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(p. 367) 20. The Single Market 

(p. 367) 20. The Single Market
Chapter:
(p. 367) 20. The Single Market
Author(s):

Ian Bache

, Simon Bulmer

, Stephen George

, and Owen Parker

DOI:
10.1093/hepl/9780199689668.003.0020
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Chapter Overview

Although the European Union (EU) is much more than just a common market, the economic ideal of a common or single European market lies at its core. The aspiration to create a common market was fundamental in the decision in the mid-1950s to set up the European Economic Community (EEC). Thirty years later, the decision to institute a drive to achieve a single internal market by the end of 1992 was fundamental to the revival of European integration.

This chapter looks at the original decision to create a common market, the patchy record of progress from the 1960s through to the 1980s, then at the moves to complete the internal market—what became known as the single market programme—in the 1980s. It reviews the development of internal-market policy, the record of implementation beyond 1992, and it outlines recent policy developments in relation to the single market in the context of the eurozone crisis which began in 2009. Finally, it considers the academic literature on the single market, outlining the main explanations for its development and exploring some key ideological or normative perspectives on its consequences.

History

Article 9 of the Treaty of Rome (EEC) stated, ‘The Community shall be based upon a customs union’. Also, a substantial section of the Treaty was devoted to the free movement of persons, services, and capital (now Articles 45–66 TFEU). Together, these objectives constitute the construction of a single European market (SEM). Progress in achieving them has varied over time.

The decision to create a common market reflects two of the main motivations for setting up the EEC: to avoid any return to the national protectionism that had been economically disastrous for Europe between the world wars, and to promote economic expansion by creating a large internal market for European producers that would rival the large US market. The history of the decision is recounted in Chapter 6.

It was clear that the creation of a customs union would result in an uneven distribution of benefits and losses between the member states; although the precise distribution of those benefits and losses could not be predicted in advance, there were reasonable grounds for believing that West German industry might gain more than (p. 368) French industry would. That is why French negotiators were anxious to ensure that other commitments were made in the Treaty of Rome, to develop policies in areas in which their country could be expected to benefit more than West Germany, particularly agriculture. But the reason why the plunge was taken to create the EEC was that all six states expected their economies to be better off as a result of creating the internal market, even if some benefited more than others.

In 1960, the Council of Ministers took the decision to accelerate the original timetable for removing internal tariffs and quotas, and erect a common external tariff, so that the common market would be completed by 1968 instead of 1970.

All seemed to be progressing smoothly, until, in July 1965, President de Gaulle withdrew France from all participation in the work of the Council of Ministers, plunging the European Community (EC) into crisis (see Chapter 7, The 1965 Crisis). This 1965 crisis was to blame for taking much of the momentum out of the EC. However, de Gaulle did not stop the completion of the customs union, which was complete by July 1968. He did cause a delay, though, in the implementation of the rest of the Treaty. The wait turned out to be much longer than just for the retirement of de Gaulle. By the time that Pompidou became President of France, and adopted a more accommodative attitude to the EC, world economic circumstances had begun to shift away from the high growth of the 1950s and 1960s. By the time that the negotiation of the entry of Britain, Ireland, and Denmark had been completed at the start of 1972, clearing the way for a further deepening of the level of economic integration, the capitalist world was teetering on the brink of recession, and was soon to be pushed over the edge by the Organization of Petroleum Exporting Countries (OPEC) (see Chapter 7, Into the 1970s).

Throughout the ‘stagflation’ years of the 1970s, further progress on the creation of a genuinely free internal market became almost impossible (Hodges and Wallace 1981; Hu 1981). Given the economic problems that they were experiencing, and the political problems that resulted, governments became particularly prone to short-termism, and sensitive to the protectionist impulses of domestic interest groups and public opinion. This was not a favourable environment for strengthening the internal market. Indeed, throughout the 1970s, there was a marked retreat from the common market by the member states. Unable to raise tariffs or quotas against imports from other members of the EC, governments became adept at finding different ways of reserving domestic markets for domestic producers. Non-tariff barriers (NTBs) proliferated.

These NTBs took a wide variety of forms. Some, such as state aids to industry, were against the competition clauses of the EEC Treaty, and the Commission frequently took member states to the European Court of Justice (ECJ). However, the compliance of guilty states with the rulings of the ECJ was often tardy, and only effected once an alternative system for supplying the aid had been devised. The long process of investigation by the Commission, issuing of warnings, reporting to the ECJ, and waiting for the case to make its way to the top of the Court’s increasingly long agenda, then had to begin all over again.

Other NTBs were more subtle. Particularly prevalent were national specifications on the safety of products, some of which were so restrictive that only nationally produced goods could meet them without modification to their basic design. Differing regulations could prevent a single manufacturer from producing on the same (p. 369) production line for the whole EC market; in effect, the market was fragmented into a series of national markets again. Governments also used border customs formalities to make importing difficult, and only placed public contracts with national companies (Pelkmans and Winters 1988: 16–53).

Project 1992: Freeing the Internal Market

In the mid-1980s, the situation in the EC began to change rapidly, again in response to the changing international economic environment. In June 1984, at the Fontainebleau meeting of the European Council, two major steps were taken in breaking out of the immobilisme that had been afflicting the EC. First, agreement was reached on the long-running dispute over British contributions to the Community’s budget; second, a committee was set up to look into the need for reform of the institutional structure and decision-making system of the EC.

