Single market barriers mean a huge loss to the collective public good for Europe

The single market has been a source of wealth and cohesion for the EU; it makes perfect sense. It is still fragmented, and this has a huge cost, but we have many tools to make it work and slash the costs of non-Europe.

"What are the real macro-economic effects of the single market? What are the benefits of further deepening it and what are the areas the EU should focus on? What are the most common barriers to doing this and how can we tackle them?"

These were the questions the EESC set out to answer in its opinion on The cost of non-Europe – the benefits of the single market, adopted at its July plenary session. The opinion was drawn up in response to a specific request from the incoming Czech presidency of the EU, which has made deepening the single market one of its priorities. These were the EESC's findings:

What are the real macro-economic effects of the single market?

On the eve of its 30th anniversary, the internal market remains incomplete. Indeed, during recent crises, be it the COVID-19 pandemic or the fallout from the Russian aggression against Ukraine, it has at times come dangerously close to collapse.

However, there is no doubt than even an incomplete removal of the barriers to the movement of goods, services, capital and people has brought economic growth and a measure of economic and social cohesion. But for the EU economy to be competitive and resilient in today's world, the outstanding barriers must come down.

What are the benefits of further deepening and what areas should the EU should focus on?

One way of answering this question is by looking at the costs of, or lack of gains from, an incomplete single market.

In 2019, fragmentation was costing the EU EUR 990 billion. Doing away with 50% of the obstacles to the free circulation of services would add EUR 279 billion per year to our collective GDP, while an 80% reduction would generate an extra EUR 457 billion. As for the circulation of goods, dismantling the outstanding hurdles would bring the bloc between EUR 228 and 372 billion a year.

The digital single market, if fully integrated, would contribute EUR 415 billion per year to the EU economy and create hundreds of thousands of new jobs, while a full transition to e-procurement could generate between EUR 50 and 75 billion a year.

All this points to the significant potential economic benefits – and associated welfare benefits – that could have been provided by a more complete single market, says Philip Von Brockdorff, rapporteur for the EESC report. Put differently, this represents the total economic cost or lost added value and collective public good of non-Europe.

What are the biggest barriers to the single market?

A number of outstanding barriers are due to an incorrect or incomplete application of EU legislation, and Member States to this day applying national technical rules that run counter to the goals of the single market.

While on paper roughly 82% of products traded in the single market are subject to harmonised rules and 18% fall under mutual recognition (whereby any good lawfully sold in one EU country can be sold in another even if not fully compliant with the latter's technical rules), the fact is that 71% of SMEs that have applied for mutual recognition for non-harmonised goods have been denied market access.

There is also a great deal of "goldplating", with Member States adding a number of extra obligations when transposing an EU directive into national law.

Another area of concern is national measures pre-empting planned EU regulation, such as national certification, particularly in the agri-food sector. In the EESC's view, such restrictions are outright protectionist, but when they are brought to light, withdrawal is often slow and burdensome and restrictions for retailers remain in place for too long.

Infringement procedures are lengthy and expensive, and the outcome is uncertain. For businesses, this is a disincentive to expanding or investing elsewhere in the EU. For consumers, it means less of everything: less choice, a lower quality of service and less pressure on prices.

Despite the 2018 Geo-blocking Regulations, there are persistent territorial supply constraints (TSCs) in Europe, which take different forms, such as refusing to supply or threatening to stop supplying a particular distributor; limiting the quantities available for sale by Member States; inexplicable differences in product ranges and prices between Member States; and limiting language options for product packaging.

An additional weakness is the Capital Markets Union (CMU), which is still a distant goal, with European savers and investors depending heavily on national environments.

Finally, data suggest that mobility both between and within countries remains low in the EU. This translates into insufficient labour supply and mismatches in sectors such as IT and high-tech industries.

…And how can we tackle them?

"How can we solve this? Is it a question of financing? Not really. Last April, the Council got a EUR 4 billion budget to do away with fragmentation and reduce the costs linked to this issue", says Emilie Prouzet, co-rapporteur for the EESC report. "This is a huge paradox: we establish a budget in the Council to motivate those who are responsible for the fragmentation not to fragment. Notifications, regulations, maximum harmonisation… we have the tools to make the single market work and reduce the cost of non-Europe."

In its report, the EESC recommends the following action:

• Applying existing tools more effectively. National legal texts that can potentially hinder the internal market must be notified to the European Commission and commented upon and evaluated prior to adoption. Without such a commitment from the Member States, the procedures in place will remain ineffective. The Commission, on the other hand, needs to ensure more effective market surveillance in support of harmonisation across the Member States.
• Enhanced cooperation. Instead of restrictive national measures such as certification, the EESC believes that Member States should opt for "enhanced cooperation", allowing Member States that so wish to share the same rules on products and services.
• European semester. Through the European semester, the Commission could envisage suspending EU funds to countries that do not fall into line with the specific recommendations it addresses to them in this area.
• Competition policy to address TSCs. Supply constraints linked to the war in Ukraine, particularly for commodities such as grain, are best addressed by relying more on joint procurement and production strategies. A good example has been the joint purchase of gas.
• Infringement. The Commission should apply infringement procedures more vigorously.
• Mobility incentives. The EESC recommends national policy measures providing mobility incentives, with active labour market policies such as in-work benefits and host countries offering financial incentives to jobseekers from other Member States.

Finally, the EESC says there needs to be a strong political will to do more to remove all of these restrictions.

To learn more

Read the EESC opinion The Cost of non-Europe – The benefits of the single market