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Definition: The European Union (EU) is a unified trade and monetary body of28 member countries. Its purpose is to be more competitive in the global marketplace. At the same time, it must balance the needs of itsindependent fiscal and political members.

The EU's 28 member countries are: Austria, Belgium, Bulgaria, Croatia,Cyprus, Czech Republic, Denmark, Estonia, Finland, France,Germany,Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

That will be drop to 27 when the UK leaves the EU.

The EU eliminates all border controls between members. That allows the free flow of goods and people, except for random spot checks for crime and drugs.The EU transmits state-of-the-art technologies to its members. The areas that benefit are environmental protection, research and development, and energy.

Public contracts are open to bidders from any member country.Any product manufactured in one country can be soldto any other member withouttariffsor duties. Taxes are all standardized. Practitioners of most services (law, medicine, tourism, banking, insurance, etc.) can operate in all member countries. As a result, the cost of airfares, the internet, and phone calls have fallen dramatically.

Three bodies run the EU. The EU Council represents national governments. The Parliament is elected by the people.

The European Commission is the EU staff. They make sure all members act consistently in regional, agricultural, and social policies. Contributions of 120 billion a year from member states fund the EU.

Here's how the three bodies uphold the laws governing the EU. Theseare spelled out in a series of treaties and supporting regulations:

The Schengen Area guarantees free movement to those legally residing within its boundaries. Residents and visitors can cross borders without gettingvisas or showing their passports. In total, there are 26 members of the Schengen Area. They are: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and Switzerland.

Two EU countries (Ireland and the UK) have declined the Schengen benefits. Four non-EU countries (Iceland, Liechtenstein, Norway, and Switzerland) that have adopted the Schengen Agreement.

Three territories are special members of the EU and part of the Schengen Area: the Azores, Madeira, and the Canary Islands. Three countries have open borders with the Schengen Area: Monaco, San Marino, and Vatican City. (Source: "Schengen Area," European Commission. "Schengen Area Countries List," Schengen Visa Infor.)

The euro is the common currency for the EU area. It is the second most commonly held currency in the world, after the U.S. dollar. Itreplaced the Italian lira, the French franc, and the German Deutschmark.

The eurozone consists of all countries that use the euro. All EU members pledge to convert to the euro, but only 19have so far. They are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. The eurozone was created in 2005. (Source: "What Is the Euro Area?" European Commission. "The Euro," European Union.)

The European Central Bank (ECB) is the EU's central bank. It sets monetary policy and manages bank lending rates and foreign-exchange reserves. Its target inflation rate is less than 2%.

This chart shows which countries are members of the EU, the eurozone, and the Schengen area.

In 1951, the concept of a European trade area was first established. The European Coal and Steel Community (ECSC)had six founding members:Belgium, France, Germany, Italy, Luxembourg and the Netherlands. In 1957, the Treaty of Rome established a common market. Iteliminated customs dutiesin 1968. It put in placestandard policies, particularly in trade and agriculture. In 1973, the ECSC addedDenmark, Ireland, and the UK. Itcreated its first Parliament in 1979. Greece joined in 1981, followed by Spain and Portugal in 1986.

In 1993, the Treaty of Maastricht established the European Union common market. Two years later, the EU addedAustria, Sweden, and Finland. In 2004, twelve more countries joined:Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania,Slovakia, and Slovenia.

In 2009, the Treaty of Lisbon increased the powers of the European Parliament. It gave the EU the legal authority to negotiate and sign international treaties. It increased EU powers border control, immigration, judicial cooperation in civil and criminal matters, and police cooperation. It abandoned the idea of a European Constitution. European law is still established by international Treaties. (Source: "The Treaty of Lisbon--Introduction," EU Lex.)

On June 23, 2016, theUnited Kingdomvoted to leave the European Union. It could take two years to negotiate the terms of the exit. Some EU members asked for an earlier withdrawal. The uncertainty dampened business growth for companies that operate in Europe.U.S. companies are the largest investors in Great Britain. They invested $588 billion and employed more than a million people. These companies use itas the gateway to free trade with the EU.Britain's investment in the United States is at the same level. That could impact up to two million U.S./British jobs. It's unknown exactly how many are held by U.S. citizens. (Source: "Brexit Could Send Shock Wave Across U.S. and Global Economy," Washington Post, June 18, 2016.)

The day after the vote, theDow fell 600 points. Theeuro fell 2% to $1.11. In the face of so muchvolatility,gold pricesrose 6% from $1,255 to $1,330.

What caused "Brexit?" Many in the UK, as in other EU nations, are worried about the free movement of immigrants and refugees. They don't like the budgetary constraints and regulations imposed by the EU. They want to enjoy the benefits of free movement of capital and trade, but not the costs. (Source: "What Is Brexit and Why Does It Matter?" The Guardian, June 18, 2016.)

In 2011, theGreece debt crisisthreatenedthe concept of the eurozone.That's because it nearly triggeredsovereign debtcrises in Portugal, Italy, Ireland, and Spain. EU leadersassuredinvestors that it would stand behind its members'debts. At the same time, they imposedausterity measuresto restrainthecountries' spending. They wanted all members to honorthe debt limits imposed bythe Maastricht Treaty requirements.

In July 2008, the ECB increased rates to 4.25% to combat 4% inflation caused byhigh oil prices. The euro strengthened, weakening EU exports. Factory orders plummeted 4.4%, the biggest decrease since 2003. (Source: "Euro-Zone Factory Orders Fall as Outlook Dims,"The Wall Street Journal,July 24, 2008.)

The ECB switched torecession-fighting in October, when Lehman Brothers went bankrupt. By May 2009, it had lowered the rate to 1%. But it began raising rates again too soon. By July 2011, the rate was 1.5%, creating a credit crunch and recession. In December 2011, it lowered the rate back down to 1%.In March 2015, the ECB began purchasing60 billion in euro-denominated bonds per month. The launch ofQuantitative Easingpushed the euro's value down to $1.06 from $1.20 in January. (Source:ECB Website) For more, seeEuro to Dollar Conversion.

In 2007, the EUbecame theworld's largest economy. ItsGross Domestic Product(GDP) was $14.4 trillion, beating theU.S. GDPof$13.86 trillion. The EUheld onto its premier position throughthe2008 financial crisisand theeurozone debt crisis. In2013,the United States briefly regained its leading position.China took over the top spot in 2014. (Source: CIA World Factbook,Rank Order GDP)

The value of the euro continued to rise until thecredit crisis in 2007. At that time, there was a flight to safety to the dollar, whichstrengthened the dollar. The euro's weakness hasn't boosted exports due to lower worldwidedemand.

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What Is the European Union: How It Works, History