European integration: Oiling the European machinery
10 August 2010
Although you can find the same wall tiles, cheeses, shoes or cars all over the EU, the ‘common market’ remains common chiefly on paper. In reality, it’s full of constraints.
The only relatively mature construct today is the commodities market. But the removal of trade barriers does not mean that everything is all right, because new products are made in response to innovation and trend changes. It turns out that all the time new barriers emerge in the shape of licensing practices or national-level technological and administrative regulations that make life difficult for manufacturers and deprive customers of wider choice. In order to fully utilise the potential of the common market we need better standardisation, logistics, transport, and copyright protection. Suffice to say that the EU national rail systems use different signalisation systems which makes using the same rolling stock in different countries difficult. Freight documents differ, and so does patent law.
Workforce mobility remains an illusion. Although every year 350,000 Europeans intermarry with an EU citizen from another member state and despite every year 180,000 students move from country to country under the Erasmus program and many stay longer in search of work, many barriers still make life difficult in this community. The common market is complicated by not only the obvious cultural, linguistic, housing- or family-related barriers but also by all kinds of legal hurdles.
For a large part of European societies, workforce immigration means lower wages, loss of work by fellow citizens, and creates a welfare burden. And yet Europe remains an area of very low worker mobility. Only 2.3 percent of Europeans live in a country other than the country of their ethnicity. Any significant change in this regard would require coordinating insurance systems or worker rights, transferring pension privileges, as well as fully recognising foreign professional qualifications.
Medical insurance, debt collection from a partner in another member state, or finally the bureaucratic nightmare and legal riddle of registering your car elsewhere are but the simplest examples of the nuisances and deficiencies. Today, the car has to be registered anew in the new place, the local tax paid again. Car manufacturers too have to comply with all kinds of technological requirements. It isn’t clear why changing a bank account within the EU should be more difficult than changing your mobile phone operator.
The typical European company is small: nine out of ten employ less than ten people. Twenty million such companies in the EU form the backbone of the European economy. For them, a truly common market would be an important source of development potential but today the EU is not a friendly place for such companies. Only 8 percent of them trade internationally and only 5 percent has branches abroad.
The technological revolution has created sectors that didn’t exist when the idea of a common market was being born, such as e-commerce or the ecology industry, but here too the EU lacks sensible regulations. Europe has a single currency but the electronic payments and electronic invoicing market remains divided alongside the national borders.
The common market will not succeed if the benefits that it offers are not recognised by the millions of EU citizens. And the latter are frustrated because they take the benefits for granted, focusing on the shortcomings. As a result, the European soil is today, and will continue to be in the near future, less friendly towards integration than it was in the EU’s young age.
The financial crisis has shaken the faith in the market’s ability to correct itself. Many perceive it today as unethical, resulting in unacceptable inequalities, and ineffective – attracting huge resources to the financial sector, whose contribution to economic development is increasingly disputed. The ‘common market’ therefore has to respond better to the fears and objections that the crisis has intensified. The champions of integration have to be more convincing. Today they are rowing against the current. Cooperation between member states and the EU institutions is particularly important if we want to avoid "reform fatigue", where reforms, even though they are in the best interest of each state, are nevertheless perceived by public opinion as an outcome of striving towards a common market. While globalisation and the rise of new economic powers has not been caused by European integration, a stronger common market would be the best response to globalisation and a way to defend Europeans’ economic interests – far more effective than disintegration and focusing on national instruments.
There is no hiding the fact that the common market creates, temporarily at least, winners and losers, and that member states try various ways to support the latter through welfare policy. But income redistribution will not eliminate tensions between market integration and social goals.
Given sweeping differences in the different member states’ approaches and the power of vested interests sceptical towards closer integration, compromises are needed. Mario Monti, author of A New Strategy for the Single Market, a report commissioned by Jose Manuel Barroso, seems to believe that the new member states may play a special role in searching for them and working them out. They have more to win if integration continues to progress more or less smoothly and more to lose if it slows down or retracts.
Mr Barroso had commissioned the report, Mr Monti has written it, including specific recommendations what and how should be changed in the European machinery. Which of those recommendations become law and how soon is another matter altogether. The scale of the potential benefits offered by a common market is huge but that hardly determines anything.