Europaudvalget 2015
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EUROPEAN
COMMISSION
Brussels, 28.10.2015
SWD(2015) 203 final
PART 3/3
COMMISSION STAFF WORKING DOCUMENT
Report on Single Market Integration and Competitiveness in the EU and its Member
States
Accompanying the document
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS
Upgrading the Single Market: More Opportunities for People and Business
{COM(2015) 550 final}
{SWD(2015) 202 final}
EN
EN
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3
The evolution of integration, performance and remaining barriers in the
Single Market
3.1
The evolution of integration in the Single Market
3.1.1
Trade in goods: The importance of
enlargement for integration in the
EU
In 2014, intra-EU trade
117
performance improved
relative to the two previous years, but it still remains
short of what it would have taken to make a
significant contribution to the economic recovery. As
a percentage of GDP, the total of intra-EU trade in
goods was 3 % higher in 2014 than in 2013. The
change in trade in services in 2013 was 2.4 %.
118
Looking into the evolution of intra-EU trade in goods
and services over the last decade is particularly
relevant at the time of presentation of the new Single
Market Strategy. An overview of the most salient
trends in the integration of goods and services
markets is helpful to identify those areas where the
single market is most dynamic. It is also needed to
find out whether the expansion of trade is stagnating
due to structural developments or restrictions to the
free movement of goods, services, capital or labour in
the EU economy.
This section looks at trade issues and the next one
will present the situation regarding investment and
establishment. The rest of the chapter looks into
performance and remaining barriers in the single
market, presenting some of the main developments
that are the subject of priority action by the Single
Market Strategy.
The crisis had a profound negative impact on the
evolution of intra-EU flows of goods. Intra-EU trade
in goods contracted by 3 percentage points as a
proportion of GDP in 2009 with respect to 2008,
while in services it only dropped slightly. After that
year, and unlike the evolution of trade in services,
trade in goods within the EU has been growing
slightly above GDP accounting for around 20 % of
EU GDP in 2014 (Figure 3.1).
Figure 3.1:
Evolution of intra EU trade
Note:
(
117
)
(
118
)
Trade and Intra-EU exchanges are measured as imports plus
exports divided by 2. In this report we refer to intra EU
exchanges of goods and services as “imports” or “exports”.
2013 is the last year for which data are available for EU-28.
After a change in the methodology, 2014 data are available
for most EU except for Croatia, Finland, Italy and Spain. For
that group of EU-24 and with the new methodology, intra-
EU trade in services increased by 7.5 % in 2014 with respect
to 2013.
EU-28 minus Spain, Italy, Croatia and Malta for which
full BOP time series are not available at this point,
Trade= �½ (Imports + Exports) / GDP.
Source:
Eurostat
These aggregated data conceal very different patterns
in the integration of the incumbent Member States in
2004 (EU-15) and those that have joined since then
(EU-13). Figure 3.2 shows that the share of trade over
their GDP of the first group has remained basically
flat since 2004, if we exclude the fall in 2009 due to
the crisis (Figure 3.2). Intra-EU exchanges in goods
between the Member States of the EU-15 and the rest
52
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3.1
The evolution of integration in the Single Market
of the Union have remained practically flat
throughout the whole 2004–2014 period, accounting
for less than 20 % of GDP (Figure 3.2). As a matter
of fact, several of these countries have actually
reduced their intra-EU exchanges in the five years
from 2010 to 2014 from the previous period, albeit
only by a small percentage of their GDP.
Figure 3.2:
Intra-EU exchanges of goods as a
share of GDP between Member
States (2004–2008 and 2010–
2014)
EU13
90%
80%
70%
60%
50%
40%
30%
with the EU-28 has increased considerably. These
nine of the EU-13 Member States account for much
of the trade creation in the single market.
Nonetheless, it must be noted that there has been an
important increase in the trade in goods between the
Netherlands and the rest of the EU-28. In contrast,
Greece, UK, France and Italy show the lowest levels
of integration in the trade in goods. Of the EU-13,
only Cyprus shows a low level of integration in 2014.
Figure 3.3:
70%
60%
50%
5%
40%
0%
30%
Intra-EU trade in goods in % of
GDP
Average level 2004-2008
Average level 2010-2014
Change between 2004-2008 and 2010-2014 in pps (rhs)
EU15
15%
10%
-5%
20%
20%
10%
10%
0%
-10%
0%
2004 2005 2006 2007 2008
2010 2011 2012 2013 2014
Note:
EU-15 = Member States in the Union before 2004
EU-13 = Member States joining after 2004
Source:
Eurostat
Source:
Eurostat
In contrast with this, the EU-13 group has displayed
increasing integration in the EU-28 since 2004 if we
exclude the worst days of the crisis. In fact,
integration picked up momentum after the crisis. The
intensity of intra-EU exchanges of goods between
Hungary, Estonia, Lithuania, Latvia, Slovakia,
Poland, Romania, the Czech Republic and Slovenia
Table 3.1 gives a clear picture of the considerable
turnaround in the ranking of integration in trade in
goods of the Member States of the Union. In the last
five years, two EU-13 countries, Slovakia and
Slovenia have taken the lead in the ranking of trade
integration in goods from Belgium, the leader in
2010. Large Member States of the EU-15 group
remain at the bottom of the table with much lower
and in some cases, falling trade integration indicators.
52
BE
SK
CZ
HU
EE
SI
LU
NL
LT
MT
AT
BG
LV
IE
PL
RO
DK
DE
SE
PT
HR
EU
FI
FR
CY
ES
IT
UK
EL
-15%
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3.1
The evolution of integration in the Single Market
Table 3.1:
Evolution in the openness to intra-EU trade in goods of EU-28 (2010–2014)
Trade integration
indicator, i.e. imports
plus exports as a
percentage of GDP
2010
59%
57%
52%
50%
46%
46%
41%
35%
34%
32%
30%
29%
28%
27%
25%
24%
21%
20%
20%
19%
19%
17%
16%
14%
14%
13%
12%
11%
8%
Trade integration
indicator, i.e.
Ranking in 2014 imports plus exports
as a percentage of
GDP 2014
4
1
3
2
5
6
7
8
13
9
11
14
10
12
16
15
19
18
20
21
22
17
24
26
23
25
27
28
59%
68%
61%
64%
51%
51%
44%
42%
28%
38%
30%
27%
36%
29%
23%
27%
22%
23%
21%
20%
18%
17%
23%
14%
13%
15%
13%
10%
10%
Ranking in 2010
Very open to intra-
EU trade in 2010
Open to intra-EU
trade in 2010
Least open to intra-
EU trade in 2010
BE
SK
HU
CZ
EE
SI
NL
LT
LU
LV
AT
MT
BG
PL
IE
RO
DE
PT
EU28
DK
SE
FI
HR
FR
CY
ES
IT
UK
EL
1
2
3
4
6
5
7
8
9
10
11
12
13
14
15
16
17
18
20
19
21
22
23
24
25
26
27
28
Source:
Eurostat
There are reasons to believe that this subdued
performance of intra-EU goods markets after the
crisis of the EU-15 cannot be attributed to the impact
of the crisis only. The stagnation of intra-EU trade
between the EU-15 and the rest of the EU started
around 2004, well before the crisis struck in late 2008
and 2009. Differences in the trends of integration
patterns between the EU-15 and the EU-13 also seem
to call for additional explanations. Thus, the causes of
the relative stagnation of intra EU exchanges in goods
seem to have been present already before the crisis
struck the EU economy.
There is no doubt that adhesion has been a very
important driver of the integration of the EU-13. The
relatively smaller size of the EU-13 Member States
could explain, at least in part, these higher integration
levels in the EU-13. However, there must be other
additional reasons explaining their higher levels of
trade integration. For instance, Poland, the largest of
these 13 economies with a GDP more than twice as
big as the GDP of Ireland, shows a trade integration
index greater than Ireland. The very high shares of
countries such as Slovakia or Slovenia also point in
the same direction. Thus, country size does not seem
to be the only variable explaining the higher levels of
integration of the EU-13 that joined the Union in or
after 2004.
53
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3.1
The evolution of integration in the Single Market
This stagnation of trade in goods between the EU-15
and the rest of the Union needs to be studied in detail
in future reports. At this moment, a preliminary
analysis of the intra-EU trade flows suggests some
possible hypotheses for future work. The impact of
the crisis, changing patterns in the geographic
location of production activities, some degree of
exhaustion of the possibilities of integration in sectors
where the removal of obstacles has been successful,
and remaining regulatory, structural and behavioural
obstacles in other sectors can be included among the
“a priori” plausible explanations to consider.
A look at the evolution of trade of different groups of
products can also help to give a preliminary glimpse
of the sectors driving these trends in the evolution of
trade in goods. "Machinery and transport equipment"
Figure 3.4:
Food, drinks and tobacco
Mineral fuels, lubricants and related materials
Other manufactured goods
Commodities and transactions
not classified elsewhere in the SITC
is by far the most important product group in intra-
EU trade in goods with approximately 7 % of GDP
for the EU-15. Intra-EU "imports" in this category
have fallen by over 9 % between 2007 and 2013,
although they recovered in 2014 to almost reach their
2008 level. This major product category includes
durable consumption goods (e.g. automobiles) but
most importantly, investment goods too. The
particularly low level of investment in the EU in
recent years may have played a major role in the
evolution of intra-EU exchanges of goods for the EU-
15. The demand for goods in the "Machinery and
transport equipment" group has evolved differently
across countries. In Germany, "imports" of these
goods from other Member States increased by 48 %
in the last 11 years while it fell in Spain and Italy.
Intra-EU "imports" of goods in the EU-15 by product groups (2004–2014, million Euro)
Raw materials
Chemicals and related products, n.e.s.
Machinery and transport equipment
900.000
800.000
700.000
600.000
500.000
400.000
300.000
200.000
100.000
0
2004
Source:
Eurostat
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Imports of other manufactured products have
remained stable, as have raw materials and
commodities, while other product groups – including
chemicals – have expanded more than income for
other product groups despite the impact of the crisis
and slow growth rates of recent years. Thus, given the
weight and evolution of "Machinery and transport
equipment" imports until 2013, they appear to have
played a determinant role in the stagnation of EU-15
"imports" of goods.
In the EU-13, the demand for "imported" goods
suffered more severely the impact of the crisis in
2009 but it recovered quickly and vigorously after
2009. Intra-EU "imports" of the main product groups,
machinery and transport equipment and other
manufactured products, account for a much higher
share of GDP than in the EU-15, since the beginning
of this period, reaching almost 16 % of GDP for
machinery and transport equipment.
54
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3.1
The evolution of integration in the Single Market
Figure 3.5:
Intra-EU "imports" of goods in the EU-13 by product groups (2004–2014, share of GDP)
Food, drinks and tobacco
Mineral fuels, lubricants and related materials
Other manufactured goods
Commodities and transactions
not classified elsewhere in the SITC
Raw materials
Chemicals and related products, n.e.s.
