The Single Market – the UK can give it a second wind, and help Europe grow
Phillip Souta
“What we need are strengths which we can only find together … We must have the full benefit of a single large market.” These are the words of Margaret Thatcher, spoken in 1986 as Prime Minister, emblazoned on the first page of Mario Monti’s report, published this May, on “A New Strategy for the Single Market”.
The publication last Friday of stress tests of 91 banks, and the generally favourable market reaction this week to the results, marks a watershed for the Eurozone – it has survived the biggest crisis that is has faced, and dealt with the immediate challenges of first, not breaking up and second, finding ways to shore up the finances of its more troubled members.
The challenge now moves into the medium and long term: can the “at risk” Eurozone economies like Greece, Spain and Portugal follow through on the promises they made to save their economies at the height of the crisis now that the pressure is off? And beyond that, how does Europe achieve the holy grail of growth and jobs despite the negative effects that the forthcoming austerity measures will have on demand? Is it even possible?
In an irony of ironies, perhaps Margaret Thatcher has the answer: the single market. Monti’s report is timely, and suggests that “making the single market more efficient is Europe’s best endogenous source of growth and job creation”, given the “very limited margins available for budgetary stimuli”.
As we appear to leave the short-term risk to the Eurozone behind, we can take stock for a moment. The Lisbon Treaty has been passed – the culmination of ten or so years of wrangling – and there is no big-bang enlargement on the horizon. Politicians are looking for ways of kick-starting their economies, to help produce the growth which in turn could take the edge off some of the more extreme demands of fiscal austerity.
Britain has an opportunity to push for the true completion, and expansion of the single market. It would be doing itself, and the rest of Europe a favour.
The Single Market didn’t fragment during the financial crisis. That is an encouraging sign of its strength, and we need to build on that. There is a consensus that we need a digital single market, completion of the single market in goods and services (especially services), better labour mobility and investment in infrastructure. The question is how that is achieved in a climate of scepticism towards markets in many member states.
A recent report by Copenhagen Economics suggests that the EU could gain 4.1% growth in GDP by 2020 if a digital single market was established. This would be worth some €500 billion to the EU’s economy. It would involve a number of things, from the implementation of EU copyright laws to ending the fragmentation of EU consumer legislation. Then there is the services sector, which accounts for 70% of the EU’s GDP, and is according to the Monti report the EU’s only area of net job creation. Only 20% of EU services are cross border, and our productivity is 30% lower than the USA’s. The services directive needs to be fully implemented to allow us to take advantage of the clearly significant potential to grow in this area.
Monti sketches the outline of a possible grand-bargain, whereby “Member States with a tradition as social market economies could be more prepared to a new commitment on fully embracing competition and the single market” if “Member States in the Anglo-Saxon tradition show readiness to address some social concerns through targeted measures, including forms of tax coordination and cooperation”. This is an attempt to clear the current logjam, but some on the “Anglo-Saxon” side may question whether the basic enforcement of agreed rules should be subject to bargaining and negotiation – grand or otherwise. If we need to effectively bribe countries to do what they’ve promised, what hope do we have?
The UK, as Mario Monti would put it, can be the “new engine if market integration in the EU”. This is an area where we can and should lead the rest of Europe. It will take persuasive advocacy and a level of engagement in the EU which would be a step us from the current expressions of pragmatic cooperation.
