The four freedoms in the EU: Are they inseparable?

The four freedoms govern the movement of goods, persons, services and capital with- in the EU. They are the cornerstones of the Single Market and the common currency. Many citizens see them as the greatest achievement of the European unifcation project. Brexit has reignited the discussion surrounding the free movement of people - that is the opportunity to live and work in any EU country. Technically speaking, it is possible to separate the four freedoms, but does it make political sense? What role do the four freedoms play in the EU?

The four fundamental freedoms services as well provided that language have been legally guaranteed since barriers and regulations permit this. 1986: They state that goods, services, At the same time, the euro facilitates Welfare effects capital and persons can move without the integration of the Single Market: The sum of advantages restriction within the EU. Four out the exchange rate risk disappears and that exist for producers of fve EU citizens believe that these prices can be more easily compared. and consumers. In the four freedoms sit alongside peace on Single Market, welfare the continent as the greatest European The four freedoms set the EU apart effects arise primarily achievement ever. from other free trade zones, al- due to lower production though, technically speaking, it is costs in a market of These freedoms are cornerstones possible to implement only some 500 million consumers of the European Single Market. of the fundamental freedoms: for and lower prices resulting They strengthen trade within the EU. example, CETA, the free trade agree- from increased compe- Two-thirds of all goods produced ment between the EU and Canada, tition among 32 million in the EU are exported to another EU provides for the removal of tarifs but small and medium-sized country. Since the EU is the world’s not for the free movement of people. companies (SMEs). largest single market, this free ex- In fact, the majority of international change generates positive welfare trade agreements, such as NAFTA – Free trade area effects. Studies show that the EU’s the North American agreement be- In a free trade area, all gross domestic product (GDP) has tween the United States, Canada and tariffs and other trade grown by several percentage points Mexico – reduce trade barriers but do barriers are gradually thanks to the Single Market. not create a single market. The four dismantled by participa- fundamental freedoms are controver- ting countries. However, The euro is also supported by the four sial within the EU, even if the Euro- they usually retain freedoms. They contribute to evening pean Single Market serves as a model sovereignty over their out economic imbalances among the for many regions. trade policy vis-à-vis euro-area member states. Booms and non-member states. downturns are mitigated, because goods and capital in particular can go wher- ever there is demand. These powers of adjustment apply to jobseekers and

“Access to the single market [is] only possible under “The EU says there cannot be any cherry-picking, the condition that the four fundamental freedoms that there can only be free trade if there is are complied with. Otherwise, compromises need to free movement of labour. From an economic be negotiated. There can be no cherry-picking when viewpoint that’s nonsense because when people it comes to these [Brexit] negotiations, because that cannot migrate the profits from free trade are would have fatal consequences for the other 27 mem- particularly large on all sides.” ber states. We cannot allow such consequences Hans-Werner Sinn, President Emeritus of the ifo Institute to occur.” in the Frankfurter Allgemeine Zeitung on 16 March 2017

Angela Merkel, German Chancellor in a speech at the dbb annual conference in Cologne on 9 January 2017 Can the four freedoms be separated?

The free movement of workers is cross-border exchanges still face especially under discussion across numerous legal obstacles that limit the EU. The Brexit debate centres mobility. In particular, the Single Free movement around national control over immi- Market lags behind in the integra- of workers gration and restricting social benefts tion of digital services. According to EU citizens are free to for other EU citizens. In some EU European Commission estimates, choose their place of work countries, there have been calls to an integrated digital single market and have the same legal regulate workers’ pay from lower- could increase EU gross GDP by more rights as locals regarding wage EU countries so that they cannot than 400 billion euro a year. More- access to employment. undercut domestic wages. Others over, the diferences in interest rates For the purposes of their have demanded that locals should for the private sector and the high employment, both they and be given priority in the search for level of unemployment in some coun- their family members have work in sectors with high levels of tries underline that there is still no a basic right of residence. unemployment. Still others fear that uniform capital and labour market. Jobseekers, however, recently-arrived Europeans may may be asked to leave the abuse the social benefts system At the political level, the EU country after six months. without working. Yet, the evidence retains the fundamental freedoms; suggests that national social welfare however, their implementation has National social systems systems are used less often by other been sluggish. At the same time, EU member states can reg- EU citizens than by locals: the average suggestions that, in the future, there ulate access to their social employment rate among other EU should ofcially be two models – welfare systems. In several nationals has stood at around 82 per- one with all four freedoms and one cases in 2016 the European cent, while that for the local popu- with restrictions – have not found Court of Justice decided lation was just 77 percent. majority support even though slow that EU migrants may be implementation of the measures refused social benefts dur- Problems with implementing the has often seen the Single Market ing the frst three months four freedoms exist elsewhere too: fall short of expectations. of their stay. The transport of goods is the most integrated sector to date. But although services now account for more than two-thirds of the European economy,