Machinery and transport equipment
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2004
Source:
Eurostat
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
In summary, the analysis by Member State of the
evolution of trade in goods shows two different
patterns that seem to reflect the different stage of
maturity in the single market: the incumbent Member
States before 2004 (EU-15), where the impulse of
integration seems to have dovetailed and a much
more dynamic group of new Member States (EU-13)
where the impulse of adhesion remains active. This
distinction may be relevant for policy purposes.
A very preliminary look into the sectoral and
geographic breakdown of intra-EU flows in goods
suggests that the crisis, and in particular the subdued
evolution of investment in the EU-15 analysed in
Chapter 1, have certainly had a considerable impact.
However, other structural and regulatory factors
might contribute to explain this evolution of intra-EU
exchanges in goods.
In the EU-15, the sluggish growth, a mediocre
productivity performance in many countries
and the prevalence of obstacles to integration
in goods as well as in services sectors keep
trade in goods subdued. The quantitative
importance of the “Machinery and investment
goods” sector seems to have been a key factor
explaining the evolution of trade in goods in
the EU 15. Low levels of demand for
investment goods in these countries must have
played an important factors explaining the
relative fall in trade in this sectors among the
EU-15. But evidence provided by a recent
study (see section 3.3.1) points at remaining
regulatory barriers in the railway equipment
sector as an additional factor limiting
exchanges in this rector. In addition, the
importance of barriers and inefficiencies in
services markets for the development of goods
markets should not be underestimated.
Investment dynamics in the emerging EU
economies and the consolidation of emerging
new trading relations between the EU-15 and
the EU-13 countries have supported the higher
rates of integration of the relatively “newer”
EU Member States. This seems to be
confirmed by evidence provided in the foreign
direct investment and establishment section
below. The impact of a geographic
redistribution of at least some production
activities following the enlargement may
explain the different behaviour of the EU-15
and EU-13 country groups as far a trade in
goods is concerned.
However, all this must be considered as preliminary
evidence calling for new detailed work to learn more
55
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3.1
The evolution of integration in the Single Market
about these patterns. The stagnation of trade flows in
goods over a decade may also call for further work on
the nature and effects of integration and dynamic
efficiency in the single market.
3.1.2
Trade in services: the potential for
further integration in the single
market
border exchanges in services as a share of GDP show
a steady and progressive increase over time and they
have not been seriously affected by the crisis. Figure
3.6 shows that both in the EU-15 and in the EU-13,
the intra-EU exchanges of services have been
growing steadily more than GDP over the 2004 to
2014 period. The 2009 shock of the financial crisis
had a much smaller impact on the flows of services
than on goods and this impact was short-lived.
Figure 3.7:
70%
60%
50%
40%
Against this background, the situation of intra-EU
exchanges in services is very different. First of all, the
share of trade in services over GDP is much lower
than in goods. In 2014, the share of total intra-EU
exchanges in goods ("imports" plus "exports" divided
by two) ranges between 18 % of GDP for EU-15 and
more than 40 % for EU-13. For services, these shares
go from 4.5 % to less than 7 % of GDP. The nature of
services contributes to explain these differences.
Services are less suitable to be traded cross-border.
Many of them can only be provided if firms or
consumers move cross-border. In those cases,
establishment in other Member States is often the
preferred way for the realisation of service provision.
But there are other reasons at play: there remain
considerable restrictions hindering cross-border
exchanges of services as explained here below and in
the Single Market Strategy.
Figure 3.6:
Intra-EU exchanges of services
between Member States (2004–
2014)
EU15
6,5%
6,0%
5,5%
5,0%
4,5%
Intra-EU trade in services in %
of GDP
Average level 2004-2008
Average level 2010-2013
Change between 2004-2008 and 2010-2013 in pps (rhs)
10%
8%
6%
4%
2%
30%
0%
20%
10%
0%
-2%
-4%
-6%
Source:
Eurostat
7,0%
EU13
The breakdown of intra-EU exchanges in services by
sector reveals important differences for various
services activities. Easily traded services such as
travel and transport account for a significant part of
the total transactions with over 24 % and 19 % of the
total cross border trade in services in the EU-28.
However, "Business services" are the main sector
accounting for the largest share of intra-EU trade in
services with over 25 % in 2013. Intra-EU exchanges
in this sector have grown by 5.6 % between 2010 and
2013, but the fastest growing sector in intra-EU trade
terms has been the Maintenance and repair sector
with over 15 % growth in those years.
4,0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Note:
EU-15 = Member States in the Union before 2004
EU-13 = Member States joining after 2004
Source:
Eurostat
There is a second interesting difference between
intra-EU exchanges in goods and services. Cross-
56
LU
MT
IE
CY
EE
HR
BE
BG
AT
DK
NL
HU
SK
SI
SE
CZ
LV
PT
LT
EL
ES
EU
FI
PL
RO
DE
UK
IT
FR
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3.1
The evolution of integration in the Single Market
Figure 3.8:
Sectoral composition of intra-EU
exchanges of services (2010–2013)
business services and construction for employment
and growth making those two service sectors priority
for the Commission.
The “business services”
121
sector is particularly
important because it has a considerable impact on the
productivity growth of manufacturing and other
services sectors. Trade in “maintenance and repair
services” is often associated with the acquisition of
capital equipment or consumer durables. In many
cases, these activities are often present in the
development of new business models or in the
bundling of goods and services in "business
solutions". They also require the contribution or
cross-border operation of skilled labour and/or
professionals considered as regulated professions. As
explained in the Staff Working Document
accompanying the Single Market Strategy, these
activities are often subject to national regulations that
often hinder the development of these cross-border
activities. Despite these difficulties, the considerable
growth and increasing trading activities reported by
these sectors are evidence of their growth potential
once these obstacles are removed.
Box 3.1. The importance of business services
In some Member States, the services value added
content of manufacturing exports is as high as 30 %, of
which 40 % corresponds to business services. An
implication of a high use of services in manufacturing
exports is that exports of countries with underperforming
services would benefit from reform efforts targeting
services sectors. In addition:
Source:
Eurostat
The signs of maturity or stagnation identified in the
previous section for the single market for goods,
reflected by different patterns displayed by trade in
the EU-15 and EU-13 groups of Member States, are
not found in the services markets. The differences in
the levels of integration between the two groups of
countries are much smaller and the turnaround in the
ranking of integration in services across countries is
not so clear in favour of the EU-13 countries. Over
time, progressive albeit modest improvements in the
development of intra-EU exchanges in services
sectors can be observed for the EU-28. The most
significant improvements are reported by Ireland,
Belgium and Hungary. Only Cyprus and Bulgaria
show lower trade intensity in the intra-EU exchanges
in services in 2010–2013 compared with 2004–2008
(Figure 3.7).
Within services there are sectors with considerable
potential of expansion in intra-EU trade. The study on
the implementation of the Services Directive
119
and
the Communication preparing the mutual evaluation
exercise
120
point out the economic importance of
1.
Professional services activities included in the
"business service" category such as architects,
engineering, legal advice, accounting or
management consultancy stand out because of
their ‘special’ characteristics: a) they rely
greatly on professional knowledge, b) are
sources of knowledge and c) are of
competitive importance for their clients. They
perform, mainly for other companies, ‘services
encompassing a high intellectual value-added’
providing customised problem solving
assistance, through tacit and codified
knowledge exchange. Therefore, their role in
the economy goes significantly beyond their
shares in value added and employment.
They create significant spill-overs because
2.
(
119
)
(
120
)
http://ec.europa.eu/internal_market/services/docs/services-
dir/implementation/report/COM_2012_261_en.pdf
(see
pages 2 & 3).
http://eur-lex.europa.eu/resource.html?uri=cellar:be389bae-
2cf4-11e3-8d1c-
01aa75ed71a1.0001.01/DOC_1&format=PDF.
(
121
)
(see page 9 and annex 2). See also Monteagudo at al. (2012)
and European Commission (2015).
Since 2008, the definition of "business services" used by
Eurostat is based on NACE Rev2. It includes NACE Rev 2
codes: J62, N78, J582, J631, M731, M691, M692, M702,
M712, M732, M7111, M7112.
57
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3.1
The evolution of integration in the Single Market
they are used in the production of other goods
and services in the economy (supply
spillovers) and can thus have a strong impact
on other sectors’ economic performance. This
is particularly the case of professional services
activities included in the business services
categories. Thus, the benefits of reforms
aiming at liberalising and improving the
functioning of those professional services, will
spread through the whole economy.
products that can compete on the package of
associated services (after-sales service,
maintenance, training, etc.). Business services,
among which professional services, are among
the most important market services sectors for
exports of manufacturing, as demonstrated by
the 30 % and 40 % proportions referred to
above.
122
3.
The increased fragmentation of production
processes into parts that can be outsourced has
led to more complex systems for
manufacturing production and has enhanced
the role of co-ordination and related
professional-services. Successful business
relies more and more on the value provided by
services. Therefore, well-functioning business
services contribute to business successes.
They can be a significant driver of non-price
competitiveness. Business services, in
particular
professional
services,
are
increasingly being used to differentiate
4.
Data on the composition and evolution of the very
diverse activities included in the “Business services”
category are scant and time series are short. However,
Eurostat publishes information shedding light on the
recent evolution of some of those activities for at
least some Member States, although it does not cover
the full EU-28. Among them, computer programming
and consultancy, employment and data processing
services have reported turnover growth since 2008.
(
122
)
European Commission,
The economic impact of professional
services liberalisation,
DG ECFIN, Economic Paper
533/2014.
Figure 3.9:
Turnover of cross-border deliveries of "Business services" subsectors for several EU
Member States: value and proportion of total sector turnover (2008–2012)
Legal, accounting and consultant EU13 (value)
Data processing EU10 (value)
Employment activities EU20 (value)
Computer programing and services EU16 (share)
Advertising EU16 (share)
Computer programing and services EU16 (value)
Advertising EU16 (value)
Legal, accounting and consultant EU13 (share)
Data processing EU10 (share)
Employment activities EU20 (share)
250000
14,00%
12,00%
200000
10,00%
8,00%
150000
6,00%
4,00%
100000
50000
2,00%
0,00%
0
2008
Note:
2009
2010
2011
2012
EU-10: BG, DK, DE, ES, IT, AT, RO, FI, SE, UK
EU-13: BE, DK, DE, IE, ES, IT, CY, LU, AT, RO, SI, SK, UK
EU-16 (ADVERTISING): BG, DK, DE, IE, ES, IT, LV, LT, HU, AT, PT, RO, SI, SK, SE, UK (EU-10 – FI + IE + LV + LT +
HU + PT + SI + SK)
EU-16 (COMPUTER): BE, BG, DE, ES, IT, LT, HU, AT, PL, PT, RO, SI, SK, FI, SE, UK (EU-10 – DK + BE + LT + HU + PL
+ PT + SI + SK)
EU-20: BE, BG, DK, DE, IE, ES, IT, CY, LV, LT, HU, AT, PL, PT, RO, SI, SK, FI, SE, UK (EU-16 + DK + IE + CY + LV)
Source:
Eurostat
The evolution of cross-border activities of these
subsectors was quite different. The bars in Figure 3.9
show the values of the cross-border deliveries of
services to another Member State. The lines indicate
58
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3.1
The evolution of integration in the Single Market
the share of these intra-EU deliveries over the total
turnover of these subsectors.
