This transition represents a strategic realignment towards more pragmatic policymaking. Adopting a 28th regime to address national regulation discrepancies would align with this goal and enhance the Single Market’s effectiveness in promoting economic growth and competitiveness. Given the EU’s ongoing loss of relative global economic clout, it is crucial to establish an ambitious timeline for implementing the most critical Single Market reforms.
The Letta Report serves as a wake-up call to revitalise the EU’s Single Market, emphasising the need for decisive action. Its vision largely hinges on legal harmonisation within Europe, building on early efforts to liberalise markets and establish a truly integrated European market.
Despite efforts, “integration fatigue” remains a significant challenge due to legal fragmentation across European economies. Previous reports, from the Cecchini Report in 1992 to the Europe 2020 Strategy, have highlighted persistent issues like regulatory divergences and declining political support for market integration. Despite numerous proposals, progress has been limited, and many challenges persist or have worsened (see Section 2).
An analysis of EU reports reveals a shift in policy priorities over time. Initially, there was a strong focus on liberalisation and market opening, with less attention given to state aid and industrial policymaking. The Letta Report highlights the importance of regulatory convergence and harmonisation, reflecting a deeper understanding and recognition of the drivers of EU competitiveness. The rise of nationalism and a shift towards “Strategic Autonomy” within the EU have hindered crucial market reforms. This highlights the importance of aligning laws across Member States to strengthen and reinforce EU’s economic resilience and international competitiveness (see Section 3).
EU institutions and Member State governments should set specific goals for “legal harmonisation in the EU.” This shift would address real challenges faced by businesses and citizens, and build political will for necessary reforms. Prioritising legal harmonisation would enhance internal cohesion and align national laws with Union-wide goals. An actionable roadmap – potentially with a 2028 deadline – is crucial to address the substantial gap between ambitious EU strategies and Europe’s economic realities. (see Section 4).
Implementing sector-specific and horizontal policies in a new regulatory regime would improve cross-border operations and competitiveness. The Letta Report advocates for a European Code of Business Law to establish a unified regulatory framework, introducing a 28th legal regime to address national regulation discrepancies. Extending this regime to include tax and labour market policies would significantly enhance cross-border operations.
The EU and Member State governments can eliminate substantial internal barriers by prioritising key horizontal policies affecting all businesses, such as fragmented tax laws, labour market policies, and social security systems. Simplifying and harmonising these policies on the basis of the facilitation of four freedoms is crucial for unlocking the Single Market’s potential for businesses and workers, boosting the EU’s global competitiveness.
Allowing coalitions of willing countries to advance in certain areas of legal integration provides a viable solution to the long-standing Single Market “fatigue”. By enabling smaller groups of Member States to pursue integration in specific areas, the EU can bypass the constraints imposed by rigid voting requirements and achieve greater agility, accountability, and acceptance in EU law-making. This approach not only fosters flexibility but also upholds the fundamental principles and objectives of the EU. To ensure the integrity of the EU legal order and prevent unjustified barriers or discrimination against non-participating members, it is essential to establish safeguards and oversight mechanisms. These measures would maintain cohesion within the Union while allowing for progressive legal integration among willing Member States.
1. Introduction
The EU, with its 27 countries and 24 official languages, faces significant trade and business challenges due to its linguistic diversity.[1] This multilingualism complicates cross-border business activities, from contractual agreements to daily communications, increasing operational costs and perceived legal risks for businesses within the Single Market.[2] Unlike the US, where English potentially mitigates the negative impacts of internal regulatory barriers, the EU’s linguistic diversity and legal fragmentation require additional resources for translation, legal counsel, and compliance management. This results in higher operational costs and complexities, impacting business efficiency and trust in the Single Market.[3]
The EU’s historical linguistic and regulatory diversity have long presented substantial challenges for commerce across its member states. Despite ambitions for a more integrated Europe, progress has been limited, with the Single Market far from complete. National political and protectionist tendencies often prioritise individual state interests over collective European goals, obstructing the vision of a seamless economic area allowing free movement of goods, services, people, and capital.
The Letta Report of April 2024 was commissioned by the Belgian and Spanish governments. Titled “Much More Than a Market,” it proposes strategies to modernise the European Single Market to address pressing challenges for Europe. The report was authored by Enrico Letta, former President of the Italian Council and President of the Jacques Delors Institute, together with the President of the European Commission, Ursula von der Leyen.[4] It is supported by the entire European Council. The Letta Report urgently calls for the rejuvenation of the EU Single Market.
The significance of the Letta report can be questioned, given the numerous previous attempts of creating a genuine internal market within Europe. Rising nationalism and shifts towards “Strategic Autonomy” in the EU have stalled essential market reforms and fostered protectionist policies, undermining global trade norms and the liberalisation progress achieved in the past decades. If the European Parliament shifts further towards national-populist representation following the 2024 elections, these inward-oriented, protectionist tendencies could be exacerbated.
To counteract such developments and achieve a truly unified market, the EU needs a deep re-evaluation of its integration strategies, addressing legal fragmentation and cultural barriers through substantial reforms. The success of new initiatives, such as the Letta Report and the upcoming Draghi Report, in increasing the EU’s international competitiveness heavily depends on overcoming national interests, prioritising policy coherence and enforcement, and committing to deep, structural reforms that align with the broader goals of market integration and competitiveness. This requires a shift in political will across Member States and a commitment to pragmatic and sustained policy action.
In this paper, we address the overarching question of the relevance of the Letta Report, considering the countless reports and EU initiatives that preceded it in the past 30 years or so. We highlight the most significant and persistent structural problems of EU economic integration and discuss potential policy priorities, from harmonising major horizontal policies to reforming the mode of political and economic integration, with the political objective of significantly enhancing the EU’s economic competitiveness and securing its economic future.
Section 2 delves into the gap between political ambitions and the legal and economic realities in the EU. Section 3 offers an overview of several high-level EU reports and strategies, highlighting the challenges in their implementation. Drawing from the in-depth analysis conducted in the paper, Section 4 outlines what we consider to be ambitious yet relevant policy recommendations.
[1] See, e.g. EPRS (2018). Languages and the Digital Single Market. Available at https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/625197/EPRS_BRI(2018)625197_EN.pdf.
[2] As concerns differences in language, research finds, for example, that a 10% increase in the Language Barrier Index can result in a 7% to 10% decrease in trade flows between two countries. See Lohmann, J. (2011). Do language barriers affect trade? Available at https://www.sciencedirect.com/science/article/abs/pii/S0165176510003617.
[3] ERT (2021) Renewing the dynamic of European integration: Single Market Stories by Business Leaders. Available at: https://ert.eu/wp-content/uploads/2021/12/ERT-Single-Market-Stories_WEB-low-res.pdf
[4] See Letta, E., (2024). Much more than a market. Available at: https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf. The Letta Report focuses on building the Single Market of the future, stressing challenges such as the Europe’s economic security and the digital and green transitions. The analysis is within the scope of the mandate received from the EU Council and the Commission, developed under the Belgian, Spanish, and Hungarian trio Presidency of the Council of the EU. The aim of the report is to provide concrete and operational contributions to the work programs of these institutions and to complement Mario Draghi’s report on the future of European competitiveness. The report acknowledges the profound support and passionate engagement of the European Commission, including its President, Commissioners, Directors, Officials, and especially those responsible for the Single Market, including Commissioner Thierry Breton, Belgian Vice Prime Minister Dermagne, and his Ministry in the Belgian Presidency.