“But – as I have often said in recent months – you “European leaders have said many times that membership cannot fall in love with the single market. […] This is means accepting the “four freedoms” of goods, capital, why I am constantly stressing the need not only for services and people. […] And that is why both sides in the a frontier-free area but also for the fanking policies referendum campaign made it clear that a vote to leave which will open up new horizons for the men and the EU would be a vote to leave the Single Market.” women who make up this Community of ours.” Theresa May, British Prime Minister in her statement on the Brexit negotiations on 17 January 2017 Jacques Delors, former President of the European Commission in a speech to the European Parliament on 17 January 1989 FOUR FREEDOMS

A look ahead

SCENARIO 1 SCENARIO 2 SCENARIO 3 Restriction of the fundamental freedoms Partial deepening: “Single Market light” Completion of the Single Market

There have already been various temporary restrictions on the free In March 2017, a European Commission strategy paper raised the The third scenario would see all obstacles restricting the free movement of persons within the EU. Following the enlargement possibility of concentrating on deepening core areas of the Single movement of goods, services, capital and persons dismantled. phases of 2004, 2007 and 2013, the “old” EU countries could limit Market in the future while at the same time holding back in other Unlike the “Single Market light” scenario, this option would do immigration from the new member states for up to seven years. EU policy areas. In this scenario, for example, the EU could introduce more than just select individual areas where deepening could critics repeatedly demand restrictions on other freedoms as well, a uniform set of rules for economic sectors with cross-border activ ities take place. According to opinion polls, the majority of EU citizens such as cross-border services not subject to the same regulations such as energy or transport. Moreover, current bureaucratic ob- favour implementing all four freedoms. Estimates suggest that EU as local ones and hence available at a lower price. The transport of stacles, such as diferent national approval laws, could be dismantled GDP could grow by several percentage points if the service sector goods could be restricted in this scenario, too. Individual countries if necessary. were completely integrated. The digital sector also has unexploited could demand temporary exemptions from regulations to shield growth potential. The Capital Markets Union and a deeper banking start-ups from competition. Advances could therefore be made more quickly in less controver- union, which would drive forward the expansion of cross-border sial areas, while disputed ones would eschew further integration. lending, would also be on the cards in this scenario. A coordination Such measures could ease conficts in the short term. In the medium Nonetheless, this scenario ignores the fact that the Single Market of social welfare systems, such as in unemployment benefts, long- term, however, the efects would be difcult to predict, as the funda- is not a compartmentalized system. It is not only a key component term care or parental allowances, is conceivable here too. mental freedoms are part of a political agreement relying upon of the euro area; accompanying elements such as a social policy all countries involved respecting it equally, even if it gives them that protects workers from dismissal or encourages their mobility The third scenario also represents a political challenge. Most EU diferent benefts. Some countries gain substantially from the free through the transferability of services from one country to another countries have implemented only a few country-specifc reforms to movement of capital and goods, while others make particular use would also fall by the wayside. deepen the Single Market during recent years. Full implementation of the free movement of people. It remains unclear how the Single of the four freedoms would require a large number of national Market, the euro area, and therefore the EU could remain intact if reforms and compromises at EU level. At the same time, many fear the fundamental freedoms were restricted over the longer term. that opening up the economy could exacerbate growing inequality. For this reason, the political challenge in this scenario has two elements: national governments would need to implement the reforms consistently but, equally, they would also have to ofer new and secure prospects to those citizens who would lose out under any further integration of the Single Market. These could include, say, retraining programs or investing in new occupational felds.

