European single market

What is the European single market?

The principal objective of the EU, when first constituted as the EEC, was to make war in Europe impossible by developing both a common system of law and making member states' economies completely interdependent.

This has been pursued by the creation of a single market and then a single European currency and monetary policy, by the coordinated conduct of economic policy by member states, and by joint action in international trade negotiations.

While the single European market (SEM) was ostensibly complete by the end of 1992, it remains a project in 'continuous creation': much SEM legislation remains to be implemented in member states; several important areas, particularly energy, remain unliberalised; and several member states have been accused of exploiting loopholes and discovering new ways to protect domestic industries.

Background

The EEC aimed at reducing the 'cost of non-Europe' - that is, of stimulating trade between and economic activity in member states by creating a larger free trade area. This simple idea was to see the costs of European business reduced by removing internal tariffs and standardising regulation - a process which has since been expanded to include the establishment of a common currency and monetary policy across most of the EU, and which aspires ultimately to achieve a common fiscal (taxation and spending) policy.

Internal tariff and quota barriers within the EU were abolished in 1968 - 18 months ahead of schedule - but it was not then until 1992 that the Single Market was deemed to have been completed.

In the absence of strong supranational and intergovernmental decision-making structures, it proved difficult to make progress on the more intangible barriers to free movement of goods, services, capital and labour, such as professional standards, regulations, persistent protectionist attitudes and of course divergent fiscal regimes. The oil crises of 1973 and 1980 reinforced protectionist attitudes where they survived.

The result was that during the 1970s and early 1980s, growth in the EU member states began to lag seriously behind that of international competitors. Efforts to establish a single market were meeting with limited success.

As such, in 1985 a White Paper was produced - adopted in the Single European Act of 1987 - identifying some 300 measures that would have to be addressed to complete the Single Market and setting December 31, 1992 as the deadline for completion. The new powers given to the EU's institutions by the Single European Act made this goal achievable.


Controversies

The single market rests on four pillars:

Free movement of goods, persons, services and capital between member states

The approximation of relevant laws, regulations and administrative provisions between member states

EU-wide competition policy, administered by the Commission

A system of Common External Tariffs (CET - also known as the Common Customs Tariff)

While the single European market was driven forwards a long way between 1987 and 1992, the notion that it is now complete is hard to sustain, even from a legal point of view.

Part of this is inescapable: language barriers and relative levels of economic development hamper the movement of factors; social and justice policy impinge on the purely economic vision of the single European market; and member states continue to compete with one another economically, at times seeking their own national interest rather than the greater good of the EU.

The latter problem arises particularly with EU directives, which are instructions to member state governments to act to achieve particular objectives. It is argued by some that the UK has interpreted many of the single market directives too strictly ('gold plating'), thereby putting British companies and consumers at a disadvantage against jurisdictions with lesser demands.

Furthermore, many member states have sought derogations from particular elements of the single market, or have stood in the way of reform. The French state's stake in the energy industry, for example, has led to the virtual exclusion of energy from the single European market to date. Mutual recognition of academic and professional qualifications has also been a slow process.

The absence of a number of member states, including the UK, from the single currency is also seen by some as a major obstacle to the completion of economic integration.

With the process of enlargement to 27 states, the single European market took on a whole new meaning - and with it a new set of problems. Of particular concern to several existing member states is the predicted economic migration of thousands of workers from the poorest new EU members. Some warn this will lead to greater unemployment and downward pressure on wages in existing member states. Others believe that the new workers will fill gaps in the labour market and boost the economy.

Furthermore, many areas beyond the purely economic impinge upon the functioning of the single European market, such as internal borders, cross-border police and judicial co-operation, and differing systems of civil law.

Labour and the SEM

New Labour's first term in office was dominated by speculation over whether or not Britain would adopt the euro. Chancellor Gordon Brown laid out five economic tests which would be required for such a move. In addition the government pledged to hold a referendum on the issue while parliamentary approval was also required.

As it was the euro did not stand up to Mr Brown's tests. It became clear Britain's economy, closely tied to the property market, was too dissimilar to those on the continent for any currency change to take place soon. The issue barely featured in the 2005 election.

By then focus was instead concentrated on the government's decision to open up Britain's borders to immigration from the EU. Most member states refused to immediately accept immigrants from the new members, despite free movement of people being a key part of the SEM, but Britain was one of the few who made an exception. As a result the UK saw a major wave of immigration – by October 2006 600,000 new workers had arrived since the EU increased its membership in 2004.

The Conservatives did their best to make immigration an issue in the 2005 election and, when Bulgaria and Romania acceded to the EU in that year, they were excluded from coming to Britain. The new points-based system, which emphasises skilled workers, is likely to further restrict the flow in coming years.


Statistics

The European Commission says that the Single Market has helped create 2.5 million new jobs and generated €800 billion in additional wealth since 1993

After enlargement in 2004, firms selling in the ESM zone have access to more than 450 million consumers
Statistics: (Source: European Commission, 2004)


Quotes

"Of course, the process of opening up Europe is far from complete and much work remains to be done. Not all the principles behind the single market are yet fully applied in practice. However already, the single market has transformed for the better many aspects of European life. And the achievement of the last decade or so is not just an economic one. Without losing any of their national characteristics and cultural traditions, citizens of the Member States have also become citizens of Europe."

European Commission report 'It's a better life - How the EU's single market benefits you', 2002

"You can't fall in love with the single market."

Jacques Delors, former European Commission president