Internal Market: Further market reforms can help fight economic slowdown
European Commission - IP/01/1777 10/12/2001
Brussels, 10th December 2001
Internal Market: Further market reforms can help fight economic slowdown
A European Commission report on the functioning of product and capital markets released today emphasises the need to strengthen economic reform to help European and world markets cope with external shocks and withstand the threat of recession. The report points to the benefits consumers and businesses have already gained from the EU's Internal Market, but warns against standing still. The conjuncture of a slowing economy with introduction of the single currency makes it especially important for the European Union and for Member States to keep to agreed reform timetables. The report takes full account of the long term strategic objective defined at the Lisbon (2000) and Stockholm (2001) European Councils, notably to make the EU the most competitive economy in the world by 2010. It is the fourth in a series of annual progress reports prepared at the request of the Cardiff European Council in 1998 and will be submitted to the March 2002 European Council in Barcelona.
Internal Market Commissioner Frits Bolkestein said " This report shows that all of our citizens already get substantial benefits from the Internal Market. But with further economic reform they can benefit much more. The risk of recession makes that reform all the more essential. We have a long way to go to reach our goal of making Europe the most competitive economy in the world and our best assets in doing that will be the Internal Market and the single currency."
Among the report's principal conclusions are:
Across the EU, price convergence is slowing
Price convergence is a good indicator of market integration. During the 1990s, prices across the EU clearly converged. However, recently the progress seems to have run out of steam.
Note: The table shows the co-efficient of variation in selected years for private consumption including indirect taxes. The co-efficient of variation measures the degree of variation around the average. The figure for 2000 is an estimate. There is a break in the data series in 1992 and 1999.
In supermarket goods, significant and sometimes dramatic price differences remain. For example, a cola drink bought in a Danish supermarket can cost almost twice as much as in a similar shop in Germany. Branded mineral water can be 300% more expensive in Sweden than in France.
Note: The table shows the price level in each of the 14 Member States covered in the survey with respect to the EU14-average, including taxes. For instance, in Austria the price of cola is ten percent below the EU-average.
In general, prices vary three to five times more across the EU than inside countries. Different countries are cheapest or most expensive depending on the product.
Note: The table shows the co-efficient of variation for selected products across countries in the EU and across regions inside the countries, including taxes.
The report concludes that these differences cannot be explained by country specific factors such as transport costs, different wage levels or different consumption patterns. Instead, differing national regulations, company behaviour and competition problems may be combining to keep prices apart across the Community.
Cross border payments still too expensive
Last year's report singled out cross border transfers as an area of major concern for citizens, but progress since then has been very limited. As the table below shows, average charges for a € 100 credit transfer remain very high (see table below).
Note: the table shows costs of a credit transfer of €100 by sender country, with EU, eurozone and non-eurozone averages
With euro bills and coins about to be introduced, the Commission has proposed a Regulation (see IP/01/1668) establishing the principle of equality of charges for domestic payments and cross border payments in euros.This draft Regulation is part of the Financial Services Action Plan, a comprehensive programme to create a fully integrated EU market in Retail Financial Services by 2005. This will provide a double dividend: more reliable and efficient payments and lowered financial costs of trade, leading to increased competition and lower product and service prices.
The Internal Market and the Environment
The latest report published notes increasing industry awareness of environmental issues. For example, the number of ISO certificates of sound environmental management and enterprise performance granted to European firms in 2000 was four times higher than the 1996-98 average.
The report concludes that:
Cross-border manufacturing trade inside the EU is growing faster than GDP, the report notes, subjecting national markets to competitive pressures and offering consumers greater choice and lower prices. However, there remain problems with mutual recognition in several sectors, for example construction products and professional qualifications.
Even wider use of European standards 80 % of standardisation now takes place at European or international level compared to 80 % at national level in 1986 - and faster definition of new standards could further boost the European market.
Cross-border direct investment
Direct investment by EU based companies in other Member States has grown rapidly. The Commission intends to investigate the reasons why the importance of such investment varies so widely by Member State.
Note: these figures show how important foreign investment inflows are to each Member State by comparing the average size of each Member State's inflows between 1995 and 1999 with the average size of its domestic economy (as measured by GDP) over the same period.
Further integration in the business services sector is a priority
Services continue to be the most important engine of employment growth in the EU, but the Internal Market in some business services remains rather weak. This is particularly true of services covered by widely divergent national regulations, such as accountancy, auditing and technical testing. The Commission estimates that eliminating barriers to cross-border trade in business services alone they represent only a third of all services - would increase current EU GDP by up to 4.2%.
Encouraging entrepreneurs and innovators
The financial environment for firms has improved substantially in recent years. Venture capital is growing fast, especially for start ups. But despite the improving environment for entrepreneurs, Europe has a mountain to climb to catch up with the US. For example; a recent Austrian study estimates that for an identical company, start up costs would be €171 in the US compared to the EU average of € 1,625.(1)
Further legislation and mechanisms to protect and enforce industrial and intellectual property rights notably the adoption of the Community Patent Regulation - is also needed to provide extra incentives for innovation.
Details of the report are available on the Europa website:
(1) Source: Lettmayr, C. F. /Mandl, I./Gruber, E. (2001): Gründungskosten neuer Unternehmen in Österreich und Policy-Benchmarking im Bereich der Unternehmensgründung. Vienna: Austrian Institute for Small Business Research.