Europe’s common market rests on four basic freedoms: the free movement of goods, services, labour and capital. By eliminating trade barriers in these areas, the EU has increased its volume of trade to almost 3 trillion euros. Furthermore, economic integration has contributed to economic growth and job creation in the EU. According to the EU Commission’s own estimates, the common market added 2.2 per cent to GDP growth between 1992 and 2006 and created 2.75 million jobs.
Though Brexit will weaken the common market, it is all but assured that Britain will continue to be an important trading partner, participating in the market much like Iceland, Norway and Liechtenstein (via the European Economic Area) or Switzerland (via the European Free Trade Association) do. In addition to its direct economic benefits, the single market system brings with it institutional advantages. One such advantage is a common EU trade policy. If EU Member States had to negotiate individually with third-party countries, their small economic size relative to, say, the US and China would put them in a weaker position. Indeed, it was Europe’s unified economic front that allowed it to secure robust consumer protection laws, strict environmental standards and favourable economic conditions for European companies when negotiating the terms of CETA, a free-trade agreement between Canada and the EU.
The key to Europe’s thriving in the global economy
Another institutional advantage arises from the EU’s common competition policy, which is designed to ensure a level economic playing field and forestall market distortions. The common policy transfers responsibility for the monitoring and enforcement of antitrust law in many instances from national jurisdictions to the EU Commission. It also entrusts the Commission with the control of state aid, i.e. the prevention of unfair market conditions due to selective government support. A common framework also helps enforce antitrust rules in companies outside the EU. A prime example is the EU’s decision to charge Google a recording-breaking 2.4 billion euro fine for violating EU competition law. It is highly improbable that Member States acting individually against Google could have achieved such a forceful result.
Another elemental feature of the European Single Market, of course, is its common currency, and it too has proven beneficial. In addition to curtailing foreign-exchange risks, the euro prevents currency wars within Europe, which could weaken the countries’ acceptance of the common market, among other undesirable outcomes.
For all the benefits of the single market, however, there’s still room for improvement. In particular, action must be taken to help reduce the economic disparities between Member States. The EU Commission estimates that the elimination of existing trade barriers and the completion of the digital single market could increase GDP by up to 415 billion euros per year. The removal of cross-border barriers to services and better financial market integration could also yield positive results. Finally, a more harmonised energy market is needed to increase the efficiency of energy supply and the likelihood of reaching climate targets.
Despite the challenges it faces, the common market has been highly effective and is the key to Europe’s thriving in the global economy. If it didn’t already exist, we’d have to invent it.