Rebooting the Single Market: The Top Priority for Eu Growth

Realising the potential for jobs and growth

This year, 2012, heralds the twentieth anniversary of the 1992 Single Market programme. The Single Market has been at the heart of the European Union since the 1950s. It is seen by many as the EU's greatest economic achievement, having created millions of new jobs and significant economic growth since its creation. However, after so many years, the full economic potential of a true Single Market has yet to be realised. Former European Commissioner Frits Bolkestein, in presenting a report on Single Market progress to the European Parliament (EP) during his term of office, described it as ‘driving a Ferrari in second gear’ (European Commission 2003). Arguably developments since then, notably the Services Directive which he promoted, have pushed the ‘Ferrari’ into third or even fourth gear. But the latest Ferraris now have seven gears! Technology and competition are making the task of realising the potential of the Single Market more complex and more urgent.

The European Commission has warned that the EU economy could grow at just 1.5 % per year over the next 10 years unless there is a step change in our competitiveness. Compare Europe's sluggish growth with the dynamism of the BRIC countries: Brazil is growing at 4.1 %, India at 8.2 % and China at 9.5 %. Unless we really do harness the potential of the Single Market, Europe will not sustain its competitive advantage and enhance its position as a global player alongside the US and China.

But enhanced competitiveness is not the only compelling argument for relaunching the Single Market. Europe desperately needs growth and jobs as part of a sustained drive for economic recovery. The potential is huge. In excess of 500 million consumers across the EU generate €12 trillion every year in what is the world's largest marketplace. It has been estimated that the liberalisation of services and the creation of a digital Single Market could add more than €800 billion a year to the EU economy. That is equivalent to more than €4,000 for the average EU household each year (UK Government 2011, 4).

The need to reform financial services legislation and economic governance has preoccupied European leaders since 2009. There has been an understandable focus on the need to stabilise the eurozone. But attention is now shifting to the policies needed for sustained growth and long-term competitiveness. Relaunching the Single Market—or ‘rebooting’ it for the digital era—is now the top growth policy objective for the European Council (European Council 2012, section 3). The European Commission has worked closely with the EP to put in place the policy initiatives for this reboot. In 2009, Commission President José Manuel Barroso invited Professor Mario Monti to produce an independent report (Monti 2010) on the policies needed to relaunch the Single Market. At the same time, the EP's Internal Market and Consumer Protection Committee began work on its own proposals, under the banner of ‘A Single Market for consumers and citizens’ (European Parliament 2010). The two reports were launched within a few days of each other in May 2010, with the EP adopting their recommendations by a very large majority.

Launching the Single Market Act

Central to the EP's proposals was a Single Market Act, which has now become the biggest political programme to boost the Single Market since 1992. Enthusiastically taken up by European Commissioner Michel Barnier, its 12 ‘levers’ (European Commission 2011) set out a range of tasks to make the market function better, requiring the implementation of initiatives across the European institutions and the Member States. The Single Market Act has been endorsed by the European Summit as the top priority for delivering growth, and the October 2011 competitiveness Council meeting set the task of completing all 12 levers by the end of 2012 (European Council 2011). To reinforce the drive for market reform, completion of the framework of the Single Market was also the top priority in a communiqué from 15 European prime ministers, led by British Prime Minister David Cameron, that was sent to all European Council members before the spring 2012 summit.

Implementing the Services Directive

It is indispensable for the Single Market to have a clear and effective legislative framework at EU level. This must be underpinned by proper implementation by Member States, with strong enforcement from the European Commission. The Single Market Act and the Monti Report rightly put their focus on governance as one of the critical areas where effectiveness needs to be improved. Both highlighted the Services Directive, the newest Single Market instrument, as a special area of attention, and one which is still being implemented. A dynamic services market is key to a modern economy, and services growth is key to job creation. It is also an area where small and medium-sized businesses (SMEs) can flourish. However, like many ambitious EU projects, the market opening promised by the Services Directive is only just beginning to materialise. Many EU governments are resisting the requirements that allow service companies to establish and operate across borders without excessive interference and red tape. Despite pressure from the largest ever exercise in ‘peer review'—with all countries reviewing each other's legal constraints on service companies—too many obstacles remain. On the positive side, many countries have met their obligations to set up Internet resources to help companies plan new market approaches. The ‘Points of Single Contact’ give full details of all requirements that a service provider must meet if they wish to trade in a new EU market. The best websites also allow businesses to complete any required formalities online. But to really achieve its potential, EU governments need to promote these expanded opportunities far more extensively to their own business communities, while meeting the demands to simplify the rules and remove barriers.

Removing market barriers for goods and services

It is not surprising that implementation of the Service Directive is high on the priority list for Europe's competitiveness ministers. But they must not take their eye off the goods market since all is not well there either. Alongside service market reform, the EU agreed a parallel reform in 2008 to enforce the mutual recognition of goods, legally on sale in one EU country, being placed on the market in another. There continue to be far too many restrictive practices in this area. For example, some countries still insist on additional testing by their own laboratories, completely ignoring the test certificates already granted in the country of origin. These barriers can be further amplified by other market ‘controls’, such as the refusal to provide building guarantees or insurance where locally tested products are not used in the original construction. This is the next ‘frontier’ for enforcing market openness. The European Commission needs to highlight key sectors where these discriminatory practices are still operating—and construction products will certainly be a priority.

Alongside the free movement of services and goods, other key instruments to help the Single Market must be constantly scrutinised to ensure that they are fit for purpose. Currently before the EP are major reforms of the Public Procurement Directive, which will ensure that this very large sector can encourage more competition and drive the procurement of greener and more innovative solutions. Simplifying complex procedures and reducing bidding costs will encourage greater market participation, especially from SMEs. The widespread adoption of online procurement, so-called e-procurement, will also cut bidding costs and provide more opportunities for cross-border offers.