At the beginning of 1985, a new Commission took office under the presidency of Jacques Delors, and in June 1985 Lord Cockfield, the British Commissioner for Trade and Industry, produced a White Paper on the freeing of the internal market from NTBs to trade in goods, services, people, and capital (European Commission 1985). This listed some 300 separate measures, later reduced to 279, covering the harmonization of technical standards, opening up public procurement to intra-EC competition, freeing capital movements, removing barriers to free trade in services, harmonizing rates of indirect taxation and excise duties, and removing physical frontier controls between member states (see Insight 20.1). The list was accompanied by a timetable for completion.

At the Milan European Council in June 1985, the heads of government accepted the objectives of the White Paper and the timetable for its completion by the end of 1992. It was also agreed, against the protests of the British Prime Minister, Margaret Thatcher, to set up an intergovernmental conference (IGC) to consider what reforms of the decision-making process should accompany the initiative to free the market. The outcome of this IGC was the Single European Act (SEA), which was agreed by the heads of government at the Luxembourg European Council in December 1985, and eventually came into force, after ratification by national parliaments, in July 1987. It introduced qualified majority voting (QMV) into the Council of Ministers, but only for measures related to the freeing of the internal market, and even here certain areas—including the harmonization of indirect taxes and the removal of physical controls at borders—were excluded at British insistence.

Beyond 1992

The deadline of the end of 1992 was the target date for the Council of Ministers to agree all the 279 measures in the White Paper. To facilitate meeting the deadline, the Commission drew up a timetable for proposals to be made and to be agreed. As a result of this, over 95 per cent of the measures mentioned in the White Paper had been (p. 370)

Insight 20.1 The Commission’s White Paper on Freeing the Internal Market

The White Paper provided no simple definition of what ‘freeing the internal market’ constituted, but it dealt with four ‘freedoms’:

  • the free movement of goods;

  • the free movement of services;

  • the free movement of labour;

  • the free movement of capital.

The aim of the White Paper was to remove physical barriers, fiscal barriers, and technical barriers to these four freedoms of movement.

The removal of physical barriers was dealt with by a series of proposed directives to end elaborate border checks on goods crossing from one EC member state to another, which were costly in themselves and caused long delays.

The removal of fiscal barriers was dealt with in a series of proposals to harmonize rates of VAT and excise duties.

‘Technical barriers’ was a portmanteau term covering a range of different things, including national standards for products, barriers to the free movement of capital, the free movement of labour, and public procurement rules.

National standards were dealt with by the adoption of the so-called ‘new approach’. This was based on the principle enunciated by the ECJ in its judgment in the Cassis de Dijon case (Case 120/78, 1979). Ruling that the German government had acted illegally in preventing the sale of a French liqueur in Germany because its alcohol content was lower than specified in German law, the ECJ stated that any product that could legally be offered for sale in one member state should also be allowed to be offered for sale in every other member state. The only exceptions permitted to the principle were those imposed on health and safety grounds. In order to overcome this potential barrier, the Commission proposed that minimum health and safety standards for all products should be laid down by two European standards authorities, each of which is known by the initial letters of its name in French: CEN (the European Committee for Standardization), and CENELEC (the European Committee for Standardization of Electrical Products). If products met these minimum standards, they would be awarded a ‘c.e.’ mark, and could not legally be prevented from being put on sale in any member state.

Barriers to the free movement of capital had already started to disappear within the EC, and the White Paper simply proposed to complete this process through three directives covering cross-border securities transactions, commercial loans, and access to stock exchanges in other countries.

Barriers to the free movement of labour were to be tackled by directives covering the extension of rights of residence that already existed for workers, to citizens who were not active members of the labour force (students, retired people, the unemployed), and guaranteeing non-discrimination in access to social and welfare benefits. The Commission also undertook to prepare guidance and draft directives on the mutual recognition of professional and educational qualifications.

Public procurement referred to the purchasing policies of public authorities, which in most member states discriminated in favour of national suppliers and contractors. The aim was to open the largest contracts to competitive bidding by firms from across the EC.

(p. 371) agreed by the end of 1992 (Calingaert 1999: 157). This remarkable record of success, however, needs to be set against three further considerations, as follows:

  • Council agreements have to be implemented; thus, agreement in the Council did not in itself mean that the single market was working. Before that stage would be reached, there were two further requirements: transposition and enforcement.

  • The 5 per cent of the measures that had not been agreed included some of the most intractable and controversial in the White Paper.

  • The White Paper did not cover some areas in which businesses wanted to see liberalization, because they were considered too controversial.

These difficulties post-1992 are reviewed below. It must be noted, though, that the single market programme has, overall, been a considerable success, and that the momentum has been maintained despite the problems.

Transposition and Enforcement

Once a directive has been agreed by the Council of Ministers, it has to be transposed into the national laws of the member states. This process was slower in some states than in others, which meant that there were transposition problems ongoing more than a decade after the 1992 agreement. The Commission kept a running tally of the record of member states on transposition, and published the results annually as a league table. Concern about the low level of transposition overall, and particularly in certain member states, led to agreement in 2003 on an Internal Market Strategy that set the target for every state of keeping its ‘implementation deficit’ below 1.5 per cent. This meant that, at any one time, no state should have failed to transpose more than 1.5 per cent of all single market directives that had been agreed at EU level. Some member states responded vigorously to the target. For example, Ireland more than halved its implementation deficit between May 2003 and January 2004 to get below 1.5 per cent. Other member states, however, responded less to the target. Although there was variation in the performance of member states, a small group of persistent offenders emerged, consisting of France, Germany, Greece, Italy, and Luxembourg. At the other end of the spectrum, Denmark, Spain, Finland, and Britain (in approximate order of merit) consistently kept within the target (European Commission 2004a).