123
Legal, accounting and consultancy services
seem to be increasingly traded cross-border in
the single market. This is due to the relative
increase in the cross-border activities in
accounting,
audit
and
management
consultancy while the value of cross-border
deliveries of legal services remains stagnant
over these five years.
124
The share of intra-EU cross-border deliveries
of employment services is remarkably low,
which probably reflects the relative degree of
fragmentation of this market in the EU in
national markets.
While data processing displays growth in
cross-border services deliveries, the situation
seems to be less clear for computer
programming and consultancy services. This
subsector is probably the fastest growing and
largest of the business services activities
included in the “business services” category.
However, the growth of intra-EU cross-border
transactions is barely keeping up with the
growth rate of the overall growth of the sector
and the share of deliveries over total turnover
is relatively flat.
Although this statistical evidence should be taken
with caution given the sparsely available data and the
short time series, it seems to be well in line with the
situation as described by the analysis of legal
restrictions in the documentation accompanying the
Single Market Strategy.
In summary, the resilience of intra-EU exchanges in
services during the crisis shows their importance for
the single market. The steady growth of the share of
these flows over GDP is a sign of a latent potential
for growth in cross-border exchanges in services. The
factors limiting this potential are studied in more
detail in the Staff Working Document accompanying
(
123
)
It is important to note that the total turnovers cannot be
compared across subsector since they correspond to different
EU aggregates. Only comparisons over time to each
subsector are relevant here.
Although accounting and audit are also subject to
considerable professional regulations, their impact seems to
be lessened by the harmonisation of accounting rules with
international accounting reporting standards. See Bloomfield
et al. (2015).
the Single Market Strategy and the evidence
presented here supports the direction the proposals
included in the strategy. Given the importance of
cross-border investment for services, this analysis
must be complemented with a look into intra-EU
foreign direct investment.
3.1.3
Foreign Direct Investment and
establishment
Foreign direct investment (FDI)
125
has been a very
important driver of Europe’s internationalisation and
integration. It has also been a very important
component of the total investment as measured by
Gross Fixed Capital Formation (GFCF). In 2000,
total inward FDI in the EU represented almost 40 %
of EU GFCF according to Eurostat figures, and intra-
EU FDI alone accounted for over 30 %
126
This was
an exceptional year, but the level in the past decade
was often above 10 % of total investment.
Figure 3.10:
Inward and outward FDI in
major trading areas of the world
(2000–2013, % of GDP)
Source:
UNCTAD and Eurostat
(
125
)
(
126
)
(
124
)
Foreign direct investment is any cross-border investment by
a resident entity in one economy with the objective of
obtaining a lasting interest in an enterprise resident in
another economy.
2000 was an exceptional year indeed. The share of inward
FDI over GFCF has been very variable over the years but it
has consistently reached 2-digit levels except in 2004 and
the last two years since 2000. It must be noted that the fall
with respect to total trade, the fall in FDI is also remarkable,
reaching just 3 % of trade in 3013.
59
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3.1
The evolution of integration in the Single Market
The fall in the outbound FDI flows has been
important between 2004 and 2013. But the reduction
in intra-EU investment flows has been much more
significant and the evidence suggests that low intra-
EU FDI is one of the reasons explaining why
investments in the EU are below their long run trends
(Figure 3.11).
Figure 3.11:
Intra-EU FDI (1994–2012, as a
percentage of total outward FDI)
Figure 3.12:
47
37
27
17
7
-3
-13
-23
Inward FDI by Member State
(2000–2013, % of GDP)
2004
2013
LU
BG
BE
SK
RO
EE
EE
MT
PL
LV
CZ
HU
LT
SE
Source:
UNCTAD and Eurostat
Source:
Copenhagen Economics for European Commission with
UNCTAD and Eurostat data
Intra-EU inward FDI from other Member States can
be an indirect indicator of, at least, part of cross-
border establishment.
127
Figure 3.12 shows data of
investment flows between Member States and the rest
of the world, including other EU Member States. The
latest data available show intra-EU capital inflows
below 4 % of GDP for the last four years. This is
about half of the levels reached before the crisis. With
the main exceptions of Luxembourg and Ireland, the
fall in inward FDI has been almost generalised
between 2004 (the worst year for FDI before the
crisis) and 2013.
128
In Luxembourg, there has been a
steady investment inflow after the crisis that cannot
be found in other countries. The Irish case is
different: although the level of FDI in 2013 has been
considerable, the comparison is distorted by the fall
in FDI registered in 2004.
The evolution of intra-EU FDI presents some clear
analogies with the evolution of trade in goods. Once
more, there is a different evolution in the EU-15 and
the EU-13 groups of countries. European FDI in EU-
15 Member States reached peaks in 2007 and 2011
but it has fallen since 2011 presenting now levels
below those attained in 2004. On the other hand,
European investment in EU-13 Member States has
been growing consistently since the beginning of this
century and has been little affected by the crisis.
129
A look into the sectoral composition of FDI confirms
the significance of establishment as a form of
integration in other Member States. Eurostat statistics
of the activities of foreign affiliates indicate that in
2012, services firms accounted for 74 % of all the
foreign affiliates of firms from another Member State
operating in the EU-28. These firms also accounted
for the same turnover as all intra-EU foreign
affiliates. These figures do not include firms in the
financial services sectors where cross-border
establishment is very frequent.
130
(
129
)
(
127
)
(
128
)
In this section, establishment includes investment resulting
in the creation of branches, agencies and subsidiaries of EU
companies in other member States.
Small increases can be reported in Spain, the Netherlands
and Austria.
(
130
)
Most FDI into EU Member States has taken place in the
form of mergers and acquisition of already existing
enterprises; greenfield investments have taken a secondary
importance. However, these greenfield investments have
targeted EU-15 Member States instead of EU-13.
Financial intermediation accounted for over 65 % of the FDI
stock into services in that year.
60
HR
UK
SL
ES
NL
EU
FR
FI
IT
AU
PT
GR
Japan
DE
DK
IE
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3.1
The evolution of integration in the Single Market
Figure 3.13:
Inflows of intra-EU FDI into the
EU-15 and EU-13 Member
States (2001-2012, million Euro)
EU15
EU13
professional, scientific and technical activities with
over 18 000 firms. Manufacturing only accounted for
18 of the total foreign affiliates of intra-EU origin.
That percentage is around 4 % for construction.
800 000
700 000
600 000
500 000
400 000
300 000
200 000
100 000
-
Source:
European Commission; UNCTAD database
With over 49 000 firms, of wholesale and retail
distribution hold the greater stock of foreign
affiliates, followed by the real estate and the
Table 3.2:
Number and turnover of Foreign Affiliates (FATs) of EU firms in other Member States
(2012)
Number of
affiliates
156545
657
28444
2338
1241
8600*
49282
8230
3907
10000
16901
18577
8492
115389
123989
304614
Note:
* denotes 2011 data
Source:
Eurostat
NACE_R2/TIME
Total business economy; repair of computers, personal and household goods;
except financial and insurance activities
Mining and quarrying
Manufacturing
Electricity, gas, steam and air conditioning supply
Water supply; sewerage, waste management and remediation activities
Construction
Wholesale and retail trade; repair of motor vehicles and motorcycles
Transportation and storage
Accommodation and food service activities
Information and communication
Real estate activities
Professional, scientific and technical activities
Administrative and support service activities
Services Total (excl construction)
Services Total (including construction)
Turnover or
premia
4069467,5
32488,2
1346479,9
322497,3
21956,4
88008,8
1590000
174743,9
25737,5
200709,6
27093,2
115616,1
119667,4
2253567,7
2341576,5
8134465,8
61
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3.2
Single Market Performance
In summary, there seems to be some
prima faciae
correspondence or may be complementarities
between the evolution of trade in goods and FDI in
the EU. Intra-industry and intra-firm trade seem to
account for a considerable volume of trade, especially
in those sectors that account for a large share of the
intra-EU exchanges. FDI in EU-13 countries triggers
future trade flows as a result of integration after
accession of the EU-13. In EU-15, both trade flows
and FDI have remained relatively subdued but the
causal links are less clear.
131
FATs figures suggest
that the inter-linkages between trade and investment
or establishment in integration are very important.
More work is needed to understand these factors
better because barriers in either cross-border trade or
in establishment in other Member States have an
impact along value chains distorting the allocation of
resources and hampering the growth of firms.
(
131
)
The complementarities between FDI and trade between
goods and services sectors will be the subject of special
attention in a future report.
3.2
Single Market Performance
This study was the basis for the Communication
"A
vision for the single market for industrial products"
adopted on 22 January 2014.
132
Among others, the objectives of the study included:
Examine how far the body of single market
legislation for industrial products is fit for
purpose and the extent to which they
constitute an effective means of addressing
barriers to the functioning of the single market
for industrial products;
Identify and analyse any gaps, loopholes,
inconsistencies and duplication in IM
legislation for industrial products or in
administrative requirements for economic
operators;
Assess the costs and benefits of Union
harmonisation legislation for economic
operators and the impact on strengthening
industrial competitiveness;
Assess the cumulative impacts of, and
interaction between legislation and compliance
requirements.
133
The study concluded that the single market legislation
presents a high level of “fitness for purpose”. As
stated in the Communication, “The
overall conclusion
is that single market legislation is relevant to meeting
(
132
)
COM(2014)
25
Final.
Both
available
at
http://ec.europa.eu/energy/sites/ener/files/documents/2014_i
em_communication.pdf.
A typology and conceptual framework showing how
cumulative impacts have been assessed through the research
is provided in the CEES study.
The performance of markets can be measured
according to different criteria. The same applies to the
single market. This section presents a number of
different overall assessments of the changes in the
performance of the single market and the regulatory
environment that defines it.
This is not an exhaustive assessment because it is not
possible to present in this report a complete
evaluation of the multiple dimensions of the
economic performance of the single market as regards
its impact on competitiveness, job creation, efficiency
or growth effects as well as its social impacts in areas
such as fairness, consumer welfare or cohesion. This
is a first assessment focusing on some basic economic
dimensions. These include allocative efficiency
(goods producers as well as service providers), the
performance of public procurement markets, the
regulatory environment affecting product markets and
the changes in the services sector after the
introduction of the Services directive. Some of these
assessments will be periodically repeated in the future
and others covering additional areas will be
developed in the future.
