How the EU works: what is the EU?

Last updated: 23 Jun 2016

The European Union is an international organisation made up of 28 member countries, and more than 500 million people. Any European state can apply to become a member.

Among other things, the EU is the biggest tariff-free trade area in the world.

Some decisions are made at European level

By joining the EU, states give up some of their power to make decisions. The decisions made at EU level have direct legal effects in every member country.

That makes the EU different from other international organisations, such as the United Nations. It’s why the EU is sometimes referred to as a ‘supranational’ organisation.

Laws that apply in all member countries are made at European level by the EU’s permanent institutions.

The main institutions are:

  • the European Council, which provides the political direction of the EU
  • the European Commission which proposes the legislation and oversees the functioning of the EU
  • the Council and the European Parliament which together make the rules
  • the Court of Justice

The laws made by the institutions override national rules. Otherwise EU rules might be applied differently in the 28 member countries, which would make them ineffective.

EU rules are interpreted by the Court of Justice of the EU (which is different from the European Court of Human Rights) so that the same understanding of what they mean applies in every country.

Funding and budget

Member countries contribute most of the EU’s budget. Spending over the next few years is set to be 1% of the value of the EU economy, or around €130-€140 billion a year.

This pays for the institutions. Around 6% of EU spending goes on administration. The majority, though, goes on farming, including direct payments to farmers, and on projects in less well-off parts of the EU (including west Wales and Cornwall).

How did the EU come about?

The original aim of the EU was to create a common market where goods, workers, self-employed people, companies, services and later capital could move freely; and where competition was not distorted.

However, the original aim of the EU was not purely economic. The integration of the national markets was seen as a means to an end: promoting peace and improving the well-being of the people.

Going beyond the common market

The EU is now much more than a common market. For instance, the EU negotiates trade agreements which are binding on all member countries.

It has a wide range of 'competences', or powers. Some are linked to the internal market: for instance, the setting of a single European standard for a product. Others are linked to, for example, the protection of the environment and the consumer.

The EU can make rules about discrimination and rules in the field of social policy. And it can co-ordinate member countries’ legal processes. An example is the European Arrest Warrant, which allows countries to transfer suspects and offenders from one EU country to another with few formalities.

Despite its wide range of competences, the powers of the EU are limited to those that member countries have unanimously agreed it should have. They are set out in the treaties that every country has signed up to.


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