The EU is defined as the 28 nations within Europe that share a single market, but not a single currency, government, or central bank. The Eurozone is the collective name for the 19 of those nations that currently use the euro as their currency, and the European Central Bank (ECB) serves as the central bank for these countries. This group includes (in order of size of their respective economies):
• Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Greece, Finland, Portugal, Ireland, Slovakia, Luxembourg, Slovenia, Lithuania, Latvia, Estonia, Cyprus, and Malta.
The 9 nations that are members of the EU, but do not use the euro or the ECB (again, arranged by the size of their economies) are:
• The United Kingdom, Sweden, Poland, Denmark, the Czech Republic, Romania, Hungary, Bulgaria, and Croatia.
Although sharing some of the economic and trade linkages with the 19 nations that use the euro and the ECB, each of these 9 nations has its own currency and central bank.
To make matters even more confusing, Switzerland, Norway, Iceland, and tiny Lichtenstein are also European nations with sizable economies, but are not members of the Eurozone (19 nations) or the EU (28 nations) and also have their own currencies and central banks. These nations share many of the “four freedoms” of the EU, but don’t have a say in the European Parliament to make any of the rules governing the movement of goods, services, capital, or people.
The nearby infographic puts the population, size, and indebtedness of the EU, Eurozone, U.K., and U.S. in perspective. It also shows that exports are a much bigger part of the economies of the Eurozone and EU than either the U.S. or U.K., which may help to influence the coming Brexit negotiations between the EU and the U.K. The U.S. runs an overall trade deficit with the EU and the Eurozone, but runs a large trade surplus on the service side, or what we like to call good old American know-how. We export far more financial, legal, education, and travel services to the EU than we import, and we send the EU far more intellectual property, entertainment, and TV broadcast rights than we import. Our large trade surplus on good old American know-how is likely to persist regardless of the outcome of Brexit, aided by the fact that the U.S. spends 40% more (as a share of GDP) on research and development than the EU, and nearly 75% more than the U.K.
John Canally is chief economic strategist for LPL Financial.