18 Leaders The EconomistSeptember 14th 2019
E
very five years the appointment of a new team at the Euro-
pean Commission is a chance to steer the European Union
(eu) in a fresh direction. On September 10th Ursula von der
Leyen, the incoming boss, set out her priorities: managing the
transition from fossil fuels, extra dollops of American big-tech
bashing and “upgrading our unique social market economy”.
The first two at least have the benefit of being clear. On the
economy, however, Europe needs a lot more than blather. In the
past decade the trend of economic integration that defined post-
war Europe has gone backwards. The “single market”, once
breathtaking in its ambition to eliminate all internal eu barriers
for goods, services, capital and people, has failed to keep up with
the economies it was trying to shape. If Europe wants to create
prosperity and world-beating firms, it needs not just to reinvigo-
rate the single market, but also to rediscover that original vision
in neglected areas of trade such as services.
The single market still matters—look at the mess Britain finds
itself in as it tries to extricate itself from the eu. But a policy origi-
nally devised to break down trade barriers in the era of coal and
steel has not adapted fast enough to the era of bits and likes (see
Briefing). In the past decade Europe’s banks have retrenched to
their home markets and its firms have shifted their energies to
expanding outside the eu. As a result, Europe still looks like a se-
ries of mid-sized economies patched together,
not a single rival to China and America.
That is one reason why, even as central bank-
ers administer a drip-feed of monetary adrena-
lin, Europe’s economy is losing ground to global
rivals. It risks becoming a business backwater. A
decade ago ten of the world’s 40 largest listed
firms by market value were based in the eu; now
only two are—in 32nd and 36th place. Desperate-
ly few of the world’s leading startups are European.
Policymakers who ache at the absence of a European tech suc-
cess on the scale of Google or Amazon pay lip service to the im-
portance of the single market. And yet France and Germany ar-
gue that the real answer is dirigiste industrial policy. They have
called for mergers of European firms to create industrial “cham-
pions” shielded from antitrust rules and Chinese competition.
They should be aiming to complete the single market instead.
A functional single market helps firms achieve economies of
scale. It is cheaper to make a product that has to meet one set of
euregulations than to try to follow 28 different national rule-
books. Stiffer competition from firms across the continent
means that shoppers get better and cheaper stuff. Imagine if the
dozens of mobile operators in Europe were free to pitch their
data plans to those beyond their national borders. Instead, con-
sumers have to make do with higher-charging local oligopolies.
Innovation spreads faster in a unified market, pepping up
productivity. A properly integrated energy grid would boost the
most efficient (and greenest) power producers. Banks with loans
out across the continent avoid trouble if their home market falls
into recession. Capital markets on a continental scale can help
them distribute risks beyond the banking sector. Safer banks and
deeper markets mean cheaper capital and fewer bail-outs.For all those reasons, reinvigorating the single market ought
to be at the centre of the debate on how to boost Europe’s econ-
omy. It is not. Since her appointment two months ago Mrs von
der Leyen has mentioned the single market only in passing (see
Europe section). The commissioner in charge of the brief, Sylvie
Goulard of France, is well regarded, but will have to split her time
between internal-market duties, regulating artificial intelli-
gence, and a new defence-industry and space brief.
That might be understandable if the single market were be-
yond saving. In fact it can be revitalised in three ways. The first is
to ensure that its statutes are fully implemented. Too often, na-
tional governments flout the edicts of the single market so as to
protect a politically connected industry. On average, each Euro-
pean country regulates the workings of nearly 200 professions,
making it needlessly tricky for Europeans to move to where the
jobs are. No wonder bits of the continent still have double-digit
unemployment. The new Brussels team should step up enforce-
ment against governments that fail to apply the rules.
The second way is to focus on the euro. The single currency is
in some ways an extension of the single market, even if fewer
countries belong to it. It would be more stable if a central fund
insured bank deposits. A more substantial euro-zone budget, fo-
cused on unemployment insurance, say, could help integrate
euro-zone economies. As an added benefit, this
would also deepen cross-border links, notably
by helping banks become truly European. Here,
Mrs von der Leyen has a harder task. Her native
Germany will seek to keep progress glacial.
Most ambitious would be a fresh push to re-
move what structural barriers remain to cross-
border European trade. Collecting value-added
tax in a neighbouring country would not be so
daunting for small businesses if the levy was structured in the
same way across Europe, for example. Banks would pitch their
wares more broadly if bankruptcy laws were harmonised, and a
proper capital-markets union created. Standard contracts for
business services (on professional liability, say) would make it
easier for German accountants to tout for business in Italy, or for
Spanish architects to pitch their offerings beyond the Pyrenees.
A grand bargain of policies serving up tax reform, services lib-
eralisation and a more robust euro would run into plenty of na-
tional red lines. But each country would also have lots to gain.
Europe needs to shield itself from the fallout a global trade war
might bring. It needs a vision after the departure of Britain, the
single market’s most reliable champion in Brussels—but also,
often, a brake on ambitious projects. Meanwhile, Britons tempt-
ed to say good riddance to the single market’s frustrations should
reflect on how much losing a seat at the table could cost them.
Jacques Delors, a former head of the European Commission
who championed closer integration, rightly pointed out that
“nobody can fall in love with the single market”. There is nothing
flashy about reworking bankruptcy rules or tax regimes. But Eu-
rope’s greatest economic project is half-finished business, yield-
ing just half the benefits it could. Europe has few such obvious
levers to pull to boost its economy. Time to tug on this one. 7A singular opportunity
Europe’s best hope of economic revival lies in reanimating its single marketEurope’s economy