The European Union Explained: Institutions, Actors, Global Impact

10. The Single Market and Competition

10 The Single Market and Competition The founding fathers of the European Union envisaged the establishment of a Single Market—the free movement of goods, services, capital, and labor—as a crucial guarantor of peace, stability, and economic progress for a region recovering from the catastrophe of World War II. In the early nineteenth century, the German philosopher Immanuel Kant argued, in Perpetual Peace, that trading nations do not go to war with one another simply because war would have a detrimental effect on profits. More than a century later, the EU’s original six member states set out to make Kant’s dictum a practical reality. Article 2 of the Treaty of Rome of 1957, which established the European Economic Community (EEC), stated that its purpose was “to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living, and closer relations between the states belonging to it.” But not until 1993 did the European Union fully realize the objective of the treaty. This chapter analyzes the reasons for this delay, how the European Commission managed to convince the member states of the extraordinary benefits that a Single Market could bring, and whether, ten years on, the initiative lived up to its promises. Areas and sectors currently earmarked for further European integration are also discussed. Finally, one must address the 11-EUE Ch10 (81-93).indd 83 9/24/08 9:11:08 AM 84 · Policies EU’s competition policy which is aimed at preventing the emergence of distortions to the market, either through the establishment of monopolies or oligopolies, or through mergers and state aid. The key issues here include: How does market regulation differ from redistribution? 1. Why has the Commission gained so much power in the regulation of the 2. Single Market? Is the EU competition policy free-market or interventionist? 3. The Development of the Single Market Program A truly Single Market would give EU citizens a wide choice of products and services from both their home country and from every other member state. Capital would freely move from banks in one member state to banks in other member states. A completed Single Market would give EU citizens the right to work and live anywhere inside the EU. In envisioning a Single or Common Market, the EU planned to create a European sphere of economic activity that would rise above national regulations. However, events did not go according to plan. Although by 1968 tariffs and custom duties were all abolished within the EEC, the establishment of the four freedoms long remained an unfulfilled promise. The oil crises of 1973 and 1979, and the subsequent recessions, prompted some member states to adopt protectionist measures to shield their national markets and industries from global and even European competition. In the end, a multitude of different product standards spread across the EU, with different national regulations governing the service sector, restrictions on capital mobility, and different standards for professional qualifications. All these national restrictions made trading across borders, not to mention settling in another member state, a difficult and sometimes impossible exercise. Despite an emphasis on reducing direct barriers to trade, indirect or national actions kept markets highly fragmented. By the mid-1980s a different global environment forced the EU into a major reevaluation of the potential benefits of a truly Single Market. In the United States, President Ronald Reagan had just embarked on an ambitious defense program aiming to protect the U.S. against nuclear attack by using satellite technology. As a result, military innovation spilled over into the civilian economy, and the U.S. became a global leader in such fields as computer or robotics technology. On the other side of the Pacific, Japan continued to expand its position as the world’s leading provider of consumer products, ranging from television and audio equipment to cars. With advancing globalization, however, Europe was seen to be falling behind. Instead of offering products and services across Europe (as the Treaty of Rome had envisioned), industries were often confined to their own national markets which had detrimental effects on innovation, efficiency, and profitability. Against the backdrop of Europe’s increasing inability to compete with Japan or the United States, the Commission, as 11-EUE Ch10 (81-93).indd 84 9/24/08 9:11:08 AM The Single Market and Competition...