FACT What Europeans think about the FACT The European Single Market has become a more FACT For EU countries, the Single Market is the free movement of persons attractive business location since the crisis most important sales market # 1 In percentage # 2 Distance to the frontrunner in 2010 and 2017 # 3 EU exports in billion euro

Proportion of the population from other EU countries 2010 2017

Advocates of the free movement of persons Which countries are up and which are down? Index USA EU28 3 500 Luxembourg “I am in favour of EU Estonia citizens having the freedom 100 United Italy Spain Lithuania to live, work, study and do Kingdom Latvia business everywhere Germany France Poland 3 000 Spain in the EU.” 90 86 Germany 82 84 83 Slovenia 80 79 78 Ireland 80 76 76 76 2 500 Portugal 72 72 Finland 70 70 68 Exports to other Sweden 66 EU countries Bulgaria 63 Poland 2 000 60 Croatia Exports to Slovakia non-EU countries Cyprus 50 Greece 1 500 Netherlands Malta 40 Czech Republic Hungary 1 000 30 EU28 Of those, exports Of those, exports France to Asia to the USA Belgium 20 Romania 500 Denmark Italy 10 United Kingdom Austria 0 0 0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 % 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: Eurostat 2016, authors’ calculations; Eurobarometer 86: data collected in the autumn of 2016. The so-called Distance to Frontier score describes the distance to the best-possible conditions 64 percent of all EU exports go to other EU countries. In 2017, this corresponded to goods Respondents = 27 705. for doing business in an economic area. If a country were to be the leader in all of the more than worth over 3 000 billion euro. Within the EU, Germany is the most important trading partner 40 indicators that make up the index, it would have a value of 100. The EU has generally performed for most countries. worse than comparable economic areas, but it has managed to lower the distance since 2010. New member states and crisis countries in particular have caught up. Source: Eurostat 2017.

Source: World Bank 2017, authors’ calculations.

“The EU should not separate the four fundamental freedoms, but instead adhere to the political agreement: frstly, because only then can the EU exploit the positive efects of the Single Market; and secondly, because otherwise the euro could become unstable.”

Dr. Anna auf dem Brinke The author is Research Fellow at the Jacques Delors Institut – Berlin. www.strengthentheeuro.eu In the publication series “Europa briefng”, the Bertelsmann Stiftung and the Jacques Delors Institut – Berlin cover key topics of European politics and present possible scenarios: What is the problem? What might happen next? And what can politics do now?

You will fnd all the publications from the joint project here: www.strengthentheeuro.eu

Project team Imprint

Prof. Dr. Henrik Enderlein Heidi Marleen Kuhlmann © 2017 Bertelsmann Stiftung Director, Project Manager European Politics and Jacques Delors Institut – Berlin Jacques Delors Institut – Berlin, and Communication, Vice President and Professor Jacques Delors Institut – Berlin Bertelsmann Stiftung of Political Economy, Carl-Bertelsmann-Straße 256 Hertie School of Governance Max Emanuel Mannweiler 33311 Gütersloh, Germany Project Manager European Politics Tel. +49 5241 81-81183 Joachim Fritz-Vannahme and Communication www.bertelsmann-stiftung.de Director, Jacques Delors Institut – Berlin “Europe’s Future” programme, Jacques Delors Institut – Berlin Bertelsmann Stiftung Katharina Späth Pariser Platz 6 Project Manager, 10117 Berlin, Germany Dr. Anna auf dem Brinke, Author “Europe’s Future” programme, Tel. +49 30 467 260-905 Research Fellow, Bertelsmann Stiftung www.delorsinstitut.de Jacques Delors Institut – Berlin Philipp Ständer Translation Sabine Feige Research Fellow, ETC Europe scrl, Brussels Project Assistant, Jacques Delors Institut – Berlin “Europe’s Future” programme, Edit Bertelsmann Stiftung Dr. Malte Tim Zabel, Author David Gow, Edinburgh Advisor to the Dr. Katharina Gnath Chairman and CEO, Design Senior Project Manager, Bertelsmann Stiftung ressourcenmangel “Europe’s Future” programme, an der Panke GmbH, Berlin Bertelsmann Stiftung Production Jörg Haas druck.haus rihn gmbh, Blomberg Research Fellow, Jacques Delors Institut – Berlin Persons responsible according to the German Press Law Prof. Dr. Henrik Enderlein, Joachim Fritz-Vannahme