Political system and functioning
The areas of competence and authority of the European Union (EU) are defined by treaties jointly negotiated by all member states. The functioning, competences and voting procedures vary according to policy area. In particular, matters concerning the European single market and monetary policy for the eurozone are under EU competence. The EU is funded through a combination of member state contributions, value added tax revenues and import duties.
As a supranational alliance of sovereign states, the EU cannot define its own areas of competence and authority. These are delegated to it by the member states. EU institutions can act in only those areas that have been explicitly mentioned in the treaties, also referred to as primary legislation. This corresponds to the principle of conferral.
The legislative procedures of the EU are derived from this principle. EU regulations apply to all member states. The member states must incorporate EU directives in their national laws. The Court of Justice of the European Union is the final authority on the interpretation of EU legislation.
By virtue of the legal personality it acquired after the coming into force of the Lisbon Treaty, the EU can be a signatory to international agreements, although this requires a decision of the Council of Ministers and the consultation or assent of Parliament. The EU can enter into diplomatic relations with other countries through the European External Action Service (EEAS) and can apply for membership to international organisations.
EU law and national law
The functioning, competences and voting procedures vary according to policy area. In instances where by virtue of the treaties, the EU is responsible for legislation in a particular area, the legal instruments adopted by the Commission, Council of Ministers and Parliament are legally binding on the member states and take precedence over national law.
In other areas, such as the Common Foreign and Security Policy, cooperation is merely coordinated at an intergovernmental level. The decisions of the European Council are principally unanimous. Although not legally binding, they are politically binding on the member states. The European External Action Service (EEAS) is responsible for implementing the decisions.
In areas where the EU is not competent to legislate, informal consultations are held within the Council of Ministers and the Commission. These result in non-binding recommendations and guidelines.
The EU's areas of competence
According to the treaties, the European Union has exclusive competence in the areas of customs union, the rules governing competition within the single market (and its four freedoms), monetary policy for member states of the eurozone, the common fisheries policy for conserving marine biological resources and the common commercial policy.
Areas where competence is shared between the EU and its member states include the single market, aspects of social policy, agriculture and fisheries, environment, consumer protection, transport, energy, research and creation of an area of freedom, security and justice.
The member states remain responsible for areas where they have not transferred powers to the EU, unless they are unable to achieve the proposed objectives (principle of subsidiarity).
The EU may coordinate, supplement or support activities that member states are responsible for, such as culture, tourism, civil protection as well as education, vocational training, youth and sport. The member states, moreover, are obliged to coordinate their economic policies within the EU.
The EU cannot itself impose taxes or levies. Instead, its three main sources of revenue are: membership contributions by EU states, a percentage of the member states' value added tax revenues and import duties levied at the EU's external borders. As opposed to its member states, the EU must present a balanced, zero debt budget. The European Parliament and the Council of Ministers share equal responsibility for adopting the EU's budget every year. Both institutions also decide on a binding financial framework for a period of seven years.
About 90% of budget revenues flow back to the member states. The EU strives to narrow the gap in prosperity between individual
EU countries. This results in conflicts between net contributors and net recipients, both with regard to the revenue as well as expenditure side of the budget. The majority of EU spending is allocated to agriculture, rural development and economic, social and territorial cohesion, and research and education.