THE BATTLE OF THE SINGLE EUROPEAN MARKET This book studies the history of the single, or internal, market of the European Union since its beginnings after the Second World War until the end of 2000. The perspective is pluridisciplinary and incorporates several dimensions: historical, political, economic, legal and sociological. Based on several interviews and other sources, the book aims to be the most complete synthesis of one of the major achievements of European integration. In particular, the author asks: What is the single European market (SEM) and how has it evolved over the years? How does the SEM work? Who have been the stakeholders of the SEM? What has been the articulation between the SEM and the other components of the European integration process? How have economists analyzed and assessed the SEM since its beginnings? What has been the power of economic thought? This fundamental and timely publication will be of interest to all those concerned with the future of every aspect of Europe. Gilles Grin is a scientific assistant at the Swiss Federal Office for Education and Science in Berne. He also worked as a consultant for the European Commission. He holds a Bachelors degree from the University of Lausanne, Masters degrees from Yale University and the London School of Economics, and a Ph.D. from the Graduate Institute of International Studies in Geneva. www.keganpaul.com KEGAN PAUL EUROPEAN STUDIES SERIES THE BATTLE OF THE SINGLE EUROPEAN MARKET Gilles Grin SEX WORK, MOBILITY AND HEALTH IN EUROPE Sophie Day and Helen Ward THE BATTLE OF THE SINGLE EUROPEAN MARKET Achievements and Economic Thought 1985-2000 Gilles Grin KEGAN PAUL London ¥ New York ¥ Bahrain First published in 2003 by Kegan Paul Limited Reprinted in 2004 with corrections UK: P.O. Box 256, London WC1B 3SW, England Tel: 020 7580 5511 Fax: 020 7436 0899 E-Mail: [email protected] Internet: http://www.keganpaul.com nd USA: 61 West 62 Street, New York, NY 10023 Tel: (212) 459 0600 Fax: (212) 459 3678 Internet: http://www.columbia.edu/cu/cup BAHRAIN: [email protected] Distributed by: Extenza-Turpin Distribution Stratton Business Park Pegasus Drive Biggleswade SG18 8QB United Kingdom Tel: (01767) 604951 Fax: (01767) 601640 Email: [email protected] Columbia University Press nd 61 West 62 Street, New York, NY 10023 Tel: (212) 459 0600 Fax: (212) 459 3678 Internet: http://www.columbia.edu/cu/cup © Gilles Grin, 2003 Printed in Great Britain All Rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electric, mechanical or other means, now known or hereafter invented, including photocopying or recording, or in any information storage or retrieval system, without permission in writing from the publishers. ISBN: 0-7103-0938-4 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Applied for. To Jean-Paul Grin and Pierre du Bois TABLE OF CONTENTS PREFACE xi ACKNOWLEDGEMENTS xv INTRODUCTION TO THE SINGLE EUROPEAN MARKET 1 Concepts and Substance 1 Machinery 13 PART ONE. ORIGINS OF THE BATTLE OF THE SINGLE EUROPEAN MARKET 31 CHAPTER ONE. ORIGINS OF THE SINGLE EUROPEAN MARKET, 1945-1985 33 Towards the Treaty of Rome 33 Treaty of Rome 35 De Gaulle, the Treaty of Rome and the Failure of the Large Free Trade Area 45 Establishment of the Customs Union 48 From Customs Union to Common Market? 54 Living in a Disrupted Era 60 CHAPTER TWO. DEVELOPMENTS OF THOUGHT ON EUROPEAN ECONOMIC INTEGRATION BEFORE 1985 73 Jacob Viner and the Launch of the Theory of Customs Unions 73 An Increasing Complexity of the Theory of Customs Unions 77 Assessment of the Theory of Customs Unions 85 From Theory to Measurement 87 Problems of Economic Union 92 Birth of the 'Cost of Non-Europe' 99 PART TWO. THE BATTLE OF THE SINGLE EUROPEAN MARKET AND ITS ACHIEVEMENTS 107 CHAPTER THREE. THE COMPLETION OF THE SINGLE EUROPEAN MARKET, 1985-1992 109 New Delors Commission 109 New Approach to Harmonization 114 White Paper on 'Completing the Internal Market' 115 Single European Act 121 Wheezy Beginnings 130 New State of Mind 133 The Single European Market Takes Shape 139 Treaty of Maastricht 146 The Single European Market at the End of 1992 151 CHAPTER FOUR. THE MANAGEMENT AND DEEPENING OF THE SINGLE EUROPEAN MARKET, 1993-2000 165 New Era for the Single European Market 165 New Treaties for a New Era 174 Developments on the Single Market Front: A Macro View 179 Developments on the Single Market Front: A Micro View 186 The Single Market and Beyond 192 The Single European Market in 2000 202 PART THREE. THE SINGLE EUROPEAN MARKET AND THE BATTLE OF ECONOMIC THOUGHT 233 CHAPTER FIVE. THE CECCHINI REPORT AND ITS CONTROVERSIES 235 Origins of the Cecchini Report 235 Content of the Cecchini Report 238 A Huge Debate Unleashed by the Cecchini Report 245 Choice of an Economic and Social Model for Europe 253 Debates on Barriers 256 Methodological Difficulties 268 Economies of Scale, Competition, and Innovation 273 Adjustments in the European Economy 276 viii Allocation versus Accumulation Effects 282 Distribution of Effects 283 External Dimension of the Single Market 289 CHAPTER SIX. THE SINGLE MARKET REVIEW: AN APPEASED DEBATE? 