For the last two decades, European economic growth has been lower than in peer countries. More than a year has passed since the landmark Draghi Report that helped establish a consensus that reform is needed. Yet the required fundamental policy reforms remain stuck, write ASLAK BERG, ELISABETTA CORNAGO, ZACH MEYERS and SANDER TORDOIR.
A new study, ‘A reform agenda for the single market’, authored by the Centre for European Reform (CER) with the support of the Martens Centre, lays out a realistic reform agenda for the single market. The report addresses many of the concerns in the Draghi report across five policy areas while taking into account political constraints in the Council and European Parliament.
On regulation, the study lays out how the EU can cut red tape and compliance costs by taking a tougher line on member-state gold-plating of EU regulation and cleaning up inconsistencies and overlapping regulations in digital regulation. At the same time, the EU can spur innovation by reasserting the subsidiarity principle and engaging with firms through increased use of self- and co-regulation.
On energy, the study shows how Europe can achieve more efficient energy markets and lower prices by investing in cross-border grid connections with EU-level co-ordination. By shifting to smaller bidding zones and more granular pricing, the EU can reduce inefficiency and spur investment where it’s most needed. Increased use of smart meters and time-varying power pricing could boost efficiency further.
The EU can lay the groundwork for a savings and investment union by approving a strong and robust 28th regime that would enable firms to scale up and standardised financial products to be created without adapting to multiple legal regimes. Although European capital markets remain fragmented, the EU should incentivise capital market reform through, for example, increased flexibility on fiscal targets.
This can boost trade in services by supporting a group of ‘European growth city-regions’ that have the potential to become hubs for services trade and empowering cities with increased control over EU funds. This can be combined with shifting funding towards human capital and infrastructure from lower-impact areas.
On competition, the EU should take a strong stand against political interference in cross-border mergers to protect national champions, particularly in sectors like banking. The EU should also revise its guidelines to reflect the importance of scale, the prospects for radical innovation in some sectors, and the nature of global competition. In digital markets scale has a much more significant impact on innovation than in infrastructure-heavy markets like telecoms and EU competition policy should reflect that.
One of the authors of the report, Aslak Berg said: “The EU has the right diagnosis: it is falling behind on productivity and economic growth. Now it must find the courage to reform, and our study helps lay out a path to do just that.”
Another author of the report, Zach Meyers said: “The EU must address the institutional incentives that have contributed to the recent ‘tsunami’ of new laws. We need to ensure laws are simplified, new proposals are better designed, and future laws deliver the ultimate goal of deepening the single market.”
