Outside the tent

AS BRITISH BUSINESSES peer nervously across the Channel at the flailing efforts of politicians to keep the euro alive, they could be forgiven for wondering what Europe has ever done for them.

Opinion polls show that enthusiasm towards Europe is fading and prime minister David Cameron has opened the door to a referendum on the UK’s membership of the EU.

Yet this turbulence comes at a significant time for the UK’s economic relationship with the rest of Europe. October will mark the 20th anniversary of the launch of the single market.

The 1992 Act effectively dismantled goods trade barriers for the UK and 11 other EU nations, and opened the door for UK companies to access a market of 345 million people as both customers and potential employees.

Since then, the market has expanded to 500 million while annual goods trade has more than trebled from €800bn in 1992 to €2.8tn (£2.2tn) last year.

Achievements also include opening up air travel, the growth in cross-border e-commerce, harmonisation of quality standards and cuts in red tape.

The Department for Business, Innovation and Skills says 3.5 million jobs in Britain are linked, directly or indirectly, to the UK’s trade with other member states.

Two-speed Europe

However, there are now growing fears among senior officials and politicians in Brussels that the UK’s increasingly hostile attitude towards the EU could undermine many of those gains.

According to many that spoke to Financial Director, the UK is in danger of losing its access to the single market if it persists in staying on the sidelines of the euro debate.

Ró?a Thun, a Polish MEP and member of the internal market committee at the European parliament, says the crisis had led people to talk “more courageously” about Europe.

“But I don’t want a Europe of core and surrounding countries or of more integrated and less integrated countries,” she explains. Thun says that the UK is a country that has been “very involved” in the single market and has made “fantastic contributions”.

But she adds: “Sometimes when we need to make to make quick decisions, those that want to stay together and undergo a common discipline will create a core – and those that don’t? You can’t force them. It may mean two speeds.”

This concern is echoed by independent experts. Fabian Zuleeg, chief economist at the European Policy Centre, a think tank, says the eurozone is already making decisions on key areas such as taxation.

“There’s an inevitable spillover from these rules into the single market,” he says. This could come to a head if the euro countries decided to establish a banking union without a new treaty.

“If you look at some of the proposals, they could be decided by qualified majority voting, so there is no veto for the UK any more,” he says. “The UK will be faced increasingly with a situation where the rest of Europe makes a decision that then has to be implemented in the UK – even when it affects the financial sector. I think we will be in a situation before long where the UK is outvoted on something quite critical and the UK will have to make a decision.”

No forward motion

Neelie Kroes, vice-president of the European Commission and a figure well known to UK businesses when she was competition commissioner, thinks the UK needs to think about the implications of its actions. Speaking at an event in the Commission headquarters organised by the European Journalism Centre, she said: “I think if we are going to split, we will be losing the opportunities for the single market and for us as Europeans.”

The worry for businesses is not just that the single market is in danger of going backwards, but also that it is failing to move forwards. Companies in particular are exasperated by the slow progress in creating a single market for services while meeting targets to cut back on red tape.

“Businesses want the ability to trade as part of a European single market,” says John Longworth, director-general of the British Chambers of Commerce. “But they are growing more and more concerned about the cumulative impact of the rules imposed by Brussels.”

BusinessEurope, the Brussels-based lobby group, says the key is to ensure that countries implement the services directive in a manner that sweeps away – rather than adds to – regulatory burdens.

“The different ways that rules on issues such as labour rights are implemented become a barrier for companies to move across borders,” says Jeroen Hardenbol, its advisor on the internal market.
“The focus should be on what the companies want. The additional gains are undeniable – correct implementation would add an extra 1.8% to EU GDP.”

Free access

This is music to British ears. “Businesses are exasperated by the endless stream of new European legislation that raise their costs,” says Longworth. “But at the same time, they want free and unfettered access to other European markets.”

This plea is being heard at least by some in Brussels. “The single market for services is not really working, frankly speaking,” says Polish MEP Thun.

Given that services make up three-quarters of economic output in both the UK and wider EU economies, this means that Europe is missing out on major opportunities for wealth and job generation at a crucial time.

“Yes, we have done a lot to create a single market for services, but no, there are still obstacles there,” says Harrie Temmink, a senior civil servant at the Commission’s internal market directorate. “If you are a business and you want to go cross-border, I can assure you that you will find an enormous amount of hurdles.”

He claims that, while 75% of the economy is indeed related to services, only 5% is delivered cross-border. “The overall aim of everything we are doing is to create growth and jobs,” he says.

The problem is that, in continental Europe at least, this still runs into tremendous opposition based on fears over the impact on workers’ pay and rights.

“Many of the new jobs in the services sector are low-skilled, repetitive and poorly paid, and this is leading to a rise in the number of working poor in the EU,” explains Martin Siecker, a union representative on the European Economic and Social Committee.“There is a perception among people that Europe is about markets, profits and business opportunities – not people.”

Marco Cilento from the European Trade Union Confederation says there is a “growing disillusion” about the European project. He points to an example of a German company that has moved its payroll function to a Romanian company where the workers are on a tenth of the wage.

“The single market can be seen as a threat,” he says. “It is important that we improve the single market and we need to protect working standards.”

The crown jewel

The one clear and much less controversial opportunity is to grow a genuine digital single market, the free movement of knowledge, goods and services online, which Kroes describes as the “real crown jewel”.

“Looking forwards, the greatest potential is the market for online services,” explains Temmink. “Evidence from the OECD and elsewhere shows that online services is responsible for 20% of what is left of growth.”

He insists that, while some jobs may be lost in traditional shops, overall e-commerce is an employment creator, rather than destroyer. And he adds there is evidence that 2.6 new jobs are created for every job lost as a result of the shift online.

But the main reason why there is not a European digital single market is a “lack of trust”. Indeed, a recent Commission-funded study found 56% of Britons are apprehensive about buying goods online, the highest number in the EU.
Thun describes the digital single market as “one of our biggest challenges”. The reality of “internet Europe” is that it is a patchwork of different laws, rules, standards and practices. She says the myriad of 27 VAT systems discouraged traders from selling cross-border. “We have an extremely fragmented market,” she explains.

The Commission has set a target that one in five Europeans will shop cross-border by 2015 and set out proposed reforms to improve payments and delivery networks and establish online dispute resolution systems.

According to Zuleeg, full implementation of the single market will add 4% to EU GDP by 2020, but he adds that failure would be costly. “If we don’t get something very soon to compete with our Asian competitors, we will get left behind,” he says. “ICT drives productivity so if we don’t use and embed ICT into our economies, then we are falling behind – and that is what is already happening.”

The single market has survived the crisis “remarkably well”, according to Zuleeg. “Does that mean we should just sit back?” he asks. “No, because there are so many areas where the single market is incomplete and so many areas that need to adapt to the environment we are now in.”

Kroes puts it more prosaically when asked whether the 20th anniversary is a cause for celebration. “I am not a party girl so if I want a glass of wine, I will find an occasion with friends,” she said.

“But we can prove with facts and figures what the results were of the single market over those 20 years.”