The Single European Market: Costs and Benefits

The single European market proposes great opportunities for the states to improve their internal economic and political operations and protect their economies. This transformation of western European capitalism is reflected in the process of European integration as it experienced from the mid-1980s with the Single European Act (SEA) and the treaty of Maastricht, paving the way for the completion of the internal market and monetary union respectively.

This new development of the single European market follow in five steps:

  1. a stronger role for the European Council;
  2. a common acceptance within the monetary Community of the goals of each national monetary policy;
  3. a coordinated intervention by the European Central Banks to defend a country under pressure by speculative capital movements, either by loans or by sharing the burden of interest rates;
  4. more stringent common decisions on the distribution of safety clauses for the member states;
  5. a common standing by the EC in its international negotiations, particularly with the United States and Japan (Armstrong and Bulmer 34).

Free trade is one of the main benefits of the single market. With this ‘relaunching’, the European integration process has become increasingly biased in favor of deregulation and the free play of market forces, establishing the primacy of negative integration (market liberalization) over positive integration. European integration thus has come to be bound up with a restructuring of Europe’s socio-economic order (Barnard 92).

The acceleration of European integration on the one hand, and the rise of neo-liberalism in Europe on the other, have become intertwined inasmuch as the relaunching of Europe went hand in hand with the reconstruction of the post-war order of European capitalism along predominantly neo-liberal lines. The free market has always needed the state for both its emergence and its maintenance. In political economy, the market is not a ‘spontaneous order’ (Barnard and Scott 41), but rather a social and political construction, hence, in this sense, as is also stressed by the new institutionalism in economic sociology, the economy is always embedded in society (Barnard and Scott 43).

The single market makes possible a higher level of competition for the EC as well as increases its economic growth and ability to face international competition. Clearly, the EC’s internal market is also affected by the scope of its commercial transactions. Compared to the United States and Japan, where international trade accounts for only 6 and 13 percent of the GNP, foreign trade is much more important to the economies of the EC (Bieler and Morton 17).

Besides, the internal market reinforces the significance of trade between the members, which is already around 55 percent of the Community’s foreign trade. This increase of the EC’s foreign trade results in a double challenge for the private companies in the Community: to compete in the single market as well as in the international marketplace where they contend with the United States, Japan, and other industrialized Asian countries. In order to succeed, EC enterprises have to reach a size corresponding to the role that they want to have. Today, they are rarely sufficient in size to compete with American or Japanese firms.

The firms that produce the most advanced technology are also handicapped by the remaining technical barriers and the currently split internal market. These enterprises need much investment, but cannot always obtain the needed venture capital because the national banking systems lack dynamism and a sense of competition (Cowles 82). Mainly, they cannot improve the profit-making capacity of their investments by means of large-scale production because the lack of common technical specifications makes competition difficult. In order to sell a product, it must be adapted to national criteria, a unique sales network must be established, and a different organization put in place in each state (Greenwood 1997).

This lack of common ground considerably increases the financial burden of production, which in turn results in higher prices for the consumers. In short, the single market would allow Community enterprises to benefit from economies of scale, to increase the value of their specialties, to improve their relative advantages, and to regain the capacity to compete with American and Japanese companies. The costs of research and development will only lead to profits if the enterprises can create an economic playing field without barriers (Deeg 82). “The major criticism of regulatory competition is that unfettered regulatory competition would lead to a “race to the bottom” where regulators, competing for constituents, minimize their regulations to such a degree that their regulations provide less than adequate regulatory protection” (Pan 499).

The single market brings new opportunities for the small and medium enterprises (SME) as well as the risk of fatal dangers. Because of its scope, the SME could be in worse condition compared to larger enterprises in three sectors: information, adaptation to new regulations and financing. The Community legislation is changing and it is essential to have adequate information (Greenwood 1997). Although more vulnerable to a change in the rules, SME frequently resist any management change which makes their tasks more difficult and require additional formalities. They do not have specialists in Community affairs available who are knowledgeable about the judicial and economic complexities of the EC.

The removal of technical borders requires adaptation to new regulations. To be compatible with those requirements implies frequently a change in the makeup of the products and their means of manufacturing. For a SME, this leads to a major reorganization if not bankruptcy of the firm (Menz 33). The opening of the internal market requires better organization, including the acquisition of new technology and investing. Additional sources of funds are therefore necessary. The SME have fewer financial facilities at their disposal than major companies. The SME are frequently handicapped by lack of capitalization and by greater difficulty in obtaining risk capital (Pan 499).

The single market only makes sense if it reinforces competition between enterprises. If it only leads to the creation of oligopolies entrenched in each state of the EC and sharing the Common Market in splintered national markets, the single market will achieve a result contrary to what was expected. This brings up again the problem of Community legislation of competition and of corporate legislation (Smith and Hocking 82). The Community policy with regard to competition applies mainly in two directions: the control of enterprises (mergers leading to dominant positions, agreements on market share or prices) and the control over the member states (national subsidies).

Regarding company legislation, the Commission for too long attempted to mesh the laws of commercial enterprises relating to accounting, advertising and reorganization. The White Paper presents a proposal for a European Company Limited. This is intended to facilitate the formation of an alternative judicial framework on the scale of the Community and to become an instrument for the necessary industrial cooperation in a unified internal market (Balanya 31).

Because of the rules of origin which bring with them bureaucratic complications, products coming from the European Free Trade Association (EFTA) are under more severe control when they cross the border into Community territory than those from the EC. The formalities are more involved, since the actual origin of the product must be established as well as national content. Finally, the rules are so complex and unclear that they discourage exporters. Another issue that must be examined is the problem of the passive improvement of textiles which permits merchandise partially made in Morocco to be considered as originating in the Community.