Creating a Digital Single Market

The concept of the Single Market dates back to the founding European treaties of the 1950s. To survive and grow, it must be continually modernised and adapted to new technologies and consumer tastes. The Digital Single Market is an increasingly important element in modernising the Single Market, making it more dynamic and fit for purpose. Life increasingly takes place online, and ensuring that the Digital Single Market works properly is vitally important for businesses and consumers alike. It has been estimated that completing the construction of the Digital Single Market has the potential to create 4 % growth by 2020 (Copenhagen Economics 2010, 34, figure 5.2). This could have a huge impact on the success or failure of many businesses. This has been recognised by governments and by the European Commission. An ambitious digital agenda has been adopted, with the aim of creating a truly digital Single Market by 2015.

Achieving this goal will require sustained work on creating the right legal framework and stepping up investment in broadband infrastructure. Within many Member States the digital economy is expanding rapidly, but cross-border trade remains low. During 2011, <9 % of EU consumers bought goods or services from a seller located in another Member State, compared with 36 % who bought from national retailers. This is despite clear benefits in savings and choice. In a recent EU survey of more than half the Member States, over 50 % of products could be found 10 % cheaper, including transport costs, from a website in another EU country. Yet in six out of ten cases consumers were not able to complete cross-border purchases.

Enhancing consumer confidence online

Barriers exist for both the consumer and the seller. Consumers do not always feel confident when shopping across borders via the Internet. Issues regarding the return of goods and language differences have been cited as major barriers. A fragmented consumer law regime has discouraged small enterprises from accepting cross-border sales opportunities, as they are worried about the cost of dealing with consumer rights in different jurisdictions. The Consumer Rights Directive has made significant steps towards a common set of consumer safeguards and this now needs to be fully implemented. The EP is currently examining proposals for a low-cost alternative dispute-resolution process, as a first step to redress before invoking legislative remedies. Moreover, these dispute-resolution procedures would be available online. Also on the horizon are proposals for a common sales law, which could offer a completely uniform rights framework. However, this idea has yet to gain enthusiastic acceptance from all stakeholders.

The collection and use of consumer information for making regular contact and offers is a fundamental part of online marketing. Europe has already established the rights of consumers to be in control of their data by enforcing an ‘opt-in’ regime for marketing contacts and providing safeguards for the use of software (cookies) to monitor their shopping preferences. The proposed reform of EU data protection law proposes further safeguards, within the framework of a fully unified set of rules. Online businesses would welcome a common legal framework enforced by independent regulators. However, the required safeguards for data protection and use need to be carefully balanced to avoid making the online experience slow and frustrating for customers.

Facilitating the digital supply chain

Effective marketplaces require effective and secure payment systems. Attempts to buy across borders can still be frustrated by incompatible payment methods. Harmonising the variety of cashless payment systems in existence across Europe by completing the Single European Payment Area will help to increase payment security and lower transaction costs. In addition, there is an urgent need to update legislation in order to guarantee mutual recognition of electronic identification across borders, permitting safe and unobstructed electronic transactions. This will help to achieve secure, trustworthy, easy and low-cost online transactions and, in turn, contribute to economic growth.

The Digital Single Market is not just about buying goods and services, but about the whole process from start to finish, the digital supply chain. Online goods suppliers want efficient, affordable pan-EU delivery systems. The future of postal services and the introduction of competition in parcel delivery must take the needs of online businesses into account. In the distribution of branded goods, where suppliers want to have some control over the quality of the consumer's buying experience, there is a need to review current competition law, which was devised in a different era. Price comparison websites for goods and services are widely used by consumers and increase competition in many markets. But consumers need to be reassured about the independence of such websites, and that the offers are not skewed to favour a particular supplier. All of these areas are highlighted for review in the European Commission's recent communication on e-commerce.

However, the Digital Single Market is not just about consumers doing business, but also about efficient business-to-business transactions. Electronic receipt and payment of invoices has proven to be an effective way of saving time and money for businesses. The European Commission (2010, 2) has estimated that mandatory e-invoicing when carrying out business with public authorities could generate savings in the region of €240 billion over a 6-year period, based on a Danish model.

Driving the Single Market forward

A single European market that is more efficient, open and competitive is an essential driver for our future prosperity. It is vital that the Single Market withstand the pressures it has come under since the beginning of the debt crisis and continues to develop. This means that citizens must be deeply involved. Strong and unified consumer rights, safe products and full information to help them take advantage of greater choice and competition in the market form the bedrock of this involvement. We must also reinforce the rights of the mobile citizen to live and work anywhere in the EU. The rules regarding the mutual recognition of qualifications are currently the subject of reform, in order to make the recognition process quicker and more effective. Despite the temptation to resort to protectionism when cold economic winds blow, it is imperative that we sustain popular support for open markets that increase competitiveness, wealth, opportunity, innovation and good public services.

Rebooting the Single Market is a major political and administrative project that will involve decision-makers at all levels. In 2012, what better way is there to mark the twentieth anniversary of the Single Market programme than to achieve a whole series of further steps to unleash its potential for enterprise, consumers and citizens? The Single Market Act is just the start—we need new proposals for a version 2.0 to be agreed in 2012. There is real momentum and enthusiasm behind this project. The Internal Market and Consumer Protection Committee will continue to take the lead in promoting a true Single Market for consumers and citizens.

Recommendations

The Single Market Act should become a rolling programme, coordinated by the Commission, with clear targets and close monitoring. The EP, with Member State parliaments and administrations, must integrate the Single Market Act into all their policy programmes, continue to reform the existing framework of Single Market rules to make them simpler and more effective, focus new rules on the Digital Single Market, and enhance consumer confidence.