The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the EU’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the EU – killing two birds with one stone.
It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the EU all the way back in 1957? Did the EU not complete the single market in 1992? And wasn’t a directive pledging free trade in services passed in 2006?
Well, yes and no. Free trade is not just about lifting intra-EU tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.
That is why the job of freeing up the EU’s internal market is still far from complete. Even the services directive covered only sectors that account for a bit more than 40 percent of gross domestic product. Areas like energy, transport and telecoms were left out. The legislation was also diluted so that even companies operating in the areas supposedly covered often have to go through lots of hoops to provide services in other countries. What’s more, the rules are often not enforced.
Services account for 70 percent of EU GDP, but only 22 percent to 23 percent of intra-EU trade. The EU is also notoriously inefficient in their provision. This is a big reason the region is poorer than the United States.
Liberalising services would spur competition. That would push down prices – benefitting ordinary consumers, enhancing the competitiveness of businesses and saving money for hard-pressed governments. Innovation, investment and jobs would rise. An ambitious liberalisation would increase EU GDP by up to 2.3 percent, or 294 billion euros, according to the think-tank Open Europe.
There should be two priorities for a new single-market push. First, services companies should be given a “passport” to operate anywhere in the EU provided they are properly authorised at home. This idea, advocated by Open Europe, would get rid of thousands of barriers in one fell swoop.
Meanwhile, a passport would mean there would be less need to rely on the European Commission to make sure national governments were properly enforcing detailed rules. The provision of cross-border online services, vital for the future but currently tangled in a mass of regulation, would also get a fillip.
The second priority should be to extend the services directive to areas it does not cover – mainly energy, transport and telecoms. These networks are the economy’s arteries and nervous systems. But it is absurd, for example, that a road hauler taking goods from Spain to Belgium is not allowed to pick up freight in France on the way.
Vested interests, especially in traditionally illiberal France and conservative Germany, will not like liberalisation. Some French will argue that national rules are needed to protect consumers from poor-quality services from abroad – even though their companies happily provide electricity, public transport and waste management in liberal Britain. Some Germans will say their apprentice system ensures youngsters are trained to become masters of crafts like plumbing and working as an electrician, keeping quality high.
The counterargument is that consumers benefit hugely from choice. Not everybody wants, or can afford, the plumbing equivalent of a BMW. If Germans really provide better-quality services, they should be able to sell them as an upmarket product in other countries. But why should local consumers not be able to use cheap Polish plumbers if they prefer?
Competition between different ways of providing the same service would invigorate the EU economy. Of course, consumers would need to be protected. But that could best be achieved by being transparent about where the service provider is based and swift remedies for shoddy service.
If these economic arguments do not bite, a couple of political points could sway the day.
First, peripheral euro countries are being forced to open their markets as a condition of their rescue packages. Germany has been the high priest, preaching the virtue of enhanced competitiveness. How fair then is it to keep its own markets closed? Liberalisation would encourage Germans to spend more money on services – something that would help drag the periphery out of recession, not to mention helping eastern Europeans catch up with their western cousins.
The second political argument concerns Britain. It has one foot out of the EU exit door. But it has long been a champion of the single market and excels at services. An ambitious scheme to deepen the single market could, therefore, be used as a powerful argument for staying in during a future referendum. Given that Germany does not want Britain to quit, this would be a way of achieving its goal without giving the UK any special treatment.
The original 1992 programme was pushed through by a British single market commissioner, Lord Cockfield, backed by a British prime minister, Margaret Thatcher. David Cameron should attempt to repeat the trick. He should aim to get another vigorous Briton in as single market commissioner when a new Commission is chosen next year. And he should secure agreement from fellow leaders to set a deadline – say, end-2019 – to complete the single market.