Economy of Europe

Lilly Evie, David Wood
  • Author
    Lilly Evie
  • Instructor
    David Wood

    David has taught Honors Physics, AP Physics, IB Physics and general science courses. He has a Masters in Education, and a Bachelors in Physics.

Learn about the European economic system. Discover the different sectors of the European economy and analyze the attributes of the strongest economies of Europe. Updated: 04/13/2022

The European Economy

Like the United States, Europe is a free market economy that survives on the movement of capital. As a result, the Gross Domestic Product of the European economy is around $20 trillion, with a population of about 700 million distributed over 44 countries. This GDP represents approximately a sixth of the global economy.

The continent of Europe has various countries with diverse economic policies. Still, due to the European Union, these countries have found ways to assemble and strengthen their economy as a single economic bloc. The EU is both an economic and political bloc comprising 27 official members who all work together to promote free trade among the members. As a result, there is free movement of the factors of production that allow for free markets to work more efficiently.

The countries in the EU also created a common currency, the Euro, to ease their trade deals. Sharing the euro helped eliminate the exchange rate issue that affects trade partners using different currencies. The only disadvantage of this monetary policy is that when the European Central Bank makes some decisions, some countries are favored over the rest. However, not all countries in Europe use the same currency as the rest, nor do all members of the European Union. The decision to switch to the shared euro currency is a personal choice for these countries. Due to this political and economic agreement, most trade activities in Europe are internal, except for the individual trade between some European countries with China, Japan, Russia, and the United States.

The Economy of Europe

Europe, much like the United States, is a free market economy based on the movement of capital. The economy of Europe has a GDP (Gross Domestic Product) of around 20 trillion US dollars, and includes more than 700 million people in almost 50 different countries. The largest economy of Europe is Germany, followed by France, followed by the UK.

Europe is a continent containing many different countries, all with their own economic policies and systems. But there are certain ways that the countries of Europe combine together to strengthen their economy. One way is called the European Union (EU), which is a political and economic union of 28 European countries, allowing those countries to work together on political and economic issues, including the promotion of free trade between member countries. Workers, products, and capital can move freely inside the European Union, which allows the free market to work more efficiently.

Another way the countries of Europe work together is that many of them have switched to a common currency, called the euro. This makes exchange and trade even easier, and exchange rates are no longer a factor. However, the downside is that monetary policy is set for the whole eurozone, which means that decisions made by the European Central Bank can be good for some countries and not so good for others. Not all the countries of Europe use the euro as their currency. In fact, not even all members of the European Union do. Deciding whether to switch currencies to the euro is a choice for individual countries to make.

Unsurprisingly, Europe trades the most internally, but there is also a lot of trade between European countries and China, the United States, Japan, and Russia.

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Sectors of the European Economic System

Europe is the second smallest continent, but its strategic geographical position between Asia and Africa, navigation techniques, and fertile soils have made it one of the most dominant economies in the world. The European economic system is supported by the various sectors that propel it.

The Agricultural Sector

First, the agricultural sector is especially prominent due to the climate, which falls under two favorable categories; the marine west coast and the Mediterranean. The marine west coast is found in the northwestern parts of Europe, apart from the Scandinavian countries and the mountain regions of Eastern Germany and Switzerland. The mild winter and summer periods ensure that there is consistent rainfall. The crops that grow in these areas, as a result, include wheat, potatoes, and some fruit. They also get to rear livestock, enabling them to export dairy, meat, and wool. Some of the best cheeses originate from these agricultural activities.

On the other hand, the Mediterranean climate is primarily found in Southern Europe, such as Spain, Portugal, and Southern areas of France, Italy, and Greece. The two main export crops from these are olives and grapes. Consequently, the South of Spain and France are internationally famous for their wine production.

Europe is also responsible for at least 5 percent of the world's global fish and aquaculture production. The most notable catches from the Atlantic and the Mediterranean include blue whiting and Atlantic mackerel. France, Denmark, and Spain are countries responsible for this fish production. These countries are responsible for more than half of Europe's fish.

