Policy brief

Making the best of the European single market

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness.

Publishing date: 02 February 2017
Authors: Agnès Bénassy-Quéré Guntram B. Wolff Clemens Fuest Vincent Aussilloux

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The slow-down in productivity and income over the past decade has weakened the European Union’s output legitimacy, which is grounded in delivering prosperity to its citizens. At the same time, decreasing growth reduces the capacity of governments to maintain existing levels of welfare protection and translates into a perception of rising unfairness and inequality across and within EU countries.
It is estimated that remaining non-tariff obstacles, in particular in services sectors, limit intra-EU trade to a level about four times smaller than the intensity of trade between US states. By completing the single market, the EU could generate significant income gains. However the more straightforward steps have already been taken, so the single market agenda now touches upon specific domestic regulations in EU countries.
We recommend a two-pillar strategy: for sectors with large externalities and/or economies of scale (such as energy or telecoms), regulations should be harmonised and at least close coordination between regulators should be achieved; for other services sectors, the efficiency of individual regulations on a cost-benefit basis with respect to their objective should be assessed, with systematic benchmarking.
We also recommend pursuing a credible environmental policy agenda on a destination basis (impacting both EU and non-EU firms) rather than on an origin basis (which is the case today), through a combination of ambitious technical standards, a reference path for the carbon price and revenue-neutral tax instruments. This would stimulate long-term investment in the energy transition without overly hurting EU firms’ competitiveness.
To further stimulate investment, especially in innovative sectors, we suggest moving ahead decisively with the capital markets union agenda. In parallel, the use of EU funds should be reviewed taking into account the objectives of economic convergence, spillovers between member states and solidarity.
EU national governments are responsible for welfare-related redistribution. However EU policies can help by empowering member countries to address the possible effects of EU integration, or by developing EU-wide instruments to limit its impact on possible losers. We argue that tax and social security avoidance or fraud need to be combatted with modern tools, eg a single electronic interface to monitor the payment of social charges of posted workers in their home countries. In order to fight corporate tax avoidance and improve tax fairness, the interest and royalties directive could be modified if the project of a common, consolidated corporate tax base (CCCTB) proves too difficult to agree.
Finally, we recommend making social security systems more neutral with respect to intra-EU migration, eg by introducing the full continuation of home-country unemployment rights for migrant jobseekers, with closer cooperation between national employment services, and by centralising information on pension entitlements on a single platform.

About the authors

Agnès Bénassy-Quéré

Agnès Bénassy-Quéré is Deputy Governor of the Banque de France and member of the Bruegel board. Before this, she was the chief economist at the French Treasury. She was a Professor at the Paris School of Economics - University of Paris 1 Panthéon Sorbonne, and the Chair of the French Council of economic analysis. She worked for the French Ministry of economy and finance, before moving to academic positions successively at universities of Cergy-Pontoise, Lille 2, Paris-Ouest and Ecole Polytechnique. She also served as a Deputy-director and as a Director of CEPII and is affiliated with CESIfo and IZA. She is a Member of the Commission Economique de la Nation (an advisory body to the Finance minister), of the French macro-prudential authority and of the Banque de France’s Board. Her research interests focus on the international monetary system and European macroeconomic policy.
Guntram B. Wolff

Guntram Wolff was the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

A recognized thought leader and academic, he regularly testifies at the European Finance Ministers' ECOFIN meeting, the European Parliament, the German Parliament (Bundestag) and the French Parliament (Assemblée Nationale). From 2012-16, he was a member of the French prime minister's Conseil d'Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed to the G20 high level independent panel on pandemic prevention, preparedness and response. He is also a professor (part-time) at the Solvay Brussels School of Université Libre de Bruxelles, where he teaches economics of European integration.

He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was coordinating the research team on fiscal policy at Deutsche Bundesbank. He also worked as an external adviser to the International Monetary Fund.

He holds a PhD in economics from the University of Bonn and studied in Bonn, Toulouse, Pittsburgh and Passau. He taught economics at the University of Pittsburgh and at Université libre de Bruxelles. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media and policy outlets. Guntram is fluent in German, English, French and has good notions of Bulgarian and Spanish.
Clemens Fuest

Since April 2016 President, Ifo Institute – Leibniz Institute for Economic Research at the University of Munich
Since April 2016 Director of the Center for Economic Studies (CES)
Since April 2016 Professor for Economics and Public Finance at the Ludwig Maximilian University of Munich
Since April 2016 Executive Director of CESifo GmbH
2013 - 2016 President and CEO of the Centre for European Economic Research (ZEW), Mannheim and Professor of Economics, University of Mannheim
2008 - 2013 Professor of Business Taxation and Research Director, Centre for Business Taxation, Saïd Business School, University of Oxford
2001 - 2008 Professor, Chair of Public Economics, University of Cologne
1995 - 2001 Senior Research Assistant, Chair of Public Economics, University of Munich
1991 - 1995 Research Assistant, Chair of Economic Policy, University of Cologne
Vincent Aussilloux

Vincent Aussilloux is heading the Economics department at France Stratégie, a public think tank part of the French PM administration. France Stratégie is dedicated to anticipating the main challenges faced by the country, evaluating public policies, informing and enriching the public debate. Vincent is also the general rapporteur of the French National Productivity Board. Previously, he was member of the private office of the French Minister for external trade. He worked five years as a member of the team of the Chief Economist, in the Directorate General for External Trade of the European Commission. Between January 2009 and December 2011, Vincent was seconded to the UK Department for Business, Innovation and Skills. From 1998 to 2004, he also worked in the French Treasury. Vincent holds a Phd in economics from the University of Montpellier. His work focuses mainly on European economic issues, international economics, structural reforms, sustainable development, productivity and competitiveness. He is also chairing an NGO which is managing temporary urban shelters for homeless people.

Theme: Macroeconomic policies Inclusive economy Global economy and trade European governance Banking and capital markets
Keyword: welfare policy tax policy investment inequality growth European single market
Language: English