Even when the member states have transposed internal market legislation, it still has to be enforced, and the record of national governments on this is very variable. The Commission has had to deal with a constant flow of complaints from member states about infringements of the rules by other member states, although the records of different states vary considerably. Two areas in which the record on enforcement is particularly bad are those products for which there are no harmonized EU standards, and public procurement.

Where there is no uniform EU standard for a product, internal market regulations require national authorities to accept the standards of other member states. However, companies have often found their products being subjected to a battery of national test and certification requirements, especially in France and Germany.

Similar problems of non-recognition in the absence of harmonized standards have arisen in the services field, in which there has been a marked reluctance to recognize the qualifications of individual workers, thus putting limits on the free movement of (p. 372) labour. Barriers have also been placed in the way of service companies operating across frontiers.

On public procurement, despite EU directives obliging public authorities to advertise tenders for large contracts, very few contracts have been awarded to non-national firms and concerns related to corruption persist.

Problem Areas

Some issues that were included in the White Paper proved particularly difficult for member states to agree on, and this is why only 95 per cent of the programme had been agreed by the end of 1992. Two that stand out are tax harmonization and company law. Arguably, agreement on both is necessary if there is to be a genuine single market in which companies can operate without regard to national boundaries. Without harmonization of taxes and a common company statute, companies that operate in several different states face a complex of regulations and paperwork. Others have argued from a broadly neofunctionalist perspective that the spillover pressures (see Chapter 1) of a single market have even more significant implications, creating a logical impetus for integration in a range of politically sensitive areas, including public services of various kinds and monetary policy (see Chapter 21).

While the areas of tax and company law were included in the White Paper but did not lead to integration, other areas were not mentioned, but some integration did take place. Two notable examples were telecommunications and energy. These were identified by businesses in the EU as two of the areas that most raised their costs of production in comparison with the United States. They were omitted from the 1992 Programme because they were sectors that had traditionally been in public ownership in the member states, and they had a public service aspect to them. However, the Corfu European Council in June 1994 recognized that the extension of the internal market to telecommunications and energy was a priority action to raise European competitiveness. The Commission then tried, and to a certain extent succeeded, to liberalize these market sectors (see Insights 20.2 and 20.3), although it was considerably more successful in the case of telecommunications than in the energy sectors, largely because energy was more highly politicized within member states and the pressure for change was not so great. With increased concern in the early twenty-first century about energy supplies and about the need to reduce carbon emissions, though, it became possible to build on the loose agreements reached earlier and a new package was agreed in late 2009.

The Services Directive

Telecommunications and energy supply are specific examples of service industries, which as a whole proved to be much more difficult to liberalize than did trade in goods. By 2005, only 20 per cent of sales of services in the EU were traded across frontiers. This slow progress led the Lisbon European Council in March 2000 to request that the Commission produce an action plan to remove barriers. Liberalizing services was part of the ‘Lisbon Agenda’ (see Chapter 10, The Lisbon Strategy, and Chapter 18). Following widespread consultations, in July 2002, the Commission published its Report on the State of the Internal Market for Services. This was followed in January 2004 by a proposed Services Directive (see Insight 20.4). (p. 373) (p. 374)

Insight 20.2 The Liberalization of Telecommunications

Telecommunications in Europe was traditionally dominated by national monopoly suppliers—the post, telegraph, and telephone (PTT) public utilities. Attempts by the Commission to involve itself in the sector prior to 1982 proved fruitless. It was a sector dominated by national policy communities, which collaborated with each other at the international level to preserve the status quo.

An opportunity was opened for the Commission by the implications of deregulation of the telecommunications market in the United States in the early 1980s. This led to pressure from the government of the United States for the EC to open its markets for telecommunications equipment. AT&T, which had been forced to open up its domestic operations, was anxious to recoup lost revenue by moving into Europe, and IBM was looking to diversify into what promised to be an increasingly profitable market (Dang-Nguyen et al. 1993: 103).

The Commission responded by commissioning a number of reports on how Europe was losing out to the United States following US deregulation. It used these to build a momentum in the same way that Delors and Cockfield used the Cecchini Report on the ‘Costs of Non-Europe’ (Cecchini 1988) to build up momentum for the internal market. It also mobilized producer groups that had an interest in seeing an increase in the efficiency and a decrease in the cost of telecommunication services: the Union of Industrial and Employers’ Confederations of Europe (UNICE), and the Information Technology User Group (INTUG).

Another element in the strategy was that the Commission tried to ride its project on the back of the single market programme. Its discourse on telecommunications drew heavily on the 1992 Programme. Its approach assumed that a single market required a common infrastructure, of which telecommunications would be a part. Thus, the creation of a European policy for telecommunications gathered momentum by association with the 1992 Programme (Fuchs 1994: 181).

Having established the legitimacy of a European policy for the sector, in 1987 the Commission produced a Green Paper on the Development of the Common Market for Telecommunications, Services and Equipment. This discussion document became the basis for the development of a policy in the sector much as the White Paper on the internal market had been the basis for the 1992 Programme. It advocated deregulation and increased competition, proposals that were consistent with developments in those member states that had begun to respond to the problem at national level, of which Britain was the leader.

The Green Paper advocated the separation of regulation of the sector from operation of the system, a reform that had already been introduced in Britain, France, and Germany; and the introduction of Open Network Provision (ONP), so that rival operators could compete using a common infrastructure. A concession to the PTTs was that they would remain in control of the provision of network services.