3.2.1
Brief review of the economic
effects of the implementation of the
Single Market legislation
Product markets
In January 2014, the Commission published a study
conducted by CEES with an in-depth
Evaluation of
the Single Market Legislation for Industrial Products.
(
133
)
62
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3.2
Single Market Performance
EU objectives relating to the need for technical
harmonisation measures with high levels of
protection for health and safety and consumers and,
to the environment.”
(page 7) However, the public
consultation and the study also pointed out to a
number of performance issues that led to 20
recommendations included in the Communication.
In particular, the study reviewed the efficiency and
effectiveness of the implementation mechanisms and
checked for compliance costs using a case study
approach. Probably, one of the main results of the
study was raising awareness about concerns among
many stakeholders regarding the effectiveness of
market surveillance. These concerns arise from:
variations in the human and financial resources made
available for market surveillance activities across
different Member States, the low likelihood that more
complex products such as industrial machinery will
be checked and tested by market surveillance
authorities for technical compliance due to the lack of
adequate technical capacity and practical challenges
in testing products against the requirements set out in
more complex IM legislation such as the Ecodesign
Directive and its implementing regulations.
There are also differences in approach to market
surveillance between those authorities as to the
degree of emphasis they place on checking products
for technical compliance and administrative
requirements respectively. There is a perception
among economic operators that there remain
unacceptably high levels of non-compliance, which
undermines the level playing field and serves as a
disincentive for firms to invest in meeting European
compliance requirements. With regard to e-
commerce, from a market surveillance perspective,
difficulties were detected in preventing non-
compliant products from entering the EU from third
countries purchased on-line.
Regarding the costs of compliance, the study
concluded that single market legislation does not pose
excessive cost burdens, although some pieces of
legislation were regarded as costly (especially those
with other objectives than product safety). In most of
harmonised product groups under review (e.g. electric
motors, lifts, petrol pumps and air conditioners),
annualised compliance costs do not exceed 1 % of
annual turnover of the sector. However, the study
encountered difficulties in getting firms to estimate
substantive compliance costs at the design and R&D
phase for many of the harmonised product groups
examined, so the true costs of compliance may be
somewhat higher. There was moreover some
divergence in estimated compliance costs between
different product groups, which does not easily
facilitate cross-product comparisons.
There were only two exceptions where compliance
costs were higher than 1 %, laptops (2 %) and
gardening equipment (3.9 %). In the laptops sector, it
was acknowledged that there were cost synergies
from investment in compliance with European
regulatory requirements when exporting to other
global jurisdictions, even if there are differences in
technical standards. In the case of gardening
equipment, the higher level of compliance costs is
mainly because the costs of compliance with
environmental legislation (e.g. on outdoor noise, non-
road mobile emissions) are relatively high.
Administrative costs are still no more than 0.3 % of
annual sectoral turnover. Nonetheless, there are
concerns as regards the level of administrative costs
and burdens associated with some single market
compliance requirements. The Staff Working
Document accompanying the Single Market Strategy
presents detailed quantitative evidence of these case
studies.
A further a detailed evaluation of the application of
mutual recognition in services has been conducted
more recently. Between June 2014 and May 2015, the
European Commission commissioned an external
evaluation with the view to examine the application
of the principle of mutual recognition in the single
market for goods. It also aimed at identifying sectors
in which the application of the principle is
economically most advantageous, but where its
functioning remains insufficient or problematic. The
evaluation has also been linked to the Regulatory
Fitness and Performance (REFIT) Programme.
It pointed at significant barriers impeding the
principle of mutual recognition to achieve an optimal
application, among which:
Lack of trust among national authorities,
which leads to authorities in some Member
States adding requirements (such as extra
tests) which are not in accordance with the
mutual recognition principle.
63
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3.2
Single Market Performance
Lack of knowledge of the application of the
mutual recognition principle among competent
authorities and businesses, often resulting in
the latter abiding by the demands from
national authorities to adapt their products that
are already lawfully marketed in another
Member State.
Lack of cooperation between national
authorities, not infrequently leading to delays
and incomplete and unhelpful information to
the economic operators.
The valuation produced
recommendations:
the
following
main
Services: the impact of the services directive
Covering over 45 % of EU GDP, the implementation
of the Services Directive has so far been the largest
recent reform effort in an area relatively to promote
cross-border provision of services and the free
establishment within the EU.
Its economic impacts have been assessed in detail in a
study issued in 2012.
134
Based on econometric
estimations using new data on specific barriers
targeted by the Directive as well as simulation results
obtained from the Commission’s general equilibrium
model (QUEST3), this study estimated the EU-level
long-term impact of different scenarios of
implementing the Services Directive. The study
concluded that the reforms carried out by Member
States until the end of 2011 would contribute 0.8 %
of EU GDP, with varying impacts across Member
States (ranging from below 0.3 % to more than
1.5 %). The study further highlighted the growth
potential of an ambitious implementation of the
Services Directive and estimated its possible
additional
economic impact at 1.8 % EU GDP over
20 years, with most of the benefit occurring in the
first five years. Within the sectors considered, FDI
growth would be 8.8 percentage points higher and
productivity 8.9 percentage points higher, on top of
the pre-2011 gains referred to above. These effects
are found to vary significantly across Member States
(Fig 3.14), reflecting differences in sectoral
compositions and export and FDI structures.
The study also underlined the importance of the
domestic transmission channel.
135
It showed a direct
impact on labour productivity of the reduction of
specific regulatory barriers thanks to the Directive.
For instance, a 10 % reduction of barriers to
establishment was found to bring about a 1.6 %
increase in labour productivity in services.
Better monitoring of the implementation of the
mutual recognition principle, including
through active involvement of the Product
Contact Points (PCPs). A strengthened role for
PCPs, inter alia through grouping functions
and activities related to Single Market issues
within relevant Member State administrations
to create better dynamics and a single access
point for economic operators.
Setting up a mechanism for easier
demonstration of “lawful marketing” for
economic operators.
Better insight into the magnitude of an
incorrect application of the mutual recognition
principle for businesses, particularly for
SMEs.
Improve
dialogue
among
competent
authorities, as well as between the competent
authorities and the Commission, including an
improved notification procedure that should
overcome the current discrepancies between
the number of notifications received by the
Commission and the number of decisions
denying or restricting mutual recognition
made by the national authorities.
Awareness raising campaigns for economic
operators, business associations and national
authorities (including at regional level).
Last but not least, the evaluation identified a number
of sectors where action particularly could be taken,
most important of which construction and food
sectors.
(
134
)
(
135
)
J. Monteagudo, A. Rutkowski, D. Lorenzani,
The economic
impact of the Services Directive: A first assessment
following implementation,
European Economy Economic
Papers,
No.
456,
June
2012,
http://ec.europa.eu/economy_finance/publications/economic
_paper/2012/ecp456_en.htm.
Measured as the direct impact on labour productivity of
reduction of barriers affecting domestic establishment.
64
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3.2
Single Market Performance
Figure 3.14:
10%
8%
6%
4%
2%
0%
Impacts of barrier reductions within the analysed sectors in the EU
Impact on exports
AT PL CZ BG DK RO HU EL IT NL SI ES SK PT FI FR LU UK EE LV LT IE MT BE DE SE CY
14%
12%
10%
8%
6%
4%
2%
0%
EL SE SK CZ IT DE ES PT HU CY LU PL FR LV BG LT RO BE SI
14%
12%
10%
8%
6%
4%
2%
FI IE DK UK EE AT MT NL
Impact on imports
Impact on inward FDI
0%
SK
5%
HU
IT
FR
PT
UK
BG
EE
CY
EL
FI
DE
LV
CZ
Impact on outward FDI
4%
3%
2%
1%
0%
IT
12%
10%
PT
FR
HU
CZ
CY
FI
EL
DE
UK
EE
LV
SK
BG
Impact on productivity
8%
6%
4%
2%
0%
SK LU EL CY PL SE FR ES IT PT HU LT RO UK LV BE NL CZ BG FI EE DK SI SDE IE MT AT
Source:
Monteagudo et al. (2015), European Commission, European Economy Economic Papers 456, June 2012.
65
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3.2
Single Market Performance
Additional work has been undertaken since to assess
the progress made in implementing the various
strands of the directive and update estimates of the
related economic impacts. It showed that the pace of
national reforms slowed considerably after 2011,
compared to the period following the entry into force
of the Services Directive, and that reform efforts have
been uneven across Member States (Figure 3.15).
Figure 3.15:
Introduced
20
EL*
Number of restrictions in 2014
compared to 2011 by sectors
Partially reduced
Abolished
15
10
5
0
CZ⁰
DK⁰
IT⁰
DE⁰
LV
LT
LU
PT*
BG
MT
EE
NL
PL⁰
SI⁰
AT⁰ ES*
FI⁰
IE*
CY* SK BE⁰
FR⁰ RO* SE
HU⁰
UK
0
-5
-10
Note:
* indicates MSs with economic adjustment programmes
in 2012–2014, ° indicates MSs with one or more CSRs
on services in 2012–2014.
Source:
European Commission, own calculations
Based on an improved measurement of the changes in
regulatory barriers, the 2015 assessment has shown
that the largest reform efforts took place in the
restrictions for accountants, hotels, tax advisers, and
engineers, while legal services are still the most
regulated sector in the EU followed by architects and
retail trade (Figure 3.16).
66
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3.2
Single Market Performance
Figure 3.16:
Number of restrictions in 2014 compared to 2011 by sectors
Note:
The black dots denote the total number of restrictions in 2011
Source:
European Commission, own calculations
For most Member States, there is no evidence of
further reductions in regulatory barriers in the period
2012–2014. In some cases this can be explained by
the fact that regulatory regimes were already
relatively light, but in other cases there has been little
reform progress despite recommendations under the
European Semester. For Ireland and Hungary, barrier
levels are even found to have slightly increased which
could have small negative impacts. In contrast,
Greece, Estonia, Spain, Italy, and Portugal have made
the largest efforts to reduce legal barriers in
accordance with the directive, with positive growth
impacts of up to 1 % for Greece and 0.3–0.7 % for
the Estonia, Spain, Italy and Portugal.
The new assessment concludes that the economic
gains of reforms carried out in 2012–2014 are
limited, about 0.1 % of GDP growth, and falling short
of the estimated potential impact of 1.8 % in the 2012
study. The detailed impacts on GDP, FDI and trade of
the Member States are shown in figure 3.17 below.
