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IP/01/7

Brussels, 9 January 2001

Internal Market: EU consumers continue to benefit, but reforms must be accelerated

There is growing evidence that consumers, businesses and citizens are getting tangible benefits from the increasing integration of the European Union's Internal Market. But the European Commission's third progress report on the functioning of product and capital markets warns that if economic reforms are not deepened and accelerated, the EU risks missing the growth potential offered by new technologies and economic performance overall will continue to be hampered by an over-rigid economy. The European Councils of Lisbon and Feira, in recognising reform as the key to growth, competitiveness and full employment in the knowledge-based New Economy, pushed structural reform to the top of the political agenda. For its part, the Commission has already delivered a significant number of policy actions requested at Lisbon and Feira and more will be implemented in the early months of 2001. The next opportunity to develop the programme of economic reforms to transform Europe into the most competitive economy in the world will be the Stockholm European Council in Spring 2001.

Internal Market Commissioner Frits Bolkestein said: "The process of economic reform launched in 1998 at the Cardiff European Council and given fresh momentum at Lisbon has helped forge a political consensus that we need urgent action. Important policy initiatives have already been taken to establish a more dynamic business environment, to embrace the new knowledge-based economy and, at all times, to be sensitive to the priorities of Europeans. But we still have more to do and in the run-up to the Spring European Council in Stockholm we need to work together to prepare decisions that will accelerate the scope and pace of change."

Improving citizens' quality of life

The report focuses in particular on improving citizens' quality of life. Internal Market reforms are already delivering tangible benefits to consumers and citizens. Prices continue to converge, especially in services and, as a result, the variation of prices in these markets is becoming less marked. In particular, economic reforms are continuing to drive down the prices of utilities and network industries. Telecommunications have become much cheaper, electricity prices have fallen by over 14% in the UK (tax included) and Spain (tax excluded). The annual cost of utilities for a standard household in Austria was up to 25% less in 1999 than in 1996.

In Germany these savings amounted to 125 euros a year per household and 105 euros (see table overleaf) a year in France. However, universal service obligations must be maintained to ensure universal provision of certain services of general interest at affordable prices. In practice, this has not been an obstacle to opening up these markets to competition, although progress is still urgently needed in some areas, especially the postal sector.

Price dispersion in the EU for goods and services, 1995-1999(coefficient of variation)

[Graphic in PDF & Word format]

Note: The table shows the price dispersion in the EU for goods and services measured by the coefficient of variation, e.g. a coefficient of 0.15 for non-durable goods in 1995 means that in that year the maximum and minimum price within the EU15 Member States varied within a band 15% either side of the EU average price.

Source: 1995-1998 Eurostat; 1999 DG Internal Market estimates

Real expenditures for a standard household on electricity and telecoms(1996-expenditures compared with 2000, VAT included)

Savings

%SavingsSavings%Savings
Nat. curNat. cur
Austria-2.498-24%-208-26%
Belgium-2.022-8%-74-11%
Germany-200-16%-125-18%
Denmark-155-3%-32-5%
Spain-25.887-26%-182-29%
Greece-37.360-25%-149-31%
France-633-16%-105-17%
Finland-103-4%-33-7%
Italy-123.327-13%-40-9%
Ireland-102-28%-123-21%
Luxembourg2.09112%368%
Netherlands-33-3%-34-7%
Portugal-15.830-13%-93-15%
Sweden-402-9%-36-7%
UK-56-15%7817%

    Note: The expenditures were deflated using the general consumer price index (CPI). The exchange rates were average market rates for January each year.

But price cuts alone are not enough. Market failures also need to be tackled in areas such as food safety and the sustainability of economic development in order to improve the quality of life of European citizens. For example, European firms are still paying a high price for the relatively low degree of integration of the financial services market. It is for this reason that there needs to be urgent action to complete the Financial Services Action Plan by the target date of 2005 (see IP/00/1269). Rapid progress is needed on the establishment of pan-European clearing and settlement systems, on eliminating unnecessary restrictions on institutional investors, on improving the reliability and comparability of financial information and on reshaping the regulatory environment.

