The formation of the European Union (EU) is the one of the biggest political – economic events of the last 50 years. EU development and optimization process is still incomplete, with still evolving EU economic foundations and financial system. The aim of this study is to develop EU economy functioning system dynamic model, taking into account the main economic indicator changes of EU countries since the EU enlargement. The paper focuses on such indicators as GDP, employment, public debt, and reflects its dynamics in periods of the years 1995, 2004 and 2010. The study uses traditional mathematical, statistical and economic analysis methods, such as data grouping, comparison, average level and trends detection, regression method, as well as visual analysis (graphical) method. Main research method is system dynamics. Study result – author divides EU countries into several groups based on their economic specifics (it is possible to use similar development politics for these groups). For these groups within the paper, EU economy system dynamic model is developed. Model is tested only for one EU country, Latvia. The results from the paper show failure of the mechanism of EU operations: the available mechanism contradicts EU principles; it doesn't promote the cohesion in European Union, but quite opposite - leads to solving problems of well-developed EU countries at the expense of developing countries. In the given conditions, the example of Latvia shows that there is no possibility to overcome the system crisis. These circumstances specify a necessity of changes in EU internal migratory policy, changes in principles of developing countries’ support in EU, and changes in distribution of EU means, taking into account internal migration.