The Swiss manufacturer cannot benefit from this clause, which allows part of a product to be made in regions where the cost of labor is cheap (Balanya 66). The EC’s new approach is based on the principle of mutual recognition. From the moment a product is approved in its country of origin, it does not have to be registered again in the country to which it is sent. Facing the impossibility of harmonizing the hundreds of millions of rules, the EC preferred to develop the idea of compatibility. Producers in the EC will be able to make a product according to their national regulations without having to modify it to fit the laws of other states.

Conversely, the producer will have to continue to meet the regulations of all twelve markets (Smith and Hocking 55). The EU will not be able to achieve economies of scale. “If the EU enlargement and the constitutional changes that the EU is currently undergoing “lock in” the tensions inherent in socialist redistribution, the EU will fall apart amid economic decay and recrimination” (Tupy 179). Observations made over the last few years show that the probability of being refused incorporation is relatively small, but the lack of guaranties creates a handicap all the same. It’s like being able to use a country club without being a member only because you are friends with the manager. But one day the rules could be more strictly enforced because of too many similar kinds of abuse and you’ll be left outside (Tupy 179).

Single currency can protect the EU countries against the destabilizing effects of foreign exchange speculation and thus “would strengthen democracy in the Union by restoring decision-making to elected representatives rather than unelected speculators” (Smith and Hocking 12). During the Maastricht negotiations Delors in vain pleaded for a ‘political roof ’ for the single market which would consist not only of a common foreign and security policy but also of a Community fiscal and social policy carried out by a reinforced ‘European government’ that could counter-balance the new European central bank (Balanya 77).

Thus, all large SMEs nowadays have a so-called foreign exchange or FOREX department through which they trade in the global money market to insure themselves against currency fluctuation risks. In sum, the industrial capital ‘represented’ by the Roundtable is therefore far from completely separated from financial capital. Indeed, some of the European Round Table (ERT) members – through their directorships at financial institutions, or through their double position as head of both a financial and an industrial firm, or because a part of their company is in fact active in the financial sector – should be regarded not as industrialists proper but as finance capitalists (Smith and Hocking 212).

As with a single currency, the risk of currency fluctuations will be much less, which will cut costs and promote economic growth. Both transnational banks and transnational corporations would thus strongly favor the single market. This was therefore, then, also certainly the case for a section of the ERT; however, support was especially strong among those still heavily focused on the European market and less among those companies much more oriented to the world market (Greenwood 33). Those who did strongly favor the single currency, mostly within the Europeanist camp then, often did so in a language that still had some neo-mercantilist undertones. Thus, next to the transaction cost argument, another often heard argument was that Europe also needed a single currency because this would strengthen Europe vis-à-vis the USA, whose dollar dominated the world economy (Balanya 52).

In general, the implementation of social and regional policies as well as the necessary research activities is expensive, and the financial system of the Community had to be modified to supply new financial resources. Secondly, in reference to political problems, it can be noted that certain states attempt to reinforce their power and influence by means of an apparently minor discussion of a technical problem (Menz 55). For instance, beyond the legitimate complaints of the British government about its contribution to the budget, the frequently challenging attitude of London tends to indicate the will to have its viewpoint respected and at times to impose its political concepts and philosophy, less inclined to state interventions (Greenwood 42).

The single market helps to establish the unity of the European transnational capitalist class, but it is a gradual process taking place through struggle. The political ambitions of the twelve member states are not the same. Formidable economic interests are in play. The greater role conferred upon the Parliament complicates and continues to burden the decision-making process. Monetary union became of course the heart of the Maastricht Treaty, and its failure or success the linchpin around which the integration process presently revolves.

Works Cited

  1. Armstrong, K., Bulmer, S. The Governance of the Single European Market. Manchester University Press, 1998.
  2. Balanyá, B. et al. Europe Inc.: Regional and Global Restructuring and the Rise of Corporate Power, London:Pluto Press, 2000.
  3. Barnard, C. The Substantive Law of the EU: The Four Freedoms. Oxford University Press; 2Rev Ed edition, 2007.
  4. Barnard, C., Scott, J. The Law of the Single European Market: Unpacking the Premises. Hart Publishing, 2002.
  5. Bieler, A. and A.D. Morton (eds). Social Forces in the Making of the New Europe, Basingstoke: Palgrave, 2001.
  6. Cowles, M.G. The Politics of Big Business in the European Community: Setting the Agenda for a New Europe, Unpublished Ph.D. Dissertation, Washington: The American University, 1994.
  7. Deeg, R. Finance Capitalism Unveiled, Ann Arbor, MI:University of Michigan Press, 1999.
  8. Greenwood, J. (1997) Representing Interests in the European Union, London: Macmillan.
  9. Menz, G. Varieties of Capitalism and Europeanization: National Response Strategies to the Single European Market. Oxford University Press, 2005.
  10. Pan, E. J., Harmonization of U.S.-EU Securities Regulation: The Case for a Single European Securities Regulator. Law and Policy in International Business, 34 (1), 2003, pp. 499-501.
  11. Smith, M., Hocking, B. Beyond Foreign Economic Policy: United States, the Single European Market and the Changing World Economy. Continuum International Publishing Group Ltd., 1997.
  12. Tupy, M. L., European Integration, 1950-2003: Superstate or New Market Economy? The Cato Journal, 24 , 2004, pp. 179-203.
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