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The authors examine the relationship between the economic and social policies of the European Union in the context of the Union's position in the world economy. As the world's largest trading bloc, the EU plays a role alongside the USA and Japan in helping to determine the character and evolution of the world economy. At the same time, developments in the world economy, particularly the trends towards increasing international competition and globalization, have an enormous impact on developments within the EU. The authors discuss the impact these changes are having on the relationship between the Union's economic and social policies, and demonstrate that the EU cannot be understood in isolation from the world economy.