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A burst of candour from European Commission staff about the failings of the Single Market

The staff of the European Commission give a more candid assessment of the Single Market than Her Majesty’s Government has ever provided, albeit to make the case for still more integration


If one is looking for a candid and thorough assessment of the EU’s economic performance over the years of membership, one cannot unfortunately turn to any authoritative studies by the UK government. Over the 40 plus years of membership, Britain has not conducted regular analyses of the EU’s impact on UK trade. In 2000 HM Treasury (HMT) published two insightful guides about the research methodologies that should be used to ensure that public policies were evidence-based. However, it has declined to apply any of these methodologies to the one government policy that has had the greatest impact on the livelihoods of the British people – the EU project.

There has been just one exception to this general rule, the studies organized by the Treasury to evaluate five tests to determine whether or not the UK should join the euro. On that occasion, HMT drew on expertise and research from around the world in a spirit of open debate, and published the results as they appeared, before taking the fateful decision. No such research has ever been conducted on the merits of the EU or of the Single Market, probably because the Prime Minister and political elite of the UK had decided that their main task was to persuade the British people of its merits. Empirical research might, as the five tests research showed, go either way.

No research comparable to the five tests is contemplated before the referendum. Hence, it seems likely that the prime minister, ex-prime ministers, ministers and assorted leaders of opposition parties will continue to make claims about the merits of the EU for UK trade, employment and investment, without ever having any evidence, and probably without ever being asked by the media to provide any.

The research of the European Commission, on which the UK government has long relied, is mainly concerned with future prospects and predictions to keep their project moving forward towards ever closer union. It is much less concerned with retrospectively evaluating its own policies, holding itself to account, or explaining why so many of its predictions have fallen short. It is seldom concerned with evaluating the impact of its policies on individual countries, to identify winners and losers.

On one occasion, however, in 2007, it produced a reasonably thorough and critical examination of the Single Market. This was plainly intended to justify and encourage and promote deeper economic integration of the EU. In the present context, the authors’ motives and recommendations are unimportant. What is important is that they provided an unusually candid and fair assessment of the Single Market, which can help any undecided UK voter to decide whether it is worth the economic and political costs of membership.

In its own way, the report is a valuable historical document because it was produced in 2007, shortly before the financial crisis. It was therefore analysing the Single Market at its very best, as it was supposed to be, and even on the crest of a wave. All of the subsequent problems of the Single Market can be, and often are, attributed to the crisis.

Problems of the Single Market

These are excerpts from the European Commission report ‘Steps towards a deeper economic integration: the Internal Market in the 21st century’:

‘There has been a slowdown of trade growth within the EU15 and euro-zone relative to trade growth with third partners’

‘The trade boosting effect of the introduction of the euro has… been far less pronounced than the trade effect of enlargement.’

‘…since 2000 the trade effect of the enlargement process and particularly intra-EU15 trade integration, seem to have stalled.’

‘EU product markets remain heavily regulated, business dynamism is insufficient and prices rigidities are persistent.’

‘…the share of extra EU suppliers in… consumption… has gradually increased at the expense of domestic production.’

‘Not only are EU firms less active in fast growing markets but also they have not managed to improve their performance in fast growing sectors at world level although this was one of the main goals of the 1992 Single Market programme.’

‘…the Internal Market… has not led to a sufficient shift of the specialisation of the production sector towards the more technology intensive sectors where EU competitiveness can be more sustainable in the long-run.’

‘16.6 per cent of world exports of low technology goods originated in the EU25 while only 8.4 per cent and 1.6 per cent came from the US and Japan. Furthermore, the EU25 reveals a comparative disadvantage in high technology sectors including ICT 52…’

‘The Internal Market does not seem to have been a sufficient catalyst for innovation and resource reallocation towards technology intensive activities.’

‘…the innovative performance of the EU as a whole and of most EU countries lags significantly behind that of top performers such as the US and Japan… What is more worrying is the widening gap between the laggards and frontrunners and between the EU and other developed economies.’

‘Since 2001 the volume of FDI from the rest of the world into the EU25 has gradually declined.’

‘…the Internal Market has not been able to deliver in terms of promoting further the role of the EU with respect to global investment flows.’

‘The internal market two-fold objective of making the EU a more attractive place for foreign investors and of boosting the presence and competitive position of EU firms in world markets seems far from being achieved.’

‘The Internal Market is also losing its attractiveness for international R&D investment. Multinational companies prefer to carry out their R&D activities in the US – and more recently in China and India – rather than in the EU.’[1]

Notes

[1] Fabienne Ilzkovitz, Adriaan Dierx, Viktoria Kovacs and Nuno Sousa, European Economy, Economic Papers, N° 271 January 2007, Steps towards a deeper economic integration: the Internal Market in the 21st century, A contribution to the Single Market Review European Commission, Directorate-General For Economic and Financial Affairs, ISSN 1725-3187, http://ec.europa.eu/economy_finance/index_en.htm


 

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