67
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3.2
Single Market Performance
Figure 3.17:
New estimates of the economic impact of the implementation of the Services
Directive
GDP
BE
CZ
DK
DE
CY
LV
LT
LU
MT
NL
0
RO
SI
FI
SE
UK
1,5
1,1
1,0
0,5
0,0
-0,5
EL
8,0
6,0
4,0
4,0
2,7
3,9
7,1
EE
ES
IT
PT
AT
0,7
0,5
0,4
0,3
0,2
0,1
0,1
0,09
0,07
-0,2
HU
PL
Imports
SK
BG
FR
-0,3
IE
BE
CZ
DK
DE
EE
ES
LV
LT
LU
HU
MT
NL
SI
FI
SE
UK
2,0
0,0
PT
3,0
2,5
2,0
1,5
1,0
0,5
0,0
2,7
IE
IT
RO
1,0
0,5
AT
Exports
0,4
BG
0,2
PL
0,03
CY
0,02
FR
0,003
0
EL
SK
1,8
1,5
1,2 1,1
0,9 0,9
0,7 0,7 0,7 0,7
0,6 0,5 0,5
0,4 0,4 0,4 0,4 0,4 0,4
0,4
0,3
0,3 0,2
0,2
0,2 0,2
ES MT UK CY BG PL EL RO IT HU SI PT LT FI NL FR AT SK BE CZ DE SE LV EE DK LU IE
7,0
6,0
5,0
4,0
3,0
2,0
1,0
0,0
1,7
1,6
1,4
1,2
1,1
0,8
0,6
0,1
0
EL
1,0
0,8
0,6
0,4
0,2
0,0
0,9
0,8
IT
SK
EE
PL
AT
BG
PT
FR
ES
4,4
6,2
Inward FDI
-1,0
Outward FDI
0,8
0,7
0,6 0,6
BE
CZ
DK
DE
CY
LV
LT
LU
HU
MT
NL
RO
SI
FI
SE
UK
-0,04
IE
0,5
0,5
0,4
0,3 0,3
0,3 0,3 0,2
0,2 0,2
0,1 0,1 0,1 0,1 0,1
0,08 0,08
0,05 0,04 0,02
0,004
LU SI EL CY PL ES HU DE CZ SE SK PT BG RO DK BE UK FR EE NL LT AT IE FI IT LV MT
Source:
European Commission, own calculations
68
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3.2
Single Market Performance
The results of these studies indicate that further
efforts are needed to ensure enforcement of the
existing legislation. This will also foster resource
reallocation in the single market through its expected
positive impacts on productivity and FDI.
allocation, within or between firms, of productive
factors to their most efficient uses. In that sense it is
particularly relevant to assess productivity.
136 137
This section presents AE indicators for a number of
aggregated industrial and services sectors across most
Member States (Malta is often missing due to data
availability). The productive factor of interest in this
context is labour. Efficiency in the allocation of this
key factor of production will be assessed against the
distribution of labour productivity in the same sector.
Expressed in simple terms, the question of allocative
efficiency then boils down to analysing the extent to
which labour is allocated to the segments of each
sector with the highest labour productivity.
(
136
)
The fact that this section focuses on allocative efficiency
(AE) should not be interpreted as a suggestion that it is a
more important determinant of productivity than productive
or dynamic efficiency, the other two main dimensions of
productivity. In fact, the relative importance of the three
types of efficiency is likely to vary by product or service,
firm and sector. It is also important to emphasise that the
macroeconomic
importance
of
high
or
low
productive/dynamic/allocative efficiency depends on the
importance of the sector to the rest of the economy: average
efficiency in a vitally important sector will benefit the
economy more than top efficiency in a sector of little
economic importance, and vice versa for below-average
efficiencies.
This section follows the methodology of the European
Commission’s
Product Market Review 2013: Financing the
real economy.
European Economy 8/2013.
3.2.2
Allocative efficiency across sectors
and Member States
Chapter 2 of this report underlined the importance of
the reallocation of productive resources to improve
the competitiveness of the EU. At present, the
importance of this reallocation is enhanced by the
digitisation of the economy, changing relative prices
of inputs and the new redistribution of labour at
global scale.
In this section, we present some simple indicators as a
first approximation of the state of play of resource
allocation and performance of the single market at
present. These indicators and measures will be
complemented in future editions of the report with
other indicators addressing other dimensions of
market performance.
Allocative efficiency (AE) is the most traditional
criterion to assess market performance. It refers to the
(
137
)
69
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3.2
Single Market Performance
Figure 3.18:
Allocative efficiency in manufacturing (2007–2013)
Note:
Data for Luxembourg and Malta not available.
Source:
Eurostat
The AE indicators presented here measure the
efficiency of the current allocation of labour across
firms within each sector by comparing it with a
hypothetical efficiency level that would be achieved
if labour would be uniformly distributed across firms.
Insofar as the actual distribution of labour is the result
of the functioning of the single market in that sector,
this can be used as a proxy to measure the
performance of the single market from the point of
view of the efficient allocation of labour. A limited
number of selected sectors are presented here.
Box 3.2. Measuring the efficient allocation of
labour
To quantify AE for the purposes of this section, the
product (θ
i
θ
base
)(lp
i
lp
tot
) is calculated for each
firm size class segment
i
of every national sector,
after which the products are summed across all size
classes (5 classes for industrial sectors; 6 for
services following Eurostat classification).
Following European Commission (2013),
138
the
share of sector employment in size class
i
will be
used for
θ
i
as a proxy for market share, while
θ
base
represents the baseline hypothesis that market
shares (employment proportions) are distributed
(
138
)
European Commission,
Product Market Review 2013:
Financing the real economy.
European Economy 8/2013.
equally across size classes: 20 % in each of the five
size classes for the industrial sectors, 16.7 % in
each of the six classes for services.
lp
i
and
lp
tot
denote the logarithms of labour productivity in
firm size class segment
i
of a sector and for the
sector as a whole respectively. Using logarithms of
labour productivity means that the resulting sum of
products across all size classes can be given a
straightforward interpretation as the percentage
gain or loss in relation to the baseline scenario of
the observed allocation of labour. If the sum is
positive, the observed allocation is better than the
hypothetical uniform distribution across firm size
classes. If the sum is negative, the observed
allocation is less efficient than the hypothetical
uniform distribution.
139
Looking first at
manufacturing,
labour is more
efficiently allocated than the baseline scenario in
almost all Member States. Exceptions include Greece
and Cyprus. For Ireland and Hungary, data suggest
much higher allocative efficiency than in most other
Member States. For some countries, data are available
(
139
)
The publication European Commission (2013),
Product
Market Review 2013: Financing the real economy,
European
Economy 8/2013 includes a similar indicator of allocative
efficiency which is slightly different of the one presented
here because it has excluded self-employment. That
methodology has also been used in SWD(2015) 202.
70
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3.2
Single Market Performance
for three years (2007, 2010, 2013). Most efficiency
gains are around 20 % and relatively stable over time;
particularly significant improvements in AE can be
reported in Denmark, Belgium and the Czech
Republic while falling AE occurred over time in
Lithuania, Finland and Cyprus (see Figure 3.18).
In contrast with the situation in manufacturing, in the
construction sector,
labour is allocated less
Figure 3.19:
efficiently than the baseline scenario. Prominent
allocative efficiency losses are observed in Greece,
Italy, Poland, Hungary and Slovakia. In 2013, the UK
and Bulgaria were the only Member States with
positive allocative efficiency. It is worth mentioning
that this indicator shows a deterioration in the
allocative efficiency for a number of countries,
particularly in Greece, Spain, Portugal, Slovenia and
Belgium in 2013 (see Figure 3.19).
Allocative efficiency in construction (2007–2013)
Note:
Data for Malta not available.
Source:
Eurostat
Carrying out the same calculations for
distributive
trades
(retail as well as wholesale) and
transportation and storage
produces the AE values
in figures 3.20 and 3.21. With some exceptions, AE
values are generally negative in distributive trades
(suggesting substantial scope for efficiency gains)
and positive in transportation and storage. Germany is
an exception, having allocative efficiency in trade but
not in transportation and storage. Lithuania stands out
as a Member State with allocative efficiency in trade
as well as transportation and storage. The results
differ slightly from those in European Commission
(2013)
140
due to different aggregations of size classes.
Over time, efficiency does not seem to be improving
significantly in distributive trades, but rather the
opposite. Some Member States report further
deteriorations in this AE indicator.
(
140
)
European Commission,
Product Market Review 2013:
Financing the real economy.
European Economy 8/2013.
71
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Single Market Performance
Figure 3.20:
Allocative efficiency in distributive trade (2007–2013)
Note:
Data for Malta not available.
Source:
Eurostat
Figure 3.21:
Allocative efficiency in transportation and storage (2007–2013)
Note:
Data for Malta not available.
Source:
Eurostat
72
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3.2
Single Market Performance
In
professional, scientific and technical services
141
,
AE values are generally negative (see Figure 3.22),
while in
information and communication
services
they are generally positive. In the former category,
particularly low values – indicating scope for
allocative efficiency gains – are found for Portugal,
(
141
)
Scientific research and development; legal and accounting
activities; architecture and engineering; technical testing and
analysis; head offices; management consultancies;
advertising and market research; veterinary activities; other
professional, scientific and technical activities.
Hungary, Italy, Bulgaria and Greece. By contrast,
Denmark and the UK are the only Member States
with slightly positive AE values. In information and
communication, the highest allocative efficiencies are
found for Bulgaria, Spain, Croatia and Romania. The
results differ slightly from those in European
Commission (2013) due to different aggregations of
size classes. Over time the situation seems to be
worsening in both professional and information
services (see Figure 3.23).
Figure 3.22:
Allocative efficiency in professional, scientific and technical services (2007–2013)
Note:
Data for Estonia, Latvia and Malta not available.
Source:
Eurostat
73
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Single Market Performance
Figure 3.23:
Allocative efficiency in information and communication services (2007–2013)
Note:
Data for Ireland, Luxembourg and Malta not available.
Source:
Eurostat
The analysis in this section reveals a distinction
between goods and services exposed to international
competition and sectors catering mainly for their
domestic market. In manufacturing, transportation
and storage, and information and communication
services, allocative efficiency is high in virtually all
Member States. The output of these sectors is in
many cases traded across borders and EU producers
are often exposed to intense global competition.
By contrast, in sectors such as construction;
distributive trades; professional, scientific and
technical services, competition is more local and
producers are under less competitive pressure. In
these sectors, the assessment of allocative efficiency
often resulted in negative values, indicating that an
equal distribution of labour across the different size
classes would be more efficient. In such cases there is
scope for a more efficient allocation of labour,
however it is not possible to predict how important
such a reallocation would be for firms, sectors or the
economy as a whole.
The evidence presented in this section also suggests
that the direction of changes in allocative efficiency
in recent years has been very diverse across sectors.
While improvements can be detected in
manufacturing, the services sectors mentioned in the
second group above present further deterioration of
their efficiency. The deterioration in allocative
efficiency in the construction sector in several
countries is an additional cause for concern. If
confirmed with further analysis, this gives rise to
additional concerns, especially at a time when an
increasing volume of resources are being shifted from
other sectors toward services.