In 1988, the year after the publication of the Green Paper, the Directorate-General for Competition issued an administrative directive on the liberalization of the terminal-equipment market. The Commission argued that it had the right to act without specific approval by the Council of Ministers because it was acting in pursuance of Article 90(3) of the Treaty of Rome (EEC) (now Article 106(3) TFEU), under which the Commission is charged to ensure that special rights conferred on national companies by their governments do not prevent the completion of the common market. Although the Council of Ministers had approved the Green Paper—which listed liberalization of the market among its objectives—France, Belgium, Germany, and Italy took the Commission to the ECJ, alleging that it had exceeded its powers by not seeking the approval of the Council for the directive. In March 1991, the Court found in favour of the Commission.

With backing from the ECJ, and assisted by strong pressure on national governments from the users of telecommunications, the Commission managed to secure the passage of a series of directives between 1992 and 2002, when a telecommunications regulatory package was agreed that came into effect in 2003. This set up a framework for national regulation. In late 2009, agreement was reached on further reform that would create EU-wide regulation of the sector.

The Services Directive ran into vocal political opposition because it proposed to apply to services the ‘country-of-origin principle’ that had applied to trade in goods since the Cassis de Dijon judgment of the ECJ in 1979 (see Chapter 16, ECJ Rulings and Policy Impact). Under the Cassis judgment, if a good could be sold legally in one member state, it could be sold legally in any member state. This meant that where there were no EU-level standards for a product, it had only to meet the national standards of the state in which it was produced, and could then be legally exported to any other member state. Although it had caused some protest at the time, this principle had come to be accepted for trade in goods. The application of the same principle to trade in services, though, was not readily accepted.

Insight 20.3 The Liberalization of Energy Supply

According to Matlary (1997), a similar approach to that used in the case of telecommunications was used to push forward a common energy policy. Like telecommunications, the energy sectors were dominated by national monopolists, which most commonly were publicly owned. An open market in energy was originally part of the White Paper on the single market, but the opposition of national monopoly suppliers led to it being excluded. However, the Commission returned to the issue in 1989, making proposals for a phased dismantling of national monopolies over the electricity grids and gas supply networks. The linking of energy policy to the single market programme was explicit. In April 1991, Sir Leon Brittan, the Commissioner for Competition Policy, said that there were two sectors that were vital to the internal market: telecommunications and energy.

It was unlikely that the national monopolists themselves would support liberalization moves, but the Commission was able to mobilize the support of large industrial users of energy, working through the existing institutionalized networks of UNICE and the ERT.

Negotiations in the Council of Ministers were protracted. The French government in particular was reluctant to end the monopoly of Electricité de France (EdF) over the distribution of electricity in France. It claimed that its primary concern was to protect the access of rural French domestic consumers to electricity at the same price as was available everywhere else in France. This was known as ‘the public service argument’. However, it was also bowing to intense pressure from the Confédération Générale du Travail (CGT) trade union, which feared that liberalization would mean job losses.

Eventually, in June 1996, agreement was reached on a phased liberalization of electricity supply over six years, but it would only apply to large industrial users. The whole process of negotiation then had to be repeated to secure an agreement on liberalization of the market in gas supply, with the French government fighting as hard to protect the position of Gaz de France as it had to protect EdF. Eventually another compromise deal was reached in December 1997.

(p. 375)

Insight 20.4 What is the Scope of the Services Directive?

The Services Directive applies to the provision of a wide range of services—to private individuals and businesses—barring a few specific exceptions. For example, it covers:

  • distributive trades (including retail and wholesale of goods and services);

  • the activities of most regulated professions (such as legal and tax advisers, architects, engineers, accountants, surveyors);

  • construction services and crafts;

  • business-related services (such as office maintenance, management consultancy, event organization, debt recovery, advertising, and recruitment services);

  • tourism services (e.g. travel agents);

  • leisure services (e.g. sports centres and amusement parks);

  • installation and maintenance of equipment;

  • information society services (e.g. publishing—print and web, news agencies, computer programming);

  • accommodation and food services (hotels, restaurants, and caterers);

  • training and education services;

  • rentals and leasing services (including car rental);

  • real estate services;

  • household support services (e.g. cleaning, gardening, and private nannies).

The Services Directive does not apply to the following services, which are explicitly excluded:

  • financial services;

  • electronic communications services with respect to matters covered by other Community instruments;

  • transport services falling into Title V of the EC Treaty;

  • healthcare services provided by health professionals to patients to assess, maintain, or restore their state of health where those activities are reserved to a regulated health profession;

  • temporary work agencies’ services;

  • private security services;

  • audiovisual services;

  • gambling;

  • certain social services provided by the state, by providers mandated by the state, or by charities recognized as such by the state;

  • services provided by notaries and bailiffs (appointed by an official act of government).

In any event, national rules and regulations relating to these excluded services have to comply with other rules of Community law, in particular with the freedom of establishment and the freedom to provide services as guaranteed in the Treaty on the Functioning of the European Union.

Source: Commission website: http://ec.europa.eu/internal_market/services/services-dir/guides_en.htm#What_is_the_scope_of_the_Services_Directive_ (accessed March 2014); http://ec.europa.eu, © European Union, 1995–2014.

