Brussels, 27January 2000
Commission's product and capital markets report stresses opportunity for structural economic reform
Today's broadly favourable global economic climate offers Europe a golden opportunity to enhance durable economic growth and employment by raising its overall competitiveness. To do that, according to a report adopted by the European Commission today, the European Union must intensify economic reforms designed to develop dynamic, integrated, efficient markets supportive of entrepreneurship and innovation, whilst fully respecting Member States' social goals. The report uses quantitative assessments of the performance of European product and capital markets to identify where regulatory and structural reforms are most urgent, and outlines a certain number of explicit policy prescriptions designed to reduce market fragmentation.
"Economic reform requires reinforcement of the Internal Market as the cornerstone for the EU's microeconomic policies," said Frits Bolkestein, European Commissioner responsible for the Internal Market. "Despite significant improvements in the last few years, European markets remain too fragmented, especially in the services sector. We must build a dynamic business environment where entrepreneurship can turn technological and investment opportunities into new jobs".
The report is the Commission's second annual contribution to the exercise launched at the Cardiff European Council in 1998. Together with thematically-related national reports produced by Member States, it will provide input for the preparation of the next Broad Economic Policy Guidelines and for the review of Internal Market Strategy (see IP/99/728) target actions. It is also designed to contribute significantly to preparing the special Lisbon European Council on economic reform scheduled for 23-24 March.
EU markets are continuing to integrate
Reviewing the evidence of market integration, the report highlights that:
- Cross-border direct investment and mergers and acquisitions are the strongest catalysts for structural change in today's Internal Market and the trend is accelerating. Service providers now account for more than half of mergers activity (53% of all deals in 1998 against 42% in 1992). Trade also continues to be a dynamo for market integration; since 1993, growth in intra-EU manufacturing trade has outpaced GDP growth.
- Capital market integration is accelerating, though much remains to be achieved. Eliminating exchange risk is encouraging institutional investors to consider increasingly pan-European investment strategies. The potential for raising EU-wide capital is being exploited more and more. The proliferation of financial products heralds the emergence of highly liquid and modern securities market at the service of EU companies.
- Retail price convergence is continuing, albeit more slowly than in the early 1990s and not always towards lower price levels.
The report's recommendations
On the basis of its quantitative assessments, the report makes a number of specific recommendations to encourage a thriving entrepreneurial economy capable of harnessing technological progress to the benefit of economic growth and employment. These recommendations are that:
- Member States should make further efforts to simplify and improve the quality of their regulatory frameworks. For its part, the Commission will review and report on the effectiveness of existing Community initiatives to simplify the Community's regulatory environment. (eg. the Simpler Legislation for the Internal Market initiative).
- More should be done at national and EU level to reduce the economic and regulatory costs involved in creating new businesses and ensure improvements to the quality of the existing framework.
- A lighter administrative approach to removing technical trade barriers needs to be adopted based on wider application of the mutual recognition principle in non-harmonised areas. Where harmonisation is necessary, it should be based on harmonising only the basic requirements of a product rather than all its details (the New Approach).
- State aid be further reduced, in particular the award of sector-specific aid. The 15 Member States spent an annual average of more than €95 billion a year on aid between 1995-97 (approximately 1.2% of Gross Domestic Product - GDP).
- The Financial Services Action Plan (see IP/99/327) must be fully and rapidly implemented to improve access conditions to venture capital in the EU, including seed capital, especially for Small and Medium-sized enterprises. That would encourage business and investment, improve the confidence of consumers and investors and help stabilising the financial system. The Commission will put forward a proposal for a Directive on pension funds by mid-2000.
- The Union's regulatory framework for the utility sectors (electricity, gas, telecommunications, postal services) should be adopted and fully implemented.
- Competition rules should be strictly enforced in order to guarantee high levels of market competition, so that economic reforms do actually impact on competitiveness and improve consumer welfare.
- A comprehensive framework covering the free movement of Information Society services (e.g. e-commerce) should be created and an integrated policy combining government and industry regulation with rules for consumer protection developed to enhance consumer confidence.
- Restrictions impairing reform in the distribution sectors should be reduced (e.g. restrictions covering land use or opening hours).
The full text of the Report is available on the Commission's World Wide Web site http://ec.europa.eu/dg15