Comment: A diluted services directive will still be crucial. By Stuart Popham

In the battle for the soul of Europe, the services directive, which aims to increase competition in the services sector, has been playing a leading role. It has aroused passions on Europe's boulevards in a way that few European Union proposals in recent years have. It is estimated that 50,000 people demonstrated against the directive on Strasbourg's streets in February before a crucial vote. Furthermore, as a mark of the hostility it has generated, it has been dubbed the "Frankenstein directive" in honour of one of its sponsors, Frits Bolkestein, the former internal market commissioner. More famously, perhaps, the directive was seen by some as a factor in the rejection of the European constitution in the French referendum of May 2005.

In spite of vehement opposition in parts of Europe, the directive, which receives its second reading in the plenary of the European parliament today, is a significant step for economic dynamism in Europe. Those who wish to see Europe overcome inertia and embrace reform have been strengthened by this development. There is some disappointment that the directive was diluted from its original draft in February this year but this should be tempered by recognition that the historic measure will make a real difference to business. The business community is accustomed to dealing with the pragmatic rather than the ideal, and that is what this measure represents.

A YouGov poll of FTSE 250 business leaders this year showed 68 per cent backing liberalisation reforms and only 8 per cent not backing them. There is relative consensus in parliament, too, about the importance of the directive, and the UK's push for a robust directive has gained support from some other member states. This year the UK, along with the Netherlands, Spain, Poland, the Czech Republic and Hungary, called for the services directive to lead to a "truly functioning internal market".

The gains from unleashing free market forces in the services sector will be immense. The services sector is the main component of the modern European economy, accounting for 70 per cent of gross domestic product. There are significant barriers to services trade in Europe, which mean it accounts for only 20 per cent of trade in Europe. This imbalance needs urgent attention.

The directive will enable a British management consultancy to serve clients in Finland or a Hungarian advertising company to offer services to German clients. The result will be an increase in economic relationships across Europe. Evidence suggests the directive will create an additional 600,000 jobs in the EU and significantly enhance economic growth. A study by Copenhagen Economics showed that such liberalisation would add €37bnto the European economy.

It is therefore baffling that people oppose something that is sure to create numerous new jobs, and also peculiar that a country such as France, whose strong services sector stands to win, should lead opposition. People who really care about the unemployed and social Europe would back free movement of services.

Services liberalisation will form a cornerstone of an effective single market. The idea of a single market in services was first floated in the Treaty of Rome in 1957. It would be opportune as we approach the 50th anniversary to make progress towards an authentic single market, particularly as the European Commission is committed to carrying out a review next year.

The directive will act as a catalyst to further European growth. The UK has a special interest here, with its strength in sectors such as retail, financial services and creative industries. Recent figures suggest the UK economy consists of 76 per cent services and just 23 per cent industry. As Alan Blinder, the Princeton economist, reminds us, we are living through the third industrial revolution. The first involved the shift from farm to factory, the second from manufacturing to services and the third from services to knowledge. The second and third revolutions are happening before our eyes. Europe cannot ignore them and must adapt to the changing realities.

The services directive is important for the European economy but not only that. It symbolises the changing nature of the EU and in particular, the European Commission. Perhaps it will set down the marker for a future directive that is even stronger, once apprehensive countries see the benefits. But for now, it is what is on the table and it embodies opportunities being created in the "new Europe".

The writer is senior partner of Clifford Chance and a member of the advisory council of Business for New Europe