The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the Union’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 Union, 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 European Union all the way back in 1957? Did the Union not complete the single market in 1992? And was not a directive pledging free trade in services passed in 2006?
Well, yes and no. Free trade is not just about lifting intra-E.U. 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 Union’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 telecommunications 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 is more, the rules are often not enforced.
Services account for 70 percent of E.U. G.D.P., but only 22 percent to 23 percent of intra-E.U. trade. The Union is also notoriously inefficient in provisions for services. This is a big reason the region is poorer than the United States.
Liberalizing services would encourage competition. That would push prices down, benefiting ordinary consumers, enhancing the competitiveness of businesses and saving money for hard-pressed governments. Innovation, investment and jobs would rise. An ambitious liberalization would increase G.D.P. as much as 2.3 percent, equivalent to €294 billion, or about $390 billion, according to the research organization 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 Union provided they are properly authorized 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 telecommunications. These networks are the economy’s arteries and nervous systems. But it is absurd, for example, that a company carrying goods by road 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 liberalization. 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 that youngsters are trained to become masters of crafts like plumbing and work with electricity, 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 low-cost Polish plumbers, for instance, if they prefer?
Competition between different ways of providing the same service would invigorate the E.U. 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? Liberalization would encourage Germans to spend more money on services — something which would help drag the periphery out of recession, not to mention helping East Europeans catch up with their Western cousins.
The second political argument concerns Britain. It has one foot out the door of the Union. But it has long been a champion of the single market and excels at services. An ambitious program 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 Britain any special treatment.
The original 1992 program 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, the end of 2019 — to complete the single market.
Hugo Dixon is editor at large of Reuters News.
Article source: http://www.nytimes.com/2013/07/29/business/global/eu-market-needs-to-be-opened-up-more.html?partner=rss&emc=rss