Thirty Years of the Single European Market Stefano Micossi No
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Thirty Years of the Single European Market Stefano Micossi No. 148 / October 2016 Abstract Over the past thirty years, the Single European Market has been the core business of the European Union, and enormous progress has been achieved in both ‘widening’ the economic activities covered by EU legislation and ‘deepening’ the acquis to overcome emerging gaps in integration in areas already covered by legislation. And yet, empirical evidence indicates that market integration has stalled on many fronts and, more importantly, that the expected economic benefits of integration in terms of higher growth of incomes, jobs, and productivity have fallen short of expectations, notably in the long-established EU-15 member states. The situation has not improved since the introduction of the euro. This paper reviews the main developments in Single European Market (SEM) legislation and regulatory activities over the past three decades; it summarises the results of the SEM programme in market integration, highlighting areas where gaps appear to be more evident; and discusses the impact of economic integration within the SEM, including aspects that play an important role in feeding popular resistance to integration. Keywords: Single European Market, regulatory models, free movements, goods, persons, capital, services. This paper was delivered by the author as a Valedictory Lecture on the occasion of his receiving the prestigious title of Honorary Professor of the College of Europe, 19 October 2016. It was first published by the College of Europe as Bruges European Policy Briefing No. 41/2016 and is republished by CEPS with the kind permission of the College. ISBN 978-94-6138-551-2 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior permission of the European Commission or CEPS. Available for free downloading from the CEPS website (www.ceps.eu) © CEPS 2016 Centre for European Policy Studies ▪ Place du Congrès 1 ▪ B-1000 Brussels ▪ Tel: (32.2) 229.39.11 ▪ www.ceps.eu TABLE OF CONTENTS Introduction ........................................................................................................................................... 1 1. Overview ....................................................................................................................................... 2 2. An Innovative Regulatory Model .............................................................................................. 7 (a) Market access ......................................................................................................................... 8 (b) Article 114 TFEU ................................................................................................................. 11 (c) Agencies and networks of regulators ............................................................................... 13 (d) Public services ..................................................................................................................... 16 (e) Establishment and company mobility ............................................................................. 17 (f) On the posting of workers ................................................................................................. 19 3. The Economic Impact of the Single European Market .......................................................... 20 (a) Market opening under Single Market legislation ........................................................... 21 (b) Economic effects of the Single European Market ........................................................... 24 Conclusions ......................................................................................................................................... 30 References ............................................................................................................................................ 31 Thirty Years of the Single European Market Stefano Micossi* CEPS Special Report No. 148 / October 2016 Introduction Over the past thirty years the Single European Market (henceforth SEM) has been the core business of the European Union, and enormous progress has been achieved in both ‘widening’ the economic activities covered by EU legislation and in ‘deepening’ the acquis to overcome emerging gaps in integration in areas already covered by legislation (Pelkmans 2011). And yet, empirical evidence indicates that market integration has stalled on many fronts and, more importantly, that the expected economic benefits of integration in terms of higher growth of incomes, jobs and productivity have fallen short of expectations, notably in the long- established EU-15 member states. The situation has not improved since the introduction of the euro. The purpose of this paper is to review the main developments in SEM legislation and regulatory activities over the past three decades; to summarise the results of the SEM programme in market integration, highlighting the areas where gaps appear to be more significant; and to discuss the impact of economic integration within the SEM, including aspects that play an important role in feeding popular resistance to integration. Although SEM policies for financial services will be discussed, recent developments in the Banking Union and Commission proposals for a Capital Markets Union will not be covered, except for aspects of general relevance for the SEM’s broad architecture. The paper is written from the perspective of an economist who has devoted much of his professional life to matters of economic and monetary integration in Europe, and who, by necessity, has become keenly aware of the importance of legal and institutional arrangements in the functioning of economic systems. Particular attention will be paid to the issues of economic incentives in institutional design, while steering away from the detailed legal complexities and controversies surrounding SEM laws. * Stefano Micossi is Director General of Assonime, a business association and think tank in Rome. He has taught at the College of Europe since 1991, with an interruption during his stint at the European Commission (where he served as Director General of Industry in 2005-08), until the academic year 2015- 16. He chairs the LUISS School of European Political Economy (SEP) and is a member of the boards of CEPS, Cassa Depositi e Prestiti and the CIR Group. The author is grateful to Fabrizia Peirce and Aurora Saija for in-depth discussions and outstanding help in searching the bibliography and the data sources, and to Ginevra Bruzzone for reading the full draft and providing useful suggestions for improvement. He remains solely responsible for remaining errors and omissions. | 1 2 | STEFANO MICOSSI 1. Overview The goal of economic integration constituted the principal focus of the 1957 Treaty of Rome, in the specific form of the establishment of a common internal market, characterised by the freedom of movement of goods, services and productive factors (labour and capital). Its distinguishing feature was, in addition to being a free trade area and a custom union with a common external tariff, the aim of eliminating ‘technical’ barriers arising from national rules for the protection of health, safety and the environment, and to a limited extent of tax barriers as well. Three features stand out in this regard (Craig 2003). First, integration entails not only the elimination of barriers (‘negative’ integration) but also the harmonisation of legislation that provides standards of protection of worthy goals of general interest (‘positive’ integration) applicable throughout the SEM. Second, the elimination and prevention of barriers also concerns behaviour that may distort the level playing field in the SEM after the market has been opened, i.e. by means of public subsidies and protections granted in the domestic market to national players or anti-competitive actions by national players. These distortions are addressed through competition policy and in particular state aid policy – a policy unique to the European construction that directly constrains the member states. Third, market opening and liberalisation do not preclude public intervention, e.g. environmental protection through the Common Agricultural Policy or cohesion policies to help weaker economies withstand the impact of market opening. Common policies will normally be administered by the Commission – often under Council oversight through specialised Council committees. Already in the early years of the Economic Community, the European Court of Justice (ECJ) emerged as a fundamental player in the integration process through its adjudication of cases and ‘preliminary’ rulings on questions raised by national courts regarding the treaty’s interpretation. Its central role in the development of the SEM came to the fore with early decisions establishing the direct effect 1 and the supremacy over national legislation 2 of Community rules in areas of Community competence. They laid the ground for landmark decisions such as Reyners,3 Dassonville4 and Cassis de Dijon,5 with paramount consequences for the subsequent evolution of legislation. The SEM programme was formally launched in June 1985 by the Commission White Paper on Completing the Internal Market, endorsed by the European Council in Milan at the end of the same month. Its main message, which built upon the Cassis de Dijon jurisprudence, was that there