The Long Road Towards the European Single Market

Written by | Tuesday, June 9th, 2015

Mario Mariniello, André Sapir and Alession Terzi (Bruegel)

The single market is often perceived as a panacea to all of Europe’s economic problems. It presupposed that its completion would stimulate growth and increase well-being as well as competitiveness. However, the impact of the single market on productivity and growth is smaller than expected. Many researchers, especially those from the European Commission, have pondered the question of how far the EU is from the single market. The completion of the single market is hindered by persisting barriers or the lack of creative destruction and policies needed to support its effective functioning.

The differences between the transposition and the implementation of laws among the Member States are steadily declining. However, when it comes to the cost of labor, they are decreasing very slowly and only in certain industries. As a result, the convergence of real GDP per capita does not occur and the EU is thus proceeding towards ‘a multi-speed Europe’. The most significant effect of the European economic integration is the unification of prices in Member States. This development is the result of a low inflation in countries with high income and the competitive pressures coming from the European and world markets. In the countries of Central and Eastern Europe, income per capita and the quality of production increased, thanks to which they are now close to the European average. But as long as different taxation and regulations across the EU persists, these differences will remain. In addition, there is also the gradual expansion of the EU and the different attitudes among European political elites towards the implementation of single market measures.

Although the EU prohibited the internal custom duties already as early as in 1968, different regulations among the Member States remain, which in turn increases the cost of cross-border traffic, lowers interoperability and undermines economic competition. A full liberalization of services could, for example, lead to the increase of the GDP by 0.3-0.7 percent, and this is projection even excludes possible implications for long-term growth trends. Even a total elimination of barriers would not automatically lead to the creation of a true single market, which is demonstrated by the full liberalization of the free movement of capital and the free movement of workers. To ensure its effective functioning, it is necessary to implement a number of additional policies at the national as well as European levels, which will guarantee the implementation of all four freedoms. Included among these policies are the rules on migration and asylum, the recognition of academic and professional titles, pensions, procurement, health, security, etc. However, all of these arguably constitute a sensitive issue of national sovereignty. Until they are implemented, the European market will stay fragmented and will not bring the promised growth and prosperity.

(The study can be downloaded here)

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