EU Tries Balancing Internal Inequality and External Competition

European unification began at the economic level with the founding of the European Coal and Steel Community. Fifty-five years later, the economy is still an important aspect of the European integration process today. But the bloc is also trying to ensure social equality between its regions.

"In comparing the European economic model with other economic regions like the US or Asia, it becomes apparent that Europe, apart from the economic dynamic, puts relatively high priority on social equality," said Stefanie Wahl, the director of the Institute for Economy and Society in Bonn. "It tries to realize both goals."

A plan for equality

At the end of last year, the European Commission approved a financial plan for 2007 to 2013 that is designed to strengthen Europe's position on the world market while increasing the prosperity of its member states. In addition, it calls for the establishment of social equality within the EU.

In an effort to approach social equality, the poorer member countries receive subsidies from the EU's structural funds to finance the building of infrastructure, research and health policies. According to the financial plan, a total of 360 billion euros ($458.5 billion) will flow into the poorer regions of the EU between 2007 and 2013.

There are two possible approaches to strengthening the European economy, said Erik Theissen from the University of Bonn.

"Either you try to harmonize and manage everything, or you let competition run its course and see which countries introduce which regulations and taxes and so forth," he said.

Regulation or competition?

The European Union has chosen the first approach: regulation. This is particularly apparent in Europe's subsidy policy, where the EU sustains economic sectors that would collapse without external support.

Agriculture currently takes top priority in Europe's subsidy policy. Nearly 50 percent of the EU's budget goes to agricultural subsidies -- even though many experts and politicians view this as backwards, expensive and extremely dangerous to development policy.

"We are artificially holding up the agriculture sector; we're driving the prices down and that makes for competition with the developing countries, which cannot be justified," said Manfred Neumann from the Institute for International Economic Policy at the University of Bonn.

Subsidy policy has been a particularly thorny for Britain.

"I want my money back," said Prime Minister Margaret Thatcher when she arranged for a special British allowance in 1984.

Since then, Britain contributes considerably less to the agricultural funds than the other EU member states, based on the argument that its own agricultural sector is much less significant than France's, for example, so it doesn't profit as much from the subsidies.

Due to complaints from other EU countries, the British allowance is to be cut appreciably by 2013.

Regulation vs. flexibility

In addition to subsidies, the European Union also involves itself in the economic process by setting unified European standards that apply to both production procedures and the products themselves.

"Regulations are necessary, as long as they do not come at the expense of flexibility and reaction," Wahl said. "They have to become much quicker because the international competition has increased and is placing high demands on Europe."

But standardization has to have its limits, said Manfred Neumann.

"Why should the Germans live just like the Sicilians?" he asked. "We shouldn't try to govern every little thing. The bureaucrats in Brussels don't know better than the local businesspeople and employee."

Investing more in R & D

Experts agree that Europe's global importance as a production location will decline over the long-term, Wahl said.

"That's why we have to make an effort to maintain our competitive margin with knowledge and skills," she added. "We won't be completely successful in this but we need to invest more in research and development because that's what we can be good at."

The European continent is poor in natural resources, so human capital is the most important resource to invest in, Wahl said.

Finnish Premier Matti Vanhanen, whose country currently holds the rotating EU presidency, has advocated more investment in research and development so that Europe can continue to compete with the Asian and North American economic areas. European Commission President Jose Manuel Barroso's plan to establish a European elite institute for research and development may be a first step in that direction.