3.2.3
Overall evolution of product market
regulation in the Single Market
Despite the strong commitment to the creation of a
competitive product market for goods and services in
the EU, significant regulatory and non-regulatory
barriers to the smooth functioning of the single
market persist. After a period of crisis in which
reforms in favour of single competition have stalled
in many sectors, reviving the efforts to further
eliminating these barriers appears to be a priority, as
the single market is widely recognised as one of the
main drivers of potential economic growth and
competitiveness in the EU. A deeper and fairer single
74
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3.2
Single Market Performance
market could allow the EU to reduce the investment
gap with respect to commercial partners and increase
trade between Member States, facilitating a more
efficient reallocation of resources across Member
States and delivering at least EUR 521 billion and 4
% of GDP growth in the EU.
142
This section presents an overview of the evolution of
product market regulation from 1998 to 2013 based
on the Product Market Regulation indicators (PMRs)
elaborated by the OECD. It must be said that these
indicators measure the situation of markets taking
into account the joint impact of regulations and
legislation developed by the Member States in the
implementation of EU directives and regulations as
well as those developed at their own initiative.
To measure the evolution of obstacles raised by
Member States to a deeper and fairer single market
and the contribution of national measures, the
evolution of economy-wide and sector regulations
143
has been compared with the performances of key
indicators of competitiveness and integration.
144
The analysis shows that all Member States have made
significant efforts over the years to improve market
performance by reducing barriers and regulations.
(
142
)
(
143
)
(
144
)
Calculations based on the findings of EPRS (2014),
The
Cost of Non-Europe in the Single Market.
In particular the PMR dataset, OECD.
See chapter 2, in particular sections on intra-EU trade and
productivity.
However, in the last ten years and in particular after
the crisis, the momentum of reforms in this field has
substantially slowed down, particularly in the EU-15.
This is in contrast with the experience of Member
States that accessed the EU in 2004 or later: they
have made substantial efforts in the same period.
These Member States appear to be reporting higher
trade integration and faster convergence in terms of
competitiveness.
Figure 3.24 shows the performance of Member States
concerning barriers to trade and investment
145
. The
majority of Member States were able to decrease the
level of existing impediments between 2008 and
2013. In particular Hungary, Belgium, Greece,
Slovakia, Italy and Poland report the largest weighted
reductions. However, the average value in the EU
increased with respect to 2008, mainly due to the
above average barriers reported in Croatia, the Baltic
countries, Cyprus and Malta, which were not
included in the 2008 calculations. Moreover,
performances in this domain are still heterogeneous
in the EU: whilst the Netherlands reports the lowest
aggregate score for existing barriers among all OECD
countries in 2013, Croatia reports one of the highest
absolute value.
(
145
)
Such barriers can limit the number of suppliers of a product
or service; limit the ability of suppliers to compete or reduce
their incentive to do so; or limit the choices and information
available to customers.
Figure 3.24:
1,8
Barriers to trade and investment (2008–2013)
2008
2013
1,6
1,4
1,2
1,0
0,8
0,6
0,4
0,2
0,0
NL BE UK FI LU HU RO BG PL IE PT ES FR DE CZ IT DK EU SK EL MT AT CY SE EE LV LT SI HR
Source:
OECD (aggregate index ranging from 0 (no barriers) to 6)
75
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3.2
Single Market Performance
Although the available data do not cover the totality
of Member States, it is interesting to observe the
evolution of regulation in key sectors such as energy,
transport and communication. Whilst barriers have
generally decreased for all countries, it can be
observed that the largest reductions have occurred in
the two decades between 1985 and 2005 for EU-15
member States (Figure 3.25), whilst among the 13
countries which have joined the Union after 2003,
Figure 3.25:
FR
FI
6,00
5,50
5,00
4,50
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
those for which the data are available show consistent
reductions of the barriers in the 2000–2013 period, in
view and after their accession to the Union (Figure
3.26). Moreover, new entrants show a convergence
path and among them one group of countries seems
to have converged to the frontier while another group
seems to have converged towards the values of low
performing EU-15 Member States.
Regulation in energy, transport and communication, EU-15 (1975–2013)
DE
IE
IT
LU
ES
NL
UK
EL
AT
PT
BE
SE
DK
Source:
OECD
Figure 3.26:
CZ
HR
6,00
5,50
5,00
4,50
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source:
OECD (for non-OECD countries only 2013 data is available)
76
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Regulation in energy, transport and communication, EU-13 (1990–2013)
EE
CY
HU
LV
PL
LT
SK
MT
SI
RO
BG
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3.2
Single Market Performance
Comparing these trends with data on intra EU-trade,
it can be observed that for many Member States, and
in particular new entrants in the EU, the generalised
increased effort in reducing regulatory barriers
corresponded to an increase in intra-EU trade growth.
Figure 3.27:
CZ
SI
LT
Although other factors certainly contributed to this
evolution, this confirms the strong potential of the
single market in increasing intra-EU trade and
investment.
Regulation in professional legal services, EU-13 (2003–2013) vs. EU-15 (1998–2013)
EE
BG
MT
HU
HR
RO
PL
CY
SK
LV
AT
DE
NL
BE
EL
PT
DK
IE
ES
FI
IT
SE
FR
LU
UK
6,00
5,50
5,00
4,50
4,00
3,50
3,00
2,50
2,00
6,00
5,50
5,00
4,50
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
2013
1998
2003
2008
2013
2003
2008
Source:
OECD (for non-OECD countries only 2013 data is available)
A number of existing barriers to the access and
exercise of regulated professions
146
are impeding the
full potential of services in the EU. In particular,
professional services and retail regulations have been
reported to be critical in some Member States, as well
as being pointed out by the European Commission
and the Council in the 2015 country-specific
recommendations to Member States. As outlined in
the SWD accompanying the Single Market Strategy,
these services are essential to businesses and
consumers, thus reducing these barriers could have a
substantial effect on the integration and
competitiveness of the EU. With respect to other
(
146
)
It must be underlined that the indicators used here for these
regulated professions are those published by the OECD. The
SWD accompanying the Single Market Strategy publishes
an update of these indicators produced by the Commission
services. In order to avoid changes in the methodology with
respect to the data published by the OECD for previous
years, these new estimates of the indicators are not used
here.
energy, transport and communication sectors,
progress in the elimination of barriers in regulated
professions was subdued, as can be observed, for
example, in figures 3.27 and 3.28 which depict the
evolution of existing barriers in legal services and
engineering services, showing neither convergence
nor substantial progress in the last decade.
147
In
addition the implementation of the Country Specific
Recommendations (CSRs) by EU Member States
dropped significantly in 2013. Member States put the
greatest effort into addressing CSRs related to the
financial sector whereas CSRs related to structural
reforms had the highest percentage rate of non-
implementation.
148
(
147
)
(
148
)
OECD methodology changed in 2008. Therefore data for
2003 and 1998 are estimates.
Source:
http://www.europarl.europa.eu/RegData/etudes/STUD/2015/
547558/EPRS_STU(2015)547558_EN.pdf
77
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3.2
Single Market Performance
Figure 3.28:
CZ
SK
LV
4,00
3,50
Regulation in professional engineering services, EU-13 (2003–2013) vs. EU-15 (1998–
2013)
EE
SI
LT
HU
HR
MT
PL
CY
4,50
4,00
3,50
3,00
AT
BE
DK
FI
FR
DE
NL
EL
PT
IE
ES
IT
SE
LU
UK
3,00
2,50
2,00
1,50
1,00
0,50
0,00
2,50
2,00
1,50
1,00
0,50
0,00
2003
2008
2013
1998
2003
2008
2013
Source:
OECD (for non-OECD countries only 2013 data is available)
Looking at the aggregate index for all analysed
professional services (Figure 3.29), it can be observed
that the most substantial progress between 2008 and
2013 has been achieved in Italy, Greece, Spain,
Figure 3.29:
4,0
2008
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
Austria and Poland. However, overall policy
initiatives in this field have been limited, leaving
scope for further improvements that will particularly
benefit integration and competitiveness.
Regulation in professional services (2008–2013)
2013
SE FI DK UK BG NL IE MT EE LT ES IT EU SK FR EL BE CZ AT PT SI RO DE HU CY LU PL HR
Source:
OECD (aggregate index; data for Latvia not available)
The performance of the retail sector is shown in
Figure 3.30. It can be observed that this is one of the
areas in which the EU has achieved substantial
progress when compared to the 2008 situation.
Competition in the retail sector has been fostered
through reforms in many Member States and the
trend has continued in 2014, with further Member
States implementing reforms, offering better market
conditions both to consumers and enterprises and
improving the functioning of the single market. While
the results of the reform process is a notable
achievement, the data also show that in many
Member States barriers are still high and the space for
improvement is still substantial across the EU.
78
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Single Market Performance
Figure 3.30:
5,0
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
Regulation in retail trade (2008–2013)
2008
2013
BG LV SE SI NL MT LT HR EE CZ CY DK SK UK RO PT EU HU AT EL PL FR DE FI ES IT BE LU
Source:
OECD (aggregate index; data for Ireland not available)
3.2.4
Economic convergence in the
Single Market
to diverge in the last 5 years, reversing the slight
progress achieved in previous years. This may signal
a compartmentalisation of the single market with the
onset of the crisis.
The effective functioning of the Single Market should
also ease the mobility of production factors (labour,
capital) across Member States. This enhance mobility
of resources should contribute to their efficient
reallocation from less productive firms and industries
to more productive ones. Even if other factors play a
significant role on resource allocation, we could
expect that the disappearance of obstacles to the free
movement of capital and labour would lead to a
convergence in productivity levels.
Ultimately, a convergence in productivity levels
should also stimulate the catching up process from
less developed economies and therefore would be
reflected in a convergence of GDP per capita.
However, we see again different performances
between the EU-28 and the EU-15. While there has
been a slight convergence in the former, there has
been divergence in the latter.
The above-described evolution in the dispersion of
prices shows that there has been an overall economic
convergence among EU Member States in the last 15
years. However, the analysed parameters seem to
imply that the convergence has been driven by the
dynamism of those Member States who joined as
from 2004, since no convergence is observed
amongst those who joined before. Indeed, a more
granular analysis of sigma convergence in labour
productivity at sectorial level clearly shows the
One of the objectives of the European Union is to
promote the economic convergence amongst Member
States by fostering changes in economic structures
and increasing the degree of market competition.
Closer economic integration is expected to unleash
competitive forces which would lead to further
economic convergence. As shown in Box 3.3 below,
we observe various degrees of convergence for the
EU as a whole (EU-28) in prices, GDP per capita and
labour productivity over the last 15 years. However,
we do not detect any convergence on these
parameters among the fifteen countries that joined the
EU before 2004 (EU-15).
