It is fifty years since the Treaty of Rome was signed. The treaty created the European Economic Community, set the goal of ever closer union among the peoples of Europe and laid down the “four freedoms” where goods, services, people and capital could move freely among the member countries. The results have been impressive. It has brought prosperity, the single market for goods among 500 million consumers works fairly well, and there has been good progress in reshaping network industries and financial markets. The union has grown from 6 to 27 countries, 13 of which now share a single currency. The European Union (EU) now has a larger GDP than the United States, it is the world’s biggest exporter, and European companies are among the global leaders in most industries.

This chapter reviews the key challenges for the European Union. The main requirements are product and labour market reforms to boost growth and employment. Like all developed economies, Europe faces the longer term challenges of globalisation and population ageing. Europe as a whole has done well out of globalisation but some regions have struggled to adapt, and they need to boost their adjustment capacity and innovation levels. The roles of the EU include strengthening the single market, encouraging stronger competition across Europe and living up to global responsibilities such as trade reform and addressing climate change.

This chapter reviews the internal market. It puts particular emphasis on the services sector, which is the main area where further progress is necessary, and discusses the potential impact that the services directive might have. It also reviews network industries, including energy, telecommunications and ports. Electricity and gas liberalisation is needed to create stronger competition and more integrated markets.

This chapter discusses unfinished business in financial markets. The main challenges include greater integration of retail banking, deeper corporate finance markets and stronger financial surveillance. The chapter discusses the role that can be played by the Financial Services Action Plan, mortgage market reform, the Single Euro Payments Area (SEPA), the MiFID, mutual funds and banking supervision.

The Commission has put considerable emphasis on its Better Regulation agenda over the past few years. This chapter first provides an overview of law-making at the community level. It then reviews the Union’s regulatory approach and makes some recommendations for improving the framework further.

This chapter discusses competition policy reform. It reviews leniency programmes, individual and criminal sanctions, abuse of dominance and state aid reform.

EU policies will have a decisive influence on developments in world trade. The EU is the world’s leading exporter and second-leading importer of goods, and the biggest trader of commercial services. Along with the other major trading blocs, decisions by the EU will have a major influence on whether the multilateral approach to world trade will continue to dominate or whether trade arrangements splinter into regional and bilateral agreements. Agricultural policies in particular will influence whether the Doha round can be concluded successfully, where success is measured by major cuts in trade-distorting domestic subsidies, the elimination of all forms of export subsidies and better market access worldwide. Concerning other trade issues, EU tariffs on manufactured products are relatively low except for certain processed food products, but its complex web of preferential trade deals makes access more difficult for those left out. In services, there is little discrimination against foreigners – except in the professions – but anything that undercuts the internal market for services also hampers provision from outside the EU.

Successive rounds of enlargement have given an increasingly important role to the Union’s regional cohesion policy and its ambitious aim of reducing regional income disparities. This chapter offers policy options to raise the impact of cohesion policy.

The free movement of persons is a key objective of the European Union as it can foster the sense of European citizenship and enhance the working of the EU economy. This chapter reviews recent trends in labour mobility in the Union with a special focus on migration from the new member states. It then discusses how policy reforms can help to lower barriers to labour mobility between EU countries.