(p. 376) For services, the country-of-origin principle meant that if the company that provided a service met the legal requirements of the member state in which it was based, it could offer the service in other member states. This implied, for example, that a British building firm could build a house in Germany using British workers whose terms and conditions of employment complied with British law, even if they did not comply with German law. From the outset, this alarmed both employers and trade unions in those member states that had the highest wages and conditions of service. The concern really became focused, though, in the aftermath of the 2004 enlargement. Whereas there might be a small difference in employment standards between Britain and Germany, the differences between the established member states and the new entrants were considerable. Fierce opposition was mounted to the directive in the run-up to the 2004 European Parliament (EP) elections, especially in Germany, France, and Sweden. In France, the directive was given the name ‘the Frankenstein directive’, a rather poor pun on the name of the Commissioner who introduced it, Frits Bolkestein, suggesting that the directive was a monstrous creation that would destroy jobs and social consensus.

When the new Commission took office in late 2004, the Services Directive became the responsibility of the new Irish Commissioner for the Internal Market, Charlie McCreevy. He quickly indicated that he would listen to the criticisms that had been voiced, and consider amending the directive. Some such action was considered prudent because the directive had become one of the issues around which discontent had crystallized in the French debate on the EU Constitution (see Chapter 10, The Constitutional Treaty). President Chirac had called a referendum on whether to ratify the Constitution for 29 May 2005, but as polling day approached, opinion polls were showing a majority in favour of a ‘no’ vote. Those member states the governments of which favoured the Services Directive agreed to re-examine its provisions in an attempt to help Chirac to win his referendum. This did not mean that there were no underlying tensions: the new member states in particular were extremely keen to see the directive adopted in something like its existing form, as they expected to benefit considerably from it.

The directive was finally adopted on 12 December 2006, with a deadline for transposition into national legislation of 28 December 2009. At first reading, the EP removed the Commission’s proposed country-of-origin principle. In its final form, the directive explicitly stated that its provisions did not affect national labour laws. The EP also excluded from the directive some of the most controversial services: broadcasting; postal services; audiovisual services; public transport; gambling; health care. The EP also successfully provided member states with a series of legally valid excuses for restricting activity by non-national companies, including national security, public health, and environmental protection. Notwithstanding these apparent safeguards, it is notable that recent ECJ rulings on freedom of establishment and services have, according to some commentators, challenged national social and collective labour rights (Scharpf 2010).

The Single Market and the Eurozone Crisis

The post-2009 eurozone crisis (see Chapter 11) had important repercussions for the functioning of the single market. It led to a substantial decline in intra-EU trade and, (p. 377) as with previous economic crises, raised concern among supporters of the single market that this downturn would prompt a significant upsurge in economic nationalism and protectionism.

It was against this crisis backdrop that Commission President Barroso asked former Commissioner Mario Monti (who was also briefly interim Italian Prime Minister during the crisis – see Chapter 11, The Unfolding Eurozone Crisis) to write a report on the future of the single market. Entitled ‘A New Strategy for the Single Market’ (Monti 2010), the report amounted to a plea to populations and national governments to avoid economic nationalism and adopt further specific measures to promote market integration.

Monti’s report served as the basis for the two Commission communications, the Single Market Act (2011) and Single Market Act II (2012). These communications established a set of priorities for single market reforms in a range of areas where further economic benefits might be had, including energy and transport networks, intellectual property, the digital economy, and services. However, Commission calls for a renewed political commitment to the single market, both in these communications and in its ‘Europe 2020’ strategy (see Chapter 11, Other Developments), did not meet with the sustained engagement of member states. In the context of a general preoccupation with crisis management, progress was always likely to be slow.

Explaining the Single Market

There are four episodes in the story of the single market that have attracted attempts at explanation using theoretical perspectives: the original decision; the 1960 acceleration agreement; the successful initiative to complete the internal market by 1992; and the pattern of successes and failures in pursuit of this objective.

The Original Decision

The original commitment to create a common market is best explained using an intergovernmentalist framework. There might, though, be the possibility of constructing an explanation based on neofunctionalism (see Chapter 1), stressing spillover from the European Coal and Steel Community (ECSC) (see Chapter 6, The European Coal and Steel Community). According to neofunctionalism, the success of the ECSC ought to have led other groups of producers to put pressure on their governments to extend the common market to their products so that they too could benefit. Yet there is no evidence that any national group of producers lobbied for the extension of the ECSC. So the experience of the creation of the EEC does not lend support to the neofunctionalist concept of political spillover.

There is also little evidence of supranational actors playing a key role in the original decision. The proposal for the EEC originated with the Dutch government supported by the Belgian government, and was a revival of a scheme that they had long favoured and had implemented on a more limited scale between themselves in the form of the Benelux economic union. The initiative was taken by the political and administrative elites in small states, in pursuit of what they perceived as their national interest in being part of a larger economic grouping.

(p. 378) The Acceleration Agreement

Although the original decision to create a common market did not lend support to the neofunctionalist idea of spillover, the surprisingly rapid progress that was made in the 1960s towards achieving the common market did seem to do so. In particular, a decision taken by the Council of Ministers in 1960 to accelerate the original timetable for removing internal tariffs and quotas, and erecting a common external tariff, was celebrated by Leon Lindberg (1963: 167–205) as a graphic illustration of political spillover at work.

The EEC Treaty (Article 14) specified a precise timetable for the progressive reduction of internal tariffs. On the original schedule, it would have taken between eight and twelve years to get rid of all internal tariffs. This rather leisurely timetable reflected the concerns of some industrial groups about the problems of adjustment involved in ending national protection. However, once the Treaty was signed and it became obvious that the common market would become a reality, those same industrial interests responded to the changed situation facing them. Even before the Treaty came into operation on 1 January 1958, companies had begun to conclude cross-border agreements on co-operation, or to acquire franchized retail outlets for their products in other member states.