A properly functioning Single Market is expected to
foster market integration and thus the convergence of
prices among Member States. If there are low barriers
to trade in goods and services, prices should be
similar due to the unconstrained interaction of supply
and demand as economic agents take advantage of
arbitrage opportunities. We would thus expect to see
a decrease in the dispersion of prices across EU
Member States, yet this is not exactly what we
observe. Indeed, there has been price convergence for
the EU as a whole over the last twelve years, with a
remarkable convergence among the Member States
who joined as from 2004 (EU-13). However, there
has been stagnation in the dispersion of prices across
the EU-15 over this period. Moreover, we observe a
change of trend among the price dispersion in the EU-
15 since the onset of the crisis. Indeed, prices started
79
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Single Market Performance
distinct performance of the two groups of Member
States. The overall stagnation in the dispersion of
labour productivity among the EU-15 is in sharp
contrast with a marked reduction among EU-13. This
reduction is very sharp in the years just before
accession and continues at a more moderate pace
afterwards.
This analysis of economic convergence reconfirms
the pattern observed in trade and investment. That is,
the co-existence of a more sluggish performance of
the EU-15 where the single market is relatively more
mature, and a more dynamic evolution of the EU-13
resulting from their accession to EU. This validates
the unquestionable benefits of joining the single
market in terms of a reduction in the economic
Figure 3.31:
0,25
disparities. However, the dwindling of economic
convergence dynamics after accession seems to imply
that the single market does not generate endogenous
factors that would guarantee the continuation of this
convergence in the long term. Reforms of the single
market could certainly lead to a higher degree of
economic integration and convergence. Indeed, the
disappointing performance of the EU-15 may be
partly due to the unfinished status of the single
market, particularly in the services sector, and the
slow or incomplete implementation of reforms in this
area. Yet, the challenge is to ensure that reforms
establish appropriate mechanisms to maintain
economic convergence dynamics amongst Member
States in the long run.
Coefficient of variation in prices
Coefficient of variation EU-15
Coefficient of variation EU-13
Coefficient of variation EU-28
0,2
0,15
0,1
0,05
0
2003
Note:
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Purchasing power parities (PPPs), total goods, price level indices and real expenditures for ESA2010 aggregates
Source:
Eurostat, European Commission's calculations
Box 3.3.: Sigma convergence in prices
Sigma convergence analysis measures the
evolution of the dispersion of a variable to assess
whether convergence is taking place. In this
section we look at the evolution of the coefficient
of variation (that is, standard variation of the
variable divided by the mean) prices,. A decrease
in the coefficient over time signals a reduction in
the dispersion of data and thus a convergence in
the analysed parameter. In the same way, an
increase in the coefficient signals a surge in
dispersion and thus increasing divergence.
The coefficient of variation of comparative price
levels for goods in EU-28 sharply decreased after
the enlargement of 2004 until the start of the crisis.
Afterwards, price dispersion increased, although
not fully reversing the previous gains. In contrast,
there has been an overall stagnation in the price
convergence across those countries that were EU
Member States before 2004 (EU-15), with a
perceptible increase in the dispersion in the last
five years. (see Figure 3.31)
Similar analyses can be carried out for GDP and
labour productivity convergence.
3.2.5
The role of the public sector: public
procurement markets
The public sector is an important economic player in
the EU economy. The size of public expenditures on
works, goods, and services (representing more than
80
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Single Market Performance
19 % of EU GDP) makes public procurement a
critical area of single market integration, an important
driver of both Member States' and businesses'
competitiveness, and a critical lever to help achieve
economic recovery and the creation of jobs.
Public procurement is also directly linked to many
key policy challenges the EU is facing: growth and
jobs, fiscal discipline, modernisation of public
administration, trust of citizens in public authorities,
innovation, and green and inclusive growth.
the remaining vulnerability to corruption;
the low number of Member States that have
defined policies for socially responsible public
procurement or for inclusion of innovation
aspects, and the absence of consistent
approaches in implementing these policies
across Member States, especially when they
result in (technical) requirements inhibiting
access to national markets, may affect the
functioning of the Single Market;
rare cases of aggregation of demand in public
procurement (14 % of contract award notices
at EU level established a framework
agreement in 2009–2014, but it varies with
type of product/service).
3.2.5.1 The untapped potential of public
procurement for the integration of
EU firms in the Single Market and
the performance of public
procurement markets
Transparent, fair and competitive procurement
markets across the Single Market create business
opportunities for European enterprises and contribute
directly to economic growth and the creation of jobs.
While steps towards a single European procurement
market have been taken for decades, there are still
significant inefficiencies in public procurement across
Member States that limit cross-border expansion or
growth in the domestic market.
These include for example:
the different procedures based on the
Remedies Directive 2007/66/EC which
provides legal tools to aggrieved bidders for
breaches of EU procurement law by public
bodies or utilities;
the low level of publication of public tenders
at EU level (the estimated average of value of
tenders with utilities corresponds to 4.7 % of
EU GDP);
the varying speed of the implementation of e-
procurement in the Member States;
the uneven level of professionalization of
public buyers;
3.2.5.2 The level of publication of public
tenders at EU level
One of the key policy issues on Single Market
integration is the level of publication of public
tenders at EU level. Although EU-wide publication of
contracts above certain thresholds is one of the key
obligations stemming from the EU rules on public
procurement, there are some Members States where
the value of procurement published in relation to
GDP is far below the EU average of 4.7 % (2009–
2013). As pointed out above, despite the fact that
increased publicity requirement induces more entry,
transparency of below-threshold procurement varies
greatly across Member States (Figure 3.32).
149
(
149
)
Research shows that increased publicity requirement induces
more entry and higher winning rebates, which reduces the
costs of procurement and rationalizes public spending.
Increased publicity also selects different winners: it
increases the likelihood that the winner hails from outside
the region of the public administration and that the winner is
a large company. See Decio Coviello and Mario Mariniello
(2014),
Publicity requirements in public procurement:
Evidence from a regression discontinuity design,
Journal of
Public Economics, 2014, vol. 109, issue C, pages 76-100.
81
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Single Market Performance
Figure 3.32: Value of calls for tender published as a percentage of GDP by Member State (2009–2013)
Source:
European Commission based on OJ/TED data
Member States in which the value of published
tenders is relatively small in relation to their GDP,
such as Germany (1.3 %), Luxembourg (1.5 %),
Netherlands (2 %) or Austria (2 %),
150
also have a
current account surplus, i.e. while benefitting from
other countries’ market openness, these countries do
not offer symmetric opportunities for European
businesses from other Member States. An increase in
the value of contracts published EU-wide would
generate additional opportunities for European
businesses in other Member States, including in
Member States with current account deficits.
151
3.2.5.3 Participation of non-national
operators in national public
procurement
Other symptoms of deficiencies in the functioning of
the Single Market include the low level of
(
150
)
(
151
)
If the value of procurement published EU-wide is compared
to public expenditure, the group of four low publication
countries (DE, LU, NL, AT) remains unchanged.
It should be emphasised that a low value in relation to GDP
does not imply that rules are not respected, simply that other
Member States publish tenders representing a higher
proportion of their economy.
participation of non-national operators in the national
public procurement markets, with striking inequalities
among Member States. For EU-28, the average
proportion of contracts which were awarded to
foreign companies in 2009–2014 is 4 % and relatively
stable, the best performers being Luxembourg (15 %),
Malta (15 %), Ireland (13 %), while the countries far
below the EU-28 average are Spain (0.6 %), Bulgaria
(0.7 %), Poland (0.8 %) and France (0.9 %) (Figure
3.33). The reasons for the low level of participation of
non-national operators in the national public
procurement markets include indirect buying from
branches or subsidiaries, where the differences
between Member States in the value of indirect cross-
border awards vary from nearly 0 % to 44 % (the EU
average is around 13.4 %).
152
Such indirect buying
distorts data on the proportion of contracts awarded to
foreign companies.
(
152
)
Ramboll Management (2011),
Cross-border procurement
above EU thresholds,
study for the European Commission.
Figure 3.33:
Proportion of contracts awarded to foreign companies
Source:
European Commission based on OJ/TED data
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Single Market Performance
3.2.5.4 The procedures used in public
procurement
One of the key elements that indicate the openness
and the potential for competition in public
procurement is the transparency level, which is
mainly given by the type of procedures used. The
main procedures, which could also indicate the level
of transparency, are the open procedure for high
openness and the negotiated-without-competition
procedure (NOC) for low openness.
Figure 3.34:
The EU-28 proportion of contract award notices
where the NOC procedure was used is 7.6 % in 2009–
2014, indicating that the observable part is fairly
transparent. But there are certain countries with a
very high proportion of contract award notices using
the NOC procedure, such as Czech Republic (20 %),
Romania (18 %), Slovakia (18 %) and Hungary (17
%). (See Figure 3.34)
Proportion of contract award notices where the NOC procedure was used
Source:
European Commission based on OJ/TED data
3.2.5.5 Competition in public procurement
The final aim of public procurement policy is to
achieve the best value for money through high levels
of competition among bidders; the proportion of
awards with just single bids is an indicator of low
levels of competition.
At EU-28 level there were 21 % notices with just one
bidder. The highest figures were for Slovakia (50 %),
Poland (46 %), Croatia (32 %), Hungary (32 %),
Estonia (31 %), Romania (30 %) and Latvia (32 %).
The best performers were Ireland (6 %), UK,
Netherlands and Denmark (each with 7 %). There is a
high potential for improvement for many Member
States (Figure 3.35).
Figure 3.35:
Proportion of contracts for which there was a single bid (excl. frameworks) (2009–2014)
Source:
European Commission based on OJ/TED data
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Single Market Performance
3.2.5.6 Aggregation of demand
Aggregation of demand has a high potential to help
public authorities obtain best value for money by
incentivizing sellers to achieve economies of scale
which could be shared with the authorities mainly if
competition is strong (or by direct access to
wholesale markets). Aggregation also has the
potential to help public authorities achieve other
important objectives such as social or green targets.
There are two options of demand aggregation –
buying through an established central purchasing
Figure 3.36:
body (CPB) and joint procurement with other entities.
Commodities such as electricity are good examples.
At EU-28 level in 2009–2014, the average proportion
of contract award notices where the contracting
authority is purchasing on behalf of other contracting
authorities was 9 %. There are Member States with
much higher levels of aggregation than EU-28 such
as Ireland (45 %) and UK (23 %), but there are also
countries which much lower levels e.g. Bulgaria (1
%), Romania (1 %) and Portugal (2 %) (Figure 3.36).
Proportion of contracts award notices where the contracting authority is purchasing on
behalf of other contracting authorities (either joint purchasing or central purchasing
bodies) (2009–2014)
Source:
European Commission base on OJ/TED data
3.2.5.7 Good practices
Aggregation of demand
Ireland
– Savings in excess of €21 million have been
achieved by the National Procurement Service (NPS)
when purchasing electricity and natural gas for the
public service in 2011. The NPS strategic approach to
energy procurement will also ensure that the Irish
public sector is on target to meet the national
renewable (green) electricity requirements target of
40 % by 2020. Electricity contracts awarded in 2011
will deliver 51.9 % of electricity generated from
renewable sources.