305 Origins and Content of the Single Market Review 305 The Single Market Review and the Cecchini Report 310 Debates on the Level of Integration of the Single Market and its Benefits 319 The Single Market and Monetary Integration 326 The Single Market and Economic Growth 329 Convergence and Divergence inside the Single Market 331 The Single Market and the Rest of the World 335 CONCLUSIONS 345 BIBLIOGRAPHY 359 INDEX 369 ix PREFACE Welcome to the battle of the single European market. The process of contemporary European integration was initiated in the wake of the Second World War and has deepened considerably since its heroic beginnings. This process has mainly followed an economic path but it has always been guided by both economic and political concerns. Our investigation into the single or internal market of the European Union, which is the object of this work, lies at the core of the integration process and is very widely hailed as one of its most precious jewels. It would indeed have been most difficult, if not impossible, to adopt a single currency, the euro, without the groundbreaking work accomplished within the framework of the completion of the single market. In this work we will deal in great detail with the definition of our object of investigation. This is not an easy task because the single European market has been a dynamic concept and nobody has yet provided a final and unanimously approved definition of it. We endeavor to adopt a clear and coherent definition of it in this work without oversimplifying the complexities of real life: definitions and modeling have to adapt to the real world and not the other way around. At this point it suffices to say that the single market is a sui generis legal order based on the rule of law and administered by a complex machinery that aims to provide a number of basic freedoms and to establish some general rules while taking into account a number of policy objectives. The basic freedoms of the single market can be enumerated in the following way: free movement of goods, free provision of services, right of establishment, free movement of workers, free movement of citizens and free movement of capital. These six freedoms aim to allow free movement of the products of economic activity and of their production factors but also Ð and this did not appear in the original Treaty of Rome which established the European Economic Community Ð of European citizens in a general sense. The single market also provides for a number of general rules for economic agents and for public authorities. Rules for economic agents concern taxation, competition, company law, and intellectual and industrial property. Rules for public authorities have mainly to do with public procurement and state aids. The single market must be analytically distinguished from the various Community flanking policies but it still takes into account a number of common policy objectives. This explains why the single market acquis communautaire incorporates some measures pertaining to the social, environmental, trans-European networks, energy, public health and consumer policies. The process of market reform may also be considered as a component of st the single market. Since the Single European Act came into force on July 1 1987, the completion of the single market has taken place within the framework of the establishment of an area without internal frontiers. Now, thanks to European integration, internal frontiers have indeed largely become a thing of the past even if some qualifications thereupon are nonetheless required. The Battle of the Single European Market This study focuses primarily on the years from 1985 to 2000, but two introductory chapters lay the ground by presenting more briefly the period ranging from the end of the Second World War to the project’s re-launch in 1985. That year is indeed fundamental for the single market and for European integration more generally and saw the entry into function of a new Commission presided by Jacques Delors, the adoption of a comprehensive program to complete the internal market Ð the famous White Paper Ð and the first major overhaul of the European Treaties leading to the signature of the Single European Act in February 1986. The title of the study contains the word 'battle'. There is more than a splash headline to this choice because the completion of the single market has in no way been an easy task.