Corporate behaviour adjusted so rapidly to the prospect of the common market that companies became impatient to see the benefits of the deals concluded and of the new investments made. This led to pressure on national governments to accelerate the timetable. Remarkably, the strongest pressure came from French industrial interests, which had opposed the original scheme for a common market.

On 12 May 1960, the Council of Ministers agreed to a proposal from the Commission to accelerate progress on the removal of internal barriers to trade and the erection of a common external tariff, linked to the creation of the Common Agricultural Policy (CAP). Interest groups had only pressed for the common market to be accelerated. Progress was slow on agriculture; the negotiations had been dogged by disagreements over the level of support that ought to be given to farmers for different commodities. But the issues were clearly linked: progress on the CAP to accompany progress on the industrial common market had been part of the original deal embodied in the EEC Treaty.

In keeping the linkage between the two issues at the forefront of all of their proposals to the Council of Ministers, the Commission played a manipulative role that coincided with the view of neofunctionalism about the importance of central leadership and ‘cultivated’ spillover (see Chapter 1). As described by Lindberg (1963: 167–205), the progress of the EEC between 1958 and 1965 involved the Commission utilizing a favourable situation to promote integration. Governments found themselves trapped between the growing demand from national interest groups that they carry through as rapidly as possible their commitment to create a common market, and the insistence of the Commission that this could only happen if the same governments were prepared to overrule the conflicting pressures on them from other groups and reach agreement on the setting of common minimum prices for agricultural products. It should be noted, though, that this interpretation was contested from a liberal intergovernmentalist perspective (see Chapter 1) by Andrew Moravcsik (1998: 159–237).

(p. 379) The 1992 Programme

The decision to adopt the 1992 Programme provoked a fierce academic debate about the explanation. All voices in this debate agreed that structural factors favoured the single market. The differences concerned the role of supranational versus national actors.

The structural context was the sluggish recovery of the European economies from the post-1979 recession in comparison with the vigorous growth of the US and Japanese economies. In particular, the tide of direct foreign investment turned, so that, by the mid-1980s, there was a net flow of investment funds from western Europe to the United States. This augured badly both for the employment situation in Europe in the future, and for the ability of European industry to keep abreast of the technological developments that were revolutionizing production processes. European industrialists indicated that what would be most likely to encourage them to invest in Europe would be the creation of a genuine continental market such as that which they experienced in the United States. It was therefore in an attempt to revive investment and economic growth that governments embraced the single market programme.

While there was scholarly agreement on this part of the explanation, disagreement arose over which institutions were responsible for turning the concern with the competitiveness of the EC into a positive programme for action. From a position that was close to neofunctionalism, although missing the commitment to the key neofunctionalist concept of spillover, various analysts emphasized the role of the Commission, ECJ, and of supranational business interests. This analysis, though, was comprehensively contested by Andrew Moravcsik (1991).

According to Sandholtz and Zysman (1989: 96): ‘The renewed drive for market unification can be explained only if theory takes into account the policy leadership of the Commission.’ In their explanation, the Commission manipulated a conjunction of international events and domestic circumstances to push forward the process of European integration much as neofunctionalists had expected it would back in the 1960s. It was seen as providing the essential leadership to exploit the prevailing international and domestic circumstances. In one of the earliest assessments of the single market programme, Stanley Hoffmann (1989), who had been the main advocate of intergovernmentalism in the 1960s, emphasized the importance of Jacques Delors.

Before assuming office in January 1985, Delors spent much of the autumn of 1984 casting around for a ‘big idea’ that would provide a focus and an impetus for the incoming Commission (Grant 1994: 70). Institutional reform, monetary union, and defence co-operation were all considered, but eventually the completion of the single market was chosen. There were two main reasons for this decision. First, extensive consultations indicated that each of the other possibilities would be strongly resisted by the governments of some member states, but the opening up of the European market would command general support. Second, Delors believed that market integration would inevitably bring other important issues onto the agenda. For example, it would only be possible to pass all of the laws necessary to complete the single market if there were a reform of the decision-making process; in addition, movement towards a more integrated market would raise the question of monetary integration.

So, Delors was instrumental in giving the single market objective a high priority, and he encouraged the members of the European Round Table of Industrialists (ERT) (p. 380) to bring pressure to bear on governments to support the single market programme, so utilizing a transnational network to push forward the issue. He commissioned the Cecchini Report (Cecchini 1988) of leading European economists to put the weight of technical experts behind the project. The issue was already on the agenda, but Delors singled it out and pushed it to the top of that agenda. He acted as a policy entrepreneur, recognizing an opportunity to promote a policy that went with the grain of existing thinking, that would increase the level of integration between the member states, and that would put other integrative measures onto the agenda in its wake.

Sandholtz and Zysman (1989) also emphasized the role of supranational business interests in pushing the single market, mentioning particularly the role of the ERT. This, too, became almost accepted wisdom, with Cowles (1995) making the strongest statement of the importance of the role of the ERT (see also, for a critical perspective, van Apeldoorn 2002).

