The EU's single market is underperforming – we have to change that!

The EU's single market and its contribution to the Union's competitiveness are once again at the centre of interest in Brussels. That is not something new. Efforts to improve the now over 30-year-old single market have been ongoing for a long time. Despite this, the single market continues to underperform.

Director-General Anders Ahnlid

A few years ago, the European Commission estimated that the EU could create an additional €700 billion in growth during the 2020s if the single market's rules for trade in goods and services were truly followed.

Recently, Italy's former prime minister Enrico Letta presented another report with proposals on how the EU can strengthen its competitiveness.

The influential business organisation, the European Roundtable for Industry, notes that ‘the integration of the EU's single market has stagnated’ and therefore demands that the European Commission prioritise remaining obstacles. At their latest meeting in the European Council, the EU's 27 heads of state and government decided that a new horizontal single market strategy should be developed and completed by June 2025 at the latest. Good! But now it is also important to move from words to action.

A crucial starting point must be to establish a clear understanding that increased competitiveness is about increased productivity.

What should such a strategy contain to make a real difference? And how can it ensure that the single market delivers growth as a means to defend our way of life, facilitate the climate transition, and ensure continued prosperity? A crucial starting point must be to establish a clear understanding that increased competitiveness is about increased productivity.

Unfortunately, this is not self-evident in the EU debate, as too many influential stakeholders seem to believe that competitiveness is best achieved by protecting European companies from foreign competition. This is simply not the case. Economic research clearly shows that import and competition are crucial for increasing productivity – and thus competitiveness.

So, what should be considered in the work to develop the new strategy?

See the big picture!

The four freedoms of the single market are currently regulated in different ways and from different angles. In recent years, sectoral regulations have overshadowed horizontal regulations. Telecommunications, which are essential for the digital single market, are regulated separately, for example, from the sale of digital products and the flow of data. State aid and public procurement have their own regulatory systems that do not necessarily harmonise with other horizontal rules for competition and free movement of goods and services. Within this context, a more powerful and cohesive – horizontal – action is needed.

Improve compliance!

Year after year, survey after survey has shown that EU countries would have much to gain if the existing rules of the single market were followed. But far too often, this is not the case. This is especially true for trade in services, which repeatedly suffer from measures that violate the rules of the single market. Currently, the Commission alone is tasked with monitoring compliance. It is an overwhelming task.

It would be better to have national authorities in member states assist the Commission. The National Board of Trade has advocated that solution for some time. The Commission and the Letta report have now put forward the idea of establishing national ‘single market offices’ in all member states for this purpose. That would be a step in the right direction.

Keep the door to the outside world open!

In recent years, the EU has acquired several instruments whose purpose or effect is to restrict access to the EU's single market for imports from countries outside the Union. Of course, it is legitimate to take measures to avoid becoming unilaterally dependent on strategic goods from countries that intend to use trade as an economic weapon. Dependence on natural gas from Russia is one such example. Similarly, there may be reason to intervene when imports originate from countries that unfairly favour their own companies at the expense of EU companies – thereby undermining competition. However, beyond that, it is crucial for the EU to continue to be open to trade with the rest of the world, even if the US or China are not...

Do what works!

Make trade policy evidence-based again! This is an important message from the National Board of Trade. There is nothing as practical as good theory. Thanks to findings in economic theory and trade theory, we know which measures contribute to productivity and competitiveness. Therefore, the EU should only implement measures that pass a productivity or competitiveness test. This is a challenging task when countries like China and the US are moving in the opposite direction. We know that the EU has nothing to gain from engaging in trade or subsidy wars. This is an important guiding principle as the future of the EU's single market takes shape.

So, what is needed in order for EU to become more successful?

There is no doubt that the task of creating a single market that increases the productivity of the EU's member states, and thus their competitiveness, is difficult. There are still strong forces working in the opposite direction. But in these critical times, an argument for overcoming these forces should gain strength: the EU must create more resources to continue supporting Ukraine against Russia's barbaric attack, sufficiently equip itself, manage the green transition, and secure our welfare. The solution for the EU is to increase productivity across member states so that these resources are truly realised.

 

Anders Ahnlid
Director-General 

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