The Minerals and Mining Sector

Another primary sector is minerals and mining. Europe is responsible for several minerals used for industrial purposes. One of the biggest mineral export is feldspar, which is produced by most countries in the Union. Feldspar is a mineral used in ceramics production and the archaeology industry for dating processes.

Economic Sectors of Europe

Since Europe is such a large area with so many different economies, it is hard to summarize the economy of Europe, but we can look at major sectors of the economy and where they are mostly located.

Agriculture is a major part of Europe's economy. The EU subsidizes farming in order to make their products more competitive and keep the agriculture industry afloat. This is controversial because it goes against the idea of free trade, but it is very common - the United States also subsidizes farmers. Farming remains extremely important to some countries in the EU. France, for example, has a large agriculture economy and would suffer greatly without the EU's protections.

Manufacturing is also important in the EU. Industry in general, including manufacturing and construction, accounts for 25.2% of the EU's GDP. Europe is the world's largest car manufacturing region, creating jobs for 12.9 million people. But there are many other active industries, including aerospace, defense (vehicles, ships, etc.), electronics, chemicals (especially petrochemicals and polymers), and biotechnology.

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Video Transcript

The Economy of Europe

Europe, much like the United States, is a free market economy based on the movement of capital. The economy of Europe has a GDP (Gross Domestic Product) of around 20 trillion US dollars, and includes more than 700 million people in almost 50 different countries. The largest economy of Europe is Germany, followed by France, followed by the UK.

Europe is a continent containing many different countries, all with their own economic policies and systems. But there are certain ways that the countries of Europe combine together to strengthen their economy. One way is called the European Union (EU), which is a political and economic union of 28 European countries, allowing those countries to work together on political and economic issues, including the promotion of free trade between member countries. Workers, products, and capital can move freely inside the European Union, which allows the free market to work more efficiently.

Another way the countries of Europe work together is that many of them have switched to a common currency, called the euro. This makes exchange and trade even easier, and exchange rates are no longer a factor. However, the downside is that monetary policy is set for the whole eurozone, which means that decisions made by the European Central Bank can be good for some countries and not so good for others. Not all the countries of Europe use the euro as their currency. In fact, not even all members of the European Union do. Deciding whether to switch currencies to the euro is a choice for individual countries to make.

Unsurprisingly, Europe trades the most internally, but there is also a lot of trade between European countries and China, the United States, Japan, and Russia.

Economic Sectors of Europe

Since Europe is such a large area with so many different economies, it is hard to summarize the economy of Europe, but we can look at major sectors of the economy and where they are mostly located.

Agriculture is a major part of Europe's economy. The EU subsidizes farming in order to make their products more competitive and keep the agriculture industry afloat. This is controversial because it goes against the idea of free trade, but it is very common - the United States also subsidizes farmers. Farming remains extremely important to some countries in the EU. France, for example, has a large agriculture economy and would suffer greatly without the EU's protections.

Manufacturing is also important in the EU. Industry in general, including manufacturing and construction, accounts for 25.2% of the EU's GDP. Europe is the world's largest car manufacturing region, creating jobs for 12.9 million people. But there are many other active industries, including aerospace, defense (vehicles, ships, etc.), electronics, chemicals (especially petrochemicals and polymers), and biotechnology.

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Frequently Asked Questions

What is the main economy of Europe?

The European continent has a free-market, capital-based economy. This means there is a free flow of goods and services in these markets, with minimal trade barriers.

What type of economic system does Europe have?

The European economy is a system made of internal markets of mixed economies which function on various social models. For example, the economic system involves one single market, and free movement of all factors of production.

What is Europe's strongest economy?

The strongest economy in Europe is Germany. As of 2021, the country had a GDP of $4,222,972 million, making it the fourth biggest worldwide.

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