Moravcsik (1991) contested these neofunctionalist or supranational accounts. He considered two broad explanations for developments that furthered European integration: supranational institutionalism and intergovernmental institutionalism. His first category, supranational institutionalism, covered explanatory factors such as pressure from the EC institutions (primarily the EP and the ECJ), lobbying by transnational business interests, and political entrepreneurship by the Commission; it was therefore a model consistent with neofunctionalist theory. Moravcsik tested it against the empirical evidence relating to the SEA and found it wanting. He argued that the EP was largely ignored in the negotiation of the SEA; the transnational business groups came late to the single market, when the process was already well under way as a result of a consensus between governments on the need for reform; and the Commission’s White Paper on the single market was ‘a response to a mandate from the member states’ rather than an independent initiative from a policy entrepreneur (Moravcsik 1991: 45–8).

His second category, intergovernmental institutionalism, stressed bargains between states, marked by lowest-common-denominator bargaining and the protection of sovereignty. It was an example of what Keohane (1984) had described as the ‘modified structural realist’ explanation of the formation and maintenance of international regimes, but it took more account of domestic politics. Indeed, in his application of the model to the SEA, Moravcsik put a good deal of emphasis on domestic politics, and he ended his article with a plea for more work on this aspect of EC bargaining.

Bulmer (1998), summarizing the insights from research conducted and published by Armstrong and Bulmer (1998), argued that both neofunctionalist and intergovernmentalist accounts oversimplified the relationship between the actors. While Moravcsik was formally correct to stress that the Cockfield White Paper was a response to a request from the heads of government, the request came from the European Council. Although the Commission is not a formal member of the European Council, it has ‘insider status’ at these meetings, and Delors was able to use his position at the table to press the case for the SEM.

For Bulmer, this privileged access, and the use made of it by Delors, illustrated the importance of institutional arrangements: an important aspect of the historical institutionalist approach (see Chapter 2, New Institutionalism).

(p. 381) The Success of the Programme

Bulmer (1998) also provided an historical institutionalist explanation for the success of the 1992 Programme. Once it was launched, the single market framework changed the context within which the EC operated. A new logic operated on governments holding the presidency; the ECJ became very important in interpreting the new commitments; and new norms were spread throughout the EC.

Once the single market programme was accepted and publicized, governments holding the presidency found themselves under pressure to record a high rate of success on both the passage of directives and the transposition of directives into national legislation. A successful presidency was now judged partly on that record.

In every one of the six case studies looked at by Armstrong and Bulmer (1998), the role of the ECJ in handing down judgments on contested interpretations of the rules was significant. Given the clear and explicit commitment of the member states to the single market programme, these judgments favoured free-market interpretations. For example:

In air transport, the EC had played next to no regulatory role until the 1980s. The ECJ’s ruling that existing bilateral regulatory arrangements were illegal, combined with the QMV introduced by the SEA, made liberalization inevitable and thus skewed things in favour of states advocating, and with expertise on, such a policy (the UK and the Netherlands).

(Bulmer 1998: 380)

Alongside the intervention of the ECJ, applying the new norms that had been incorporated into interpretation of existing EC law by the adoption of the single market programme, the above quotation makes clear that the move to QMV in the Council of Ministers on single market measures was also important to the success of liberalization in this sector.

From the perspective of historical institutionalism, the success of the single market programme can be explained by the way in which the SEA changed the formal rules, and the adoption of the single market programme changed the normative context within which those rules were operated.

Evaluating the Single Market

Not all scholarly engagement with the single market has been primarily explanatory in nature. As suggested above, both its character and its impact have been politically contested. Normative or ideological contestation of this sort is also present within the academic literature, particularly among political economists (see Table I.1).

Majone (1996) is among the advocates of the SEM. For him the single market project has allowed the EU to emerge as a regulatory centre which ensures a credible and efficient European market place. His account connects developments in Europe with more general moves towards regulatory modes of governance globally since the 1970s, particularly in the US. He understands the willingness of (p. 382) member states to delegate regulatory competences to the EU in terms of their desire to overcome the above-mentioned issues of regulatory competition and the strategic use of regulation (for example, to gain a competitive advantage in a particular area).

This delegation involves a transfer of policy-making responsibilities from the domain of what Majone terms a ‘majoritarian’ politics to ‘non-majoritarian’ institutions such as regulatory agencies and judiciaries. ‘Majoritarian’ politics is the domain of national party and parliamentary politics and interest-group lobbying, which may be suitable for making policy with ‘redistributive’ implications, but for Majone can have a negative impact on market efficiency. From this perspective a ‘non-majoritarian’ technocracy associated with the EU and particularly the Commission is best equipped to maximize market efficiency, which in turn has widespread ‘welfare’ benefits for Europeans. In this sense, Majone does not recognize arguments which claim that the EU suffers from a democratic deficit because it is legitimated in terms of its ‘output’ (see Chapter 3, Democracy).

A number of critics are less sanguine about the effects of the SEM. Indeed, they note that a regulatory governance has the capacity to undermine the ‘redistributive’ schemes to which Majone refers. While it is acknowledged by some such critics that processes of market integration might in the early period of integration have generated positive economic outcomes in a way that facilitated the creation of welfare states (Milward 1992), it is claimed that more recent policy has had the opposite effect. In particular, the 1992 project is regarded by many as opening the way for the EU to regulate not only the anti-competitive practices of non-state actors but increasingly the ostensibly anti-competitive activities of states themselves (Scharpf 1998). From this perspective the EU becomes a promoter of ‘neoliberal’ policies such as privatization and perhaps even certain forms of welfare retrenchment. The shift to new domains such as services can be regarded as a continuation of such a logic. For instance, Scharpf (2010) has highlighted the ways in which, notwithstanding the above-mentioned ‘social safeguards’ introduced to the Services Directive, ECJ rulings have prioritized liberalization of services over national social and collective labour rights. More generally he has suggested that the SEM has been a key factor in constituting a structural asymmetry which prioritizes economic over social and democratic priorities, or ‘negative’ over ‘positive’ integration at different governance levels within the EU (Scharpf 1998). As discussed in Chapter 21 (Explaining and Critiquing EMU), a range of critical perspectives have perceived policies associated with EMU as yet further steps in this erosion of member state autonomy and democracy (see also Chapter 3, Democracy).

