain a major obstacle to investment to 46% of EU firms. 34% of EU firms say that stricter climate standards and regulations will affect their business over the next five years. This is compared to 42% of US firms. 27% of companies in the European Union see sustainability and the green transition as a business opportunity.

Companies

Main article: List of companies of the European Union

The European Union's member states are the birthplace of many of the world's largest leading multinational companies, and home to its global headquarters. Among these are distinguished companies ranked first in the world within their industry/sector, like Allianz and AXA, which are the two largest financial service providers in the world by revenue; WPP plc and Publicis which are the world's largest advertising agencies by revenue; Amorim, which is the world's largest cork-processing and cork producer company; ArcelorMittal, which is the largest steel company in the world; Christian Dior SE which is the biggest fashion group in the world and Inditex is the world's second biggest fashion group; Groupe Danone, which has the world leadership in the dairy products market.

Anheuser-Busch InBev is the largest beer company in the world; L'Oréal Group, which is the world's largest cosmetics and beauty company; LVMH, which is the world's largest luxury goods conglomerate; Nokia Corporation, which was the world's largest manufacturer of mobile telephones; Shell plc, Électricité de France, Uniper, TotalEnergies, Eni which are one of the largest energy corporations in the world; and Stora Enso, which is the world's largest pulp and paper manufacturer in terms of production capacity, in terms of banking and finance the EU has some of the world's largest notably BNP Paribas, HSBC, Crédit Agricole, Grupo Santander, Société Générale, Deutsche Bank, Sparkassen-Finanzgruppe and Groupe BPCE, the largest bank in Europe in terms of Market Capitalisation and assets.

Many other European companies rank among the world's largest companies in terms of turnover, profit, market share, number of employees or other major indicators. A considerable number of EU-based companies are ranked among the world's top-ten within their sector of activity. Europe is also home to many prestigious car companies such as Aston Martin, Alpine, BMW, Bugatti, Ferrari, Jaguar, Lamborghini, Land Rover, Maserati, Mercedes-Benz, Porsche, Volvo, as well as volume manufacturers such as Automobile Dacia, Citroën, Fiat, Opel, Peugeot, Renault, Seat, Škoda, Volkswagen and more.

In Europe, 33% of jobs are within enterprises that have not digitally transformed. These companies were also less likely to train their employees throughout the COVID-19 outbreak. Across the European Union, the most commonly mentioned investment barrier is the lack of trained labor. 75% of businesses in transition regions found this to be problematic. Numerous reasons, such as demographics and rising demand for skills that are less common on the market, such as those needed to support digitalization activities, might contribute to the lack of competent workers. In all areas of Europe, digital businesses have produced "better" employment with greater earnings than their non-digital counterparts. Additionally, they are more inclined to recognize and reward individuals who do well.

The EU lags significantly behind the US and China in venture capital investments, with the EU capturing only 5% of global venture capital compared to 52% in the US and 40% in China.

Venture capital funds in the EU account for just 5% of the global total, whereas those in the United States and China secure 52% and 40%, respectively. The financing gap for EU scale-ups (companies that have achieved a valuation between $500 million and $10 billion) is significant, with companies raising 50% less capital than those in Silicon Valley. This disparity exists across industries and is unaffected by the business cycle or year of establishment.

European scale-ups face significant challenges in securing sufficient financing compared to their counterparts in the United States. Venture capital in the EU has been historically lower, amounting to only 0.3% of the EU's annual GDP. This is compared to almost 0.19% in the United States. While the EU has about 50% of the number of companies with a market valuation below $500 million compared to the United States, this share drops to 10-15% for companies with valuations between $500 million and $10 billion.

The following is a list of the largest EU based stock market listed companies in 2024. The list is ordered by revenue in millions of US Dollars and is based on the Fortune Global 500.

Economies of member states

Wealth

The twelve new member states of the European Union have enjoyed a higher average percentage growth rate than their elder members of the EU. Slovakia has the highest GDP growth in the period 2005–2015 among all countries of the European Union (See Tatra Tiger). Notably the Baltic states have achieved high GDP growth, with Latvia topping 11%, close to China, the world leader at 9% on average for the past 25 years (though these gains have been in great part cancelled by the late-2000s recession).

Reasons for this growth include government commitments to stable monetary policy, export-oriented trade policies, low flat-tax rates and the utilisation of relatively cheap labour. In 2015 Ireland had the highest GDP growth of all the states in EU (25.1%). The current map of EU growth is one of huge regional variation, with the larger economies suffering from stagnant growth and most of the newer states enjoying sustained, robust economic growth.

The European Union's financial system is characterized by a large banking sector, with bank assets comprising 300% of GDP, compared to 85% in the United States. However, the EU has relatively small capital markets, with listed equity making up only 68% of GDP compared to 170% in the United States, and a limited presence of hedge funds and private equity funds.

Approximately 26% of European scale-ups are acquired through mergers and acquisitions, a figure comparable to San Francisco but lower than the 37% observed in cities such as London.

In mid-2021, the European Union's gross saving rate was 18% of gross disposable income, higher above the prior COVID-19 pandemic average of 11–13%. In the second quarter of 2020, families' primary income fell by 7.3% compared to the second quarter of 2019, and their secondary income (from social security payments and other transfers) increased by 6.5% of gross income.

Although EU27 GDP is rising, the percentage of gross world product is decreasing because of the emergence of economies such as China, India and Brazil.

In the tables below, colours indicate and performer of the year concerned.

Labour market

The EU unemployment rate was 6.1% in 2023. The euro area unemployment rate was 6.6%. Among the member states, the lowest unemployment rates were recorded in the Czech Republic (2.0% in 2019), Poland (2.8% in 2023) and Germany (3.0% in 2019), and the highest in Greece (27.8% in 2013) and Spain (24.8% in 2012).

Unemployment rate

The following table shows the history of the unemployment rate for all European Union member states:

Public finance

Trade

The European Union is the largest exporter in the world and as of 2008 the largest importer of goods and services. Internal trade between the member states is aided by the removal of barriers to trade such as tariffs and border controls. In the eurozone, trade is helped by not having any currency differences to deal with amongst most members.

The European Union Association Agreement does something similar for a much larger range of countries, partly as a so-called soft approach ('a carrot instead of a stick') to influence the politics in those countries. The European Union represents all its members at the World Trade Organization (WTO), and acts on behalf of member states in any disputes. When the EU negotiates trade related agreement outside the WTO framework, the subsequent agreement must be approved by each individual EU member state government.

In 2023, over half of EU enterprises exported products or services (51%), while 53% imported goods or services. Slovenia, Slovakia, Austria, and the Czech Republic are the countries with the most exporting businesses, Malta and Cyprus have the fewest.

44% of EU firms that import from China reported facing transport and logistics problems in 2023, compared to 22% of firms that import solely from within the European Union. 34% of EU firms were impacted by disruptions in logistics and transport.

In 2023, the share of EU exports to the United States rose to 21%, compared to 14% in 2010.