SUMMARY The main consideration of this paper is to measure economic performance of European Union (EU) due to economic integration theory. The theory of economic integration refers to the commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together. Economic integration is concerned with the discriminatory removal of all tradeimpediments between participating nations and with the establishment of certain elements of co-operation and co-ordination between them. These elements depend entirely on the form that integration takes. The types of economic integration are national integration, international integration and global integration. National integration defined as the elimination of regional variances to provide consistent and similar economic structure throughout the country. International integration defined as economic integration of countries gathered in a specific geographical area. Global integration defined as eliminates trade barriers between whole world nations and instruct global economic integration within these nations. The degree of economic integration ranges from free trade areas to customs unions, common markets, economic integrations and complete economic integrations. A free trade area is the form of economic integration wherein all barriers are removed on trade among members, but each nation retains its own barriers to trade with nonmembers.A customs union allows no tariffs or other barriers on trade among members, as in a free trade area, and in addition it harmonizes trade policies, such as the setting of common tariff rates, toward the rest of the world. A common market goes beyond a customs union by also allowing the free movement of labor and capital among member nations. An economic integration goes still further by harmonizing or even unifying the monetary, fiscal, and tax policies of member states. This is the most advanced type of economic integration. Complete economic integration differs from economic integration. The difference is the unification of financial markets of related countries and the establishment of new institutions which are purely authorised for economic stabilisation. Complete economic integration makes impossible for the member countries to pursue independent monetary and interest rate policies.for the fulfilment of complete integration, compliance of makro economic policies, only one central bank and one type of money are taken into consideration. The static, partial equilibrium effects of forming a customs union are measured in terms of trade creation and trade diversion. Trade creation occurs when some domestic production in a nation that is a member of the customs union is replaced by lower cost imports from another member nation. Assuming that all economic resources are fully employed before and after formation of the customs union, this increases the welfare of member nations because it leads to greater specialization in production based on comparative advantage.Trade diversion occurs when lower cost imports from outside the customs union are replaced by higher cost imports from a union member. This results because of the preferential trade treatment given to member nations. Trade diversion, by itself reduces welfare because it shifts production from more efficient producers outside the customs union to less efficient prducers inside the union. Thus, trade diversion worsens the international allocation of resources and shifts production away from comparative advantage. A customs unions is more likely to lead to trade creation and increased welfare under the following conditions: First, the higher are the preunion trade barriers of member countries. Second, the lower are the custom union's barriers on trade with the rest of the world. Third, the greater is the number of countries forming the customs union and the larger their size. Fourth, the more competitive rather than complementary are the economies of member nations. Fifth the closer geographically -are the members of the customs union. Sixth, the greater is the preunion trade and economic relationship among potential members of the customs union. Besides the static welfare effects, the nations forming a customs union are likely to receive several important dynamic benefits. These are due to increased competition, economies of scale, stimulus to investment, and better utulization of economic resources. The greatest dynamic benefit from the formation of a customs union is the increased competition that is likely to result. That is, in the absence of a customs union, producers are likely to grow sluggish and complacent behind trade barriers. But when a customs union is formed and trade barriers among member nations are eliminated, producers in each nation must become more efficient to meet the competition of other producers within the union,merge, or go out of business. The increased level of competition is also likely to stimulate the development and utilization of new technology. Second possible benefit from the formation of a customs union is that economies of scale are likely to result from the enlarged market. Another possible benefit is the stimulus to investment to take advantage of the enlarged market and to meet the increased competition. These dynamic gains resulting from the formation of a customs union are presumed to be much greater than the static gains. The definition of monetary integration describes a set of monetary characteristics which implicitly involves the as if assumption that there exists a single currency throughout the union. It follows, therefore, that a monetary integration is compatible with member countries retaining their national currencies. For the as if assumption to be satisfied it is necessary, but not sufficient, that; there be no restrictions to the movement of capital across the integration, member countries' financial sectors be perfectly integrated. Monetary integration has two essential components; an exchange rate and capital market integration. An exchange rate integration is established when member countries have what is, in effect, one currency. Convertibility for capital transactions is related to free factor mobility and is therefore an important aspect of capital market integration which is necessary in common markets. Monetary integration takes place when an exchange rate union is accompanied by capital market integration. In practice, definition of monetary integration should specifically include; an explicit harmonisation of monetary policies, a common pool of foreign exchange reserves, a single central bank. To have better comprehension on the impacts of economic integration, it will be worthy to generate some simple ratios. On the other hand, to identify howk economic integration effects EU, export capacity of EU in the world trade and the volume of import and export executed among the member countries will be studied. After all these analysis of what the economic integration changed in EU and in member countries, it is concluded that economic integration was successfully completed and effect member countries positively. Another evidence of EUs prosperity is increasing share of trade volume in the world. It is also traceable to prove the economic triumph by looking at the ratios of total trade among EU countries to ELTs trade with other countries. These ratios generally stand above 50%. It means EU countries carry out more than 50% of the trade among themselves. This improvement indicates that the integration process has been approaching the basic targets of establishment goals. Therefore, EU*s negotiation power looks enlarging and getting solid in the world economic configuration. Even though the negative consequences of integration have been observed through the first couple of years, adventages of integration created positive results in favour of member countries for the following years. Some of the member countries have been backed by financial aids to adjust to changing conditions. This simply points out the gratification and power of integration. /