However, from a broadly constructivist position (see Chapter 4), it can be argued that both these advocates and critics tend to overstate the structural imperatives associated with the SEM. In short, the single market may not be an entirely ‘depoliticized’ domain: its scope is contestable by a variety of agents and, indeed, it has been politically contested. This was manifest in the above-mentioned debacle over the Services Directive and in a number of ECJ decisions which have, contrary to a generally liberal market bias, protected the social prerogatives of nation states (Hay and Wincott 2012: 144). More generally, such contestation is apparent in the continued distinctiveness of welfare capitalism among EU member states, which have not undertaken wholesale neoliberal reforms (Hay and Wincott 2012).

(p. 383) Conclusion

Whether called the ‘common market’ or the ‘single market’, the concept of a geographical area free of barriers to economic and commercial activity has always been central to the process of European integration. It has also been central to attempts to theorize the process. Some of the fiercest arguments have raged over the theoretical implications of developments in this policy sector. Such debates have concerned the key explanatory factors for market integration, with intergovernmental and supranational accounts identifying and prioritizing different actors and drivers.

They have also concerned the normative status of different aspects of market integration: whether, for various reasons, they ought to be regarded as a good thing or a bad thing. Despite the apparent victory of pro-market ideas, these normative or ideological debates have been present in Europe since the ECSC and have never been entirely settled. The series of economic, social, and political crises that hit the EU after 2009 once again prompted such debate (see also Chapter 11). This was reflected in the concerns of single market advocates, including the European Commission, who cautioned against a return to national economic protectionism in Europe.

While established regulatory structures may render a reversal in single market policies difficult, significant popular dissatisfaction with the EU may, at the very least, act as a brake on further market integration in the short term. Moreover, a full or partial break-up of the euro (see Chapter 21) would have significant repercussions for the single market (Dullien 2012).

Key Points

History

  • The original decision to create a common market was one of the pillars on which the EEC was constructed.

  • Progress towards this goal varied over time, with agreement to accelerate the timetable in the 1960s. By the 1980s, progress had stalled and was even going backwards with the proliferation of NTBs.

Project 1992: Freeing the Internal Market

  • In the mid-1980s, the governments of the member states adopted proposals from the Commission for the freeing of the internal market from NTBs by 1992, and this was linked to changes in the institutional rules.

Beyond 1992

  • Despite a good record on passing directives to implement the 1992 Programme, both transposition of directives into national legislation and enforcement of the new rules were uneven between member states.

  • Some policy sectors that were included in the 1992 Programme proved particularly difficult on which to get agreement, especially tax harmonization and company law.

  • Other policy sectors were so controversial that they were not included in the original programme at all, especially telecommunications, energy, postal services, and railways.

  • The liberalization of services generally proved difficult.

(p. 384) Explaining the Single Market

  • Liberal intergovernmentalism effectively explains the original commitment to the common market.

  • Agreement to accelerate progress on the common market in the mid-1960s was interpreted by Lindberg (1963) as support for neofunctionalism because of the role of the Commission and industrial interests, but this was later contested by Moravcsik (1998).

  • Academic explanations of the acceptance of the 1992 Programme in the mid-1980s agreed on the importance of the global economic environment, but disagreed on the respective role of national governments, the Commission, and supranational interests.

  • Historical institutionalism provides an explanation for the continued momentum of the single market, based on the institutionalization of new rules and norms.

Evaluating the Single Market

  • The creation of an ever more integrated single market has been accompanied by a normative debate among political economists, with some highlighting its positive economic and social benefits and others pointing to its negative consequences.

Further Reading

The great debate between theorists about the single market began with W. Sandholtz and J. Zysman, ‘1992: Recasting the European Bargain’, World Politics, 42 (1989) 95–128; and continued with A. Moravcsik, ‘Negotiating the Single European Act’, International Organization, 45 (1991): 19–56. P. Budden responded to Moravcsik’s arguments from a pluralist perspective in his article, ‘Observations on the Single European Act and the “Relaunch of Europe”: A Less “Intergovernmental” Reading of the 1985 Intergovernmental Conference’, Journal of European Public Policy, 9 (2002): 76–97. Another contribution worth reading is that by M.G. Cowles, ‘Setting the Agenda for a New Europe: The ERT and EC 1992’, Journal of Common Market Studies, 33 (1995): 501–26. For a new institutionalist account, see K. Armstrong and S. Bulmer, The Governance of the Single European Market (Manchester: Manchester University Press, 1998).

On the case studies of telecommunications and energy, see P. Humphreys and S. Padgett, ‘Globalization, the European Union, and Domestic Governance in Telecoms and Electricity’, Governance: An International Journal of Policy, Administration, and Institutions, 19 (2006): 383–406.Find this resource:

    Visit the Online Resource Centre that accompanies this book for links to more information on the single market: http://www.oxfordtextbooks.co.uk/orc/bache4e/