09 September 2012

Simon Nixon: Europe must complete its single market

The single currency's long-term survival depends on the completion of Europe's single market, in which the free movement of goods, capital and people is not just rhetoric but reality, writes Nixon in his WSJ column.

In one important area, the single market has even taken a step backwards during the crisis. After a slew of cross-border deals in the past decade, the European financial services market has started to fragment again: Crédit Agricole is selling its Greek subsidiary, Emporiki; many banks are scaling back cross-border lending, a particular concern to many Eastern European countries whose banking systems are now almost entirely controlled by cross-border lenders. Regulators have also contributed to the break-down in cross-border activity by restricting repatriation of capital and liquidity by banks such as Santander and Unicredit.

Creating a pan-European banking supervisor will be a big step toward reversing this Balkan-isation of finance, which is raising borrowing costs and undermining competitiveness in crisis countries. But a German bank is unlikely to lend to a credit-worthy Spanish firm on the same terms as a domestic customer until there is a single European deposit guarantee fund —something that may be years away.

But there are other areas where the EU can take more immediate action to deepen the single market. Six years after the European Services directive was agreed, services account for 71 per cent of total EU GDP yet just 3.2 per cent of this is a result of intra-EU trade, says think-tank Open Europe.

Many countries continue to put up barriers to entry to their services markets, including favourable tax treatments for local providers, residence requirements for shareholders and staff of regulated professions and lack of EU recognition for foreign qualifications. Meanwhile Europe still does not have a single market for digital businesses. Creating a single digital market could boost EU GDP by 4.1 per cent by 2020, the equivalent of €1,000 ($1,281) per person, according to the UK Department for Business, Investment and Science, while making it easier for Europe to grow companies of the scale required to compete with US players.

Much of the legislation needed to complete the single market is already in place. All that is missing is the political will, both at national and European level, to implement and enforce it.

Ironically, it is usually the eurosceptic UK that has typically been the driving force for greater economic integration. Other countries have too often blocked reform, unable to overcome the political challenge of building consensus with coalition partners, regional governments and trade unions and employers. But the eurozone needs to pull on every growth lever if it is to exit its crisis. Sadly, Mr Draghi's OMT programme does not enable the ECB to set conditions for the eurozone as a whole. But the task of restoring European competitiveness and growth is not one for Spain and Italy alone. Every one of the 27 EU members must play its part.

Full article

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