To fix economic woes, EU must expand single market

Source link : https://love-europe.com/2024/11/21/austria/to-fix-economic-woes-eu-must-expand-single-market/

Donald Trump’s threat to impose higher tariffs in the U.S. has sparked worries in Brussels. However, there is a simple solution to Europe’s economic problems: Continue expanding the single market, allowing the EU to compete more effectively.

The EU should strengthen its single market, for instance by decreasing national barriers in the telecommunications sector.

Antonio Masiello / Getty

The European Union is a single market, and because of this allows for simple and quick cross-border transactions – or so one might think. After all, the EU likes to celebrate its four freedoms. In addition to the unrestricted movement of persons, these include the free exchange of capital, goods and services.

In reality, the situation is quite different, however. It is impossible to subscribe to a Dutch newspaper using a German bank account and a Belgian address. The publication’s systems block the transaction – and the European economy and the struggling media sector have missed out on a transaction, albeit a tiny one.

Trump makes Brussels nervous

But as a consumer, one has to wonder: What must it be like for a German artisan who wants to do a job in Austria? This is a complicated question, say people in the trades. The sheer volume of national regulations makes it difficult to gain a quick overview of relevant rules.

With 450 million residents, the EU is one of the largest markets in the world. Yet daily business functions present numerous obstacles for consumers and businesspeople alike. While the trade in goods between member states certainly still functions, it is not without its challenges, and the exchange of services is in complete disarray.

The EU desperately needs to address this structural problem – especially as the mood in Brussels is growing increasingly anxious. «Uncertainties have increased,» said EU Commissioner for Economy Paolo Gentiloni when presenting his Autumn 2024 Economic Forecast last week. «We always say this in our forecast,» he added. «But this time it is particularly true.»

Donald Trump’s election as U.S. president is hovering over everything. He has threatened to impose tariffs of 60% on Chinese products and 20% on European products. This would hit Europe’s economy hard. «If there is an intensified trade conflict, the EU has the most to lose,» says Florian Dorn, economist at the Ifo Institute for Economic Research in Munich. The continent is more deeply intertwined with the global economy than either the U.S. or China. In order to thrive economically, Europe needs free trade.

The prospect of a trade conflict is clearly worrying the EU Commission. However, the Commission still seems hopeful that common sense will prevail in the United States. During his statements on the EU economic forecast, Gentiloni emphasized the extent to which the EU and U.S. economies are linked. «EU-U.S. trade relations are a stabilizing economic and political force,» he said, almost imploringly. It seemed as if he was directly appealing to Trump.

The EU is already facing considerable economic pressure. A dispute over tariffs would only exacerbate the situation. Private investment is too low, energy is expensive, skilled workers are in short supply and public finances are strained.

The fact that the EU has primarily pursued a demand-oriented economic policy in recent years appears to be taking its toll. To date, the EU has attempted to solve almost every problem by taking on even more debt. «That’s too simple,» says the Ifo Institute’s Dorn – especially because it is always unclear whether the money will be invested wisely, he adds.

One extreme example is the NextGenerationEU COVID-19 recovery fund, for which the EU has borrowed over 700 billion euros. According to economists, the time period during which these funds must be used is too short to allow all of the money to be spent effectively. It also remains unclear how the EU will pay interest on the bonds. The various member states have vowed to find new sources of income to fulfill these obligations, but are now making no attempt to keep those promises.

Still protecting local firms

Thus, simply continuing to spend money is not the solution. Instead, it would make sense for the EU to further develop its unique asset – the single market. «The EU must drive it forward,» says Markus Ferber, economic policy spokesman for the European People’s Party parliamentary group in Brussels. Less bureaucracy, fewer nontariff barriers, more EU-wide rules instead of country-level idiosyncrasies – that would constitute a turn toward a supply-oriented economic policy.

Paradoxically, EU representatives frequently lament that many startups are moving their headquarters to the United States. Former European Central Bank President Mario Draghi again drew attention to this shortcoming in a recent report ordered by Commission President Ursula von der Leyen. These young entrepreneurs are attracted to a large market that offers the opportunity to increase sales quickly, Draghi and others have noted.

Mario Draghi presents EU Commission President Ursula von der Leyen with his report on European competitiveness at a news conference in September.

Yves Herman / Reuters

Yet there are 100 million more people living in the EU than in the United States. This means that the European market is technically larger. However, startups face numerous barriers in the EU, for instance in terms of product approval. The EU would thus make substantial gains if it deepened its internal market.

In fact the EU has been struggling to achieve this goal for a long time. It has been striving to liberalize the market for telecommunications services, for instance. There have been some successes, including the elimination of roaming charges despite resistance from providers. However, the sector is far from becoming a single market. It is impossible to live in Germany and conclude a contract with the provider Telekom Austria A1 in Vienna, for instance. The markets are protected in a way that benefits providers.

EU representatives also like to talk about a capital market union. This is far from being a reality, however. German politicians recently reacted with displeasure when major Italian bank Unicredit acquired a 9% stake in Commerzbank – despite the fact that such cross-border transactions ought to be a basic defining feature for a Europe-wide capital market.

Efforts to strengthen the internal market usually founder when they run against national interests. Member states are prepared to promote a single market in sectors in which they themselves are strong, but tend to stand in the way in areas in which they believe themselves to be weak.

Latin America could be a new partner

Further expanding the single market? This undoubtedly offers great potential. Small and medium-sized companies in particular would benefit from an expansion of the market, says Ifo. Such firms would also gain if the EU were finally to push through a preferential trade agreement with Argentina, Brazil, Paraguay and Uruguay, allowing for free trade with some restrictions with these countries.

However, France opposes this idea, and other countries such as Poland, the Netherlands, Italy and Austria have also voiced concerns. «We cannot open our market to massive imports of products that do not meet the same standards,» says French President Emmanuel Macron. However, these four Latin American countries in particular could be important new partners if Trump makes good on his threat of higher tariffs.