Blog Post

A Single Market crisis

What’s at stake: Since the start of this year, Europe’s financial crisis has been given many labels – a sovereign debt crisis, a banking sector crisis, a crisis of the euro itself.  But rarely is it asked whether the European Union’s single market, which is the foundation stone of EU integration in the modern era, is under […]

By: Date: July 11, 2010 Topic: Macroeconomic policy

What’s at stake: Since the start of this year, Europe’s financial crisis has been given many labels – a sovereign debt crisis, a banking sector crisis, a crisis of the euro itself.  But rarely is it asked whether the European Union’s single market, which is the foundation stone of EU integration in the modern era, is under serious threat. One person who has asked this question is Mario Monti – the distinguished former EU commissioner for the internal market and competition policy – who published a report commissioned by José Manuel Barroso on how to strengthen the 27-nation bloc’s single market. Thanks to the severity of the financial crisis and recession, the Commission has been under pressure from governments to relax the EU’s rules and be less robust in policing the single European market to defend narrow national interests at the expense of the common European good. What is more, some leaders are seizing on the crisis to question the value of free markets and open competition in general.

José Manuel Barroso argues in his mission letter to Mario Monti that the EU is confronted with three urgent challenges as we approach the twentieth anniversary of the symbolic date of 1992 which laid the ground for today’s Single Market. First, the recent crisis has shown that there remains a strong temptation, particularly when times are hard, to roll back the Single Market and seek refuge informs of economic nationalism. Second, the full potential of the Single Market has not yet been delivered. In many areas the Single Market is far from being completely in place while there are missing links which prevent a still fragmented market from acting as a powerful engine for growth and delivering the full benefits to consumers. Last, the crisis has induced some critical reconsideration of the functioning of markets and enhanced concerns about its social dimension which calls for afresh look at how the market and the social dimensions of an integrated European economy can be mutually strengthened.

Mario Monti’s report focuses on extending the single market in services, energy and the digital economy, but suggests that states which are more oriented towards free markets, such as the UK, should allow more EU-level co-operation over tax policy. Monti argues that it should be seen as a "package deal", in which Member States with the different cultural traditions, concerns and political preferences could each find elements of appeal important enough to justify some concessions, relative to their past positions. In particular, 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, including a plan with deadlines on putting in place the single market in areas where it is still lacking, 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, while there is no need to pursue tax harmonisation as such. The new Member States, who definitely support a serious programme to strengthen the single market, including in the areas of infrastructure and cohesion, might in turn become more open on forms of tax coordination. The report highlights that today the single market is at a critical juncture, as it faces both an "integration fatigue", eroding the appetite for more Europe and for a single market and a more recently "market fatigue", with a reduced confidence in the role of the market. For Monti, the single market today is less popular than ever, while Europe needs it more than ever.

Tony Barber writes in the FT Brussels Blog that unfortunately, Monti’s report received less attention than it deserved, because its publication coincided with the dramatic events of May 7-9, when EU leaders put together the €750bn emergency plan to defend the eurozone. Nevertheless, Monti’s report will serve as the basis for a Commission initiative due to be unveiled after Europe’s August holidays, according to Michel Barnier, Barroso’s internal market commissioner. Berber hopes that he will keep his promise, because the more he talks with business people across Europe, the more he hears complaints about how the single market is nothing like as dynamic as it should be.  There are many areas, such as the service sector and the digital economy, where the single market is either under-developed or not even in existence. Many businesses would also like to see the EU to enforce the rules of the single market with greater efficiency.  Many consumers are not happy, either – particularly those who want to carry out cross-border online transactions.

*Bruegel Economic Blogs Review is an information service that surveys external blogs. It does not survey Bruegel’s own publications, nor does it include comments by Bruegel authors.


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