As urged by the Commission and the independent Committee of Wise Men on the Functioning of European Securities Markets, this will require procedural changes in the EU legislative process if we are to keep pace with market change.

Real return on pension fund portfolios (1984-1998)

Countries with fewer restrictions

Ireland12.54%
United States10.49%
United Kingdom10.35%
Belgium10.33%
The Netherlands 9.64%

Countries with more restrictions

Germany 6.72%
Denmark 6.14%
Switzerland 4.90%
Japan 4.09%

More generally, consumers could get more from economic reform

  • If information and transparency were improved.

  • If specific actions were taken to dismantle remaining barriers to trade, while maintaining high levels of consumer protection.

  • If communication channels between consumers and public authorities were improved and efficient complaint, redress and enforcement mechanisms developed.

  • If the effectiveness and utility of environmental regulations and universal service provisions were regularly re-examined.

Promoting integration and competition

It is increasingly important to the EU economy that we integrate service industries. If, for example, the EU employment rate in services equalled that of the US, Europe would have 36 million more jobs. The Commission will soon publish a new services strategy designed to provide a framework for the removal of remaining barriers to trade and the creation of a more flexible regulatory environment for services. A survey of business service providers involved in cross-border business found that over 47% of firms providing business services to other EU countries realise 10% or less of their turnover in EU markets other than their home base. By contrast, markets in manufactured products are generally well-integrated although technical barriers to intra-EU trade remain.

The legal environment for public procurement markets is being updated (see IP/00/461). These changes should increase transparency further and ensure that more efficient public procurement markets have a clear and significant economic effect. State aids are shrinking, although sectoral aid remains and ad hoc aid to financial services needs careful monitoring.

Promoting entrepreneurship

The EU's success in catching up its main competitors in terms of living standards and competitiveness has slowed and may even have reversed. The main problem seems to be a lack of dynamism and flexibility.

We need to develop a business environment that fosters greater entrepreneurism through simpler and more co-ordinated regulation and improved access to finance. This process is already underway. In its Risk Capital Action Plan, the Commission has targeted ways to improve funding for new business and high-tech firms. Market developments in venture capital are encouraging and capital committed to early stage investments doubled in 1999. However, venture capital investment still remains below 0.1% of GDP in Greece, Portugal, Denmark, Austria and Italy.

Main barriers to trade as perceived by business services providers

Providers

%
1.  Difficulty to work in local language44.3%
2.  Distance-related factors36.6%
3.  Need for local presence to provide after-care34.5%
4.  Imposition of national standards and certification rules31.9%
5.  Requirement to have a specific legal form30.9%
6.  Complexity of foreign legal systems30.9%
7.  Need for local track record29.3%
8.  Differences in local business practices28.6%
9.  Need to be represented by local agent27.4%
10. Absence of transparency or clarity in national regulations27.4%
11. Excessive cost for setting up local operations25.7%

Source: Study on "Barriers to trade in business services" - DG MARKT

Share of business service sales to other EU Member States

% Share

Below 10%47.3%
Between 10% and 25%22.6%
Between 25% and 50%11.8%
Over 50% 4.8%
Do not know / No response13.5%

Source: Study on "Barriers to trade in business services" - DG MARKT

In the course of 2001 the Commission will develop and adopt a new strategy designed to produce a simpler, clearer and generally more user-friendly regulatory framework. This will pull together, streamline and build on existing inititatives, assess alternative approaches to regulation and new forms of policy co-operation with a view to promoting new forms of partnership between different levels of government.

Exploiting the achievements of the Internal Market

The EU is a major player in international trade and economic relations and as such has a role in reshaping global regulatory change. Enlargement is the largest challenge to the EU's process of economic reform but thanks to the Association Agreements, trade and investment with candidate countries is already growing fast. Nonetheless the task of adapting the body of Community law and implementing it in practice will not be easy for the candidate countries.

The process of self-assessment at the microeconomic level that the EU began with the Cardiff European Summit has proved very useful. Candidate countries might also benefit from adopting similar monitoring methods to assess their progress in adopting Internal Market rules and practices.

The full text of the report can be downloaded from the Europa Internet site:

http://ec.europa.eu/internal_market


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