Scotland –
National framework agreement for the
supply of electricity for the Scottish public sector
produced estimated savings of £40 million over an
initial three year period; open to central government,
health, local authorities, universities and colleges,
other public bodies or NGOs; over 99 per cent of in-
scope Scottish public sector volume is committed to
this national agreement.
Italy
– Consip acts as the Central Purchasing Body,
procuring supplies and services for the entire Italian
public sector. Following legislative measures
introduced to rationalise public expenditure, the use
of Consip tools is rapidly taking up (from € 3.3bn in
2012 to € 4.3bn in 2013). In 2013, the average
savings generated by Consip, calculated comparing
Consip prices with the average price paid by the PA
for comparable goods and services, was 23 %.
Finland –
Finland has an efficient central purchasing
unit, Hansel Ltd, which generates savings for central
government entities through easy and safe public
procurement using framework agreements. In 2013,
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Single Market Performance
these savings amounted to approximately 240 million
euros.
153
eProcurement
Over the years, public procurement has increasingly
benefitted from electronic tools. eTools have proved
to be important for simplifying the whole value-chain
of public procurement, from preparing calls for
tenders and uploading them for all European
companies, to submitting bids and evaluating them.
The simplification of the publication of notices has
also made cross-border business opportunities much
easier to find. Finally, an important benefit of
electronic procurement, which has started to develop
in recent years and is currently gaining momentum, is
the use of procurement data to improve the
governance of procurement systems and detect
procurement anomalies. Whilst e-procurement has
been introduced across the EU, the following are
examples of good practices:
Czech Republic –
zIndex is a tool created for
benchmarking public procurement across ministries,
municipalities, and other public institutions. Each
institution has a graphically attractive profile with a
score according to a transparent methodology and is
given space to explain its performance. The tool has
been created by researchers at the Charles University
in Prague.
Portugal –
Portugal has been a pioneer in the
implementation of e-procurement. The Portuguese
legislator made an effort to modernise public
procurement, altering the public procurement regime
to include new possibilities arising from
technological developments. As a result the tender
process was made almost completely electronic
154
and in most cases tender procedures do not use any
paper documentation at all: in 2011, around 62 % of
all tender procedures were carried out through e-
platforms, out of which 92 % with a value above the
EU Directives' thresholds.
155
Following the
introduction of e-procurement, Portuguese hospitals
were able to achieve price reductions of 18 % on their
procurement contracts. In aggregate, the switch-over
(
153
)
(
154
)
(
155
)
Hansel LTD, report of activities 2014.
E-procurement is mandatory for all public contracts with a
value above the PP Directives' thresholds.
See Report on public procurement, page 10
(http://www.base.gov.pt/oop/downloads/RelContr_Pub_201
1.pdf
).
to e-procurement in Portugal is estimated to have
generated savings of about €650 million in the first
year but could have reached €1.2 billion if all
contracting authorities had fully implemented it. The
potential savings amount to between 6 % and 12 % of
total procurement expenditure. Most of the savings
were due to lower prices resulting from higher
competition (more bids per procedure), although
administrative savings were also achieved.
156
SMEs access to public procurement
Belgium –
Belgium has introduced legislative
measures to facilitate SME participation in public
contracts. Contracting authorities are e.g. no longer
allowed to request tenderers to provide facts or data
which they can easily verify free of charge in an
authenticated web-application database called
Digiflow. The database was developed by the federal
authority to facilitate the work of contracting
authorities and to reduce the administrative burden of
tenderers. The use of Digiflow is mandatory to the
federal and regional authorities. According to a recent
study conducted by DG GROW, the share of SMEs
participating in public contracts is slightly higher in
Belgium than the EU average (SBA Fact Sheet 2012
– Belgium). This tends to confirm that the measures
taken by the Belgian authorities have at least to some
extent strengthened the position of SMEs in public
contracts.
3.2.6
The role of the public sector:
modernisation of public
administrations
Modernising public administrations is one of the
priorities of the Europe 2020 strategy for growth and
jobs. Public Administrations are policy makers,
implementers, service providers, regulators but also
investors and procurers. Thus their role in improving
the competitiveness of the general business
environment and creating a climate conducive to
investment by the private sector, and growth for the
purpose of job creation, is crucial. More specifically,
a
well-functioning
administration
facilitates
investment by increasing stability, predictability and
transparency and by reducing running costs for
businesses through the streamlining of procedures
(
156
)
A strategy for e-procurement, COM(2012) 179 final, page 4.
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3.2
Single Market Performance
and elimination of red tape. It also improves the
business entry and exit conditions though the
establishment of a simple and stable regulatory
framework or through the adoption of transparent and
fast insolvency procedures
Therefore,
improving
efficiency
in
public
administration and the framework conditions for
business investment are key priorities. This includes
streamlining the regulatory environment in which
companies operate, including combating corruption.
Regarding national justice system this concerns
efforts to improve the quality, the independence and
the efficiency of judicial systems.
157
As discussed also
in chapter 1 of the report, the 2015 EU Justice
(
157
)
The 2015 EU Justice Scoreboard, COM(2015) 116 final,
http://ec.europa.eu/justice/effective-
justice/files/justice_scoreboard_2015_en.pdf.
scoreboard
158
shows that there are significant
divergences in the effectiveness of the judicial
systems across Member States, and some of them
continue to face challenges relating to the functioning
of their justice systems.
While most Member States are implementing or
planning to implement ambitious reforms aiming at
modernising public administrations and the business
environment, much remains to be done. In actual fact,
data shows that, on average, government
effectiveness has not improved across the EU over
the past five years. According to the World Bank
Governance Indicators, fifteen Member States'
ranking fell in 2014 compared to 2009, while fifteen
Member States achieved an index reading below the
EU average. (see Figure 3.37)
(
158
)
Idem.
Figure 3.37:
2,5
2,0
1,5
1,0
0,5
0,0
Government effectiveness
2009
2009 EU
2013
2013 EU
2014
2014 EU
-0,5
FI NL DK SE DE LU UK IE AT FR BE ES CY EU EE MT CZ PT SI LT LV SK PL HR HU EL IT BG RO
Note:
The Worldwide Governance Indicators summarise information from 30 data sources on views of citizens, businesspeople and
experts in the public, private and NGO sectors. Government effectiveness captures the perceptions of the quality of public
service, its independence from the political process, the quality of policy formulation and implementation, and the credibility of
the government commitment to policies.
Source:
World Bank – Worldwide Governance Indicators
Administrative reform measures undertaken in recent
years in Member States cover a variety of areas. For
example, in Bulgaria, Croatia, Hungary, Italy,
Romania and Slovakia new strategies to modernise
national public administrations are either being
drafted or have been launched. In Spain, the 2013 law
on transparency, public access to information and
good governance at central government level entered
into force in December 2014.
Administrative simplification is also high on the
agenda. France and Germany have recently adopted
better regulation work programmes, in Italy a
Simplification Agenda has been adopted and in
Portugal and some other Member States inventories
of the most burdensome regulations are being made
in an effort to reduce these burdens. Other key
measures to reduce administrative burden include the
introduction of the only-once principle and easy-
submitting principles pursued by a number of
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3.3
Remaining barriers to integration in the Single Market
Member States. Poland, Spain and Italy are
implementing the common-commencement date
principle where new regulations will enter into force
only twice a year to increase regulatory predictability.
Also, new initiatives to strengthen and promote
digitisation of the public sector have also been
launched in a number of Member States during the
year such as Finland, Bulgaria, Germany and Poland.
Concerning the daily running and opening of
businesses, Czech Republic and Denmark have
reduced the minimum capital requirement to start a
business, Greece lowered registration costs, Lithuania
and the UK made tax registration faster while Malta
and Spain introduced electronic systems which link
government
agencies,
thereby
simplifying
procedures. In 2014 it took, on average, 3.5 days at a
cost of EUR 313 to set up a private limited company
in the EU (the SBA targets are 3 days and EUR 100).
Thus, while Member States are implementing or
planning ambitious reforms, national administrations
must keep in mind that the challenges to meeting the
needs of the business community require enhancing
the capacities of public administrations, a
commitment to implement agreed policies and
adopting a culture of continued improvement.
3.3
Remaining barriers to integration in the Single Market
practices affecting e-commerce consumers is the so-
called “geo-blocking”.
Geo-blocking has been defined as any practice or
measure preventing online consumers from accessing
a web-site or purchasing goods, audiovisual contents
or services based on location of access and/or
nationality. Geo-filtering refers to the practice when
different sales terms and conditions are applied
according to the residence/nationality of the
customer. Part of these practices is legitimate.
Addressing unjustified geo-blocking is part of the
Commission's Digital Single Market (DSM)
Strategy
159
of May 2015. Geo-blocking and other
restrictions based on the geographical location of the
customer also form the subject of a public
consultation.
160
Studies cover this matter at length.
161
Commercial practices which discriminate recipients
of goods and services on the basis of nationality or
residence may result in fragmentation of the Single
(
159
)
(
160
)
European Commission,
A Digital Single Market Strategy for
Europe,
COM(2015) 192 final.
Public consultation on Geo-Blocking and Other
geographically based restrictions when shopping and
accessing information in the EU at
http://ec.europa.eu/digital-
agenda/en/newsroom/consultation/dsm
See for instance European Parliament,
Discrimination of
Consumers in the Digital Single Market,
2013 and Cardona,
M. and Martens, B.,
Supply side barriers to cross-border e-
commerce in the EU,
JRC/IPTS Digital Economy Working
Paper No 2014-13, 2014.
The situation of the Single Market calls for attention.
The stagnation of trading in the single market for
goods is due to the fall in single demand in the EU
following the crisis. However, there seem to be other
underlying factors calling for more detailed analysis
to explain why integration has stalled in this area for
most countries that were part of the Union before
2004 and why trade flows have dwindled in some of
them. Progress has been made in the process of
integration in terms of the volume of the cross-border
exchanges in services but these exchanges still
represent a disproportionately low share of GDP.
There is surely more potential for expansion in the
cross-border trading in services within the EU.
This section presents results from recent work
undertaken or commissioned by DG GROW to
identify remaining barriers to integration in the single
market with a significant impact of the performance
of some sectors or value chains with a critical
importance for the competitiveness of the EU. Other
barriers are particularly harmful for the dynamic
performance of the EU by limiting the growth of
young and dynamic export-oriented SMEs.
The barriers presented here have a regulatory or
structural nature. There are other barriers of a
behavioural nature resulting from the conduct of
firms and other economic agents. The most important
of these are the barriers erected by firms in an attempt
to fragment the single market using territorial
restriction practices. The best-known case of these
(
161
)
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3.3
Remaining barriers to integration in the Single Market
Market in forms that may or not be compatible with
the Treaty and secondary legislation.
162
In this section, we shall not dwell on commercial
practices but only on those regulatory or structural
barriers that are identified as particularly important
for competitiveness in a number of recent case
studies. Further work on these and behavioural
barriers will be conducted for future reports.
These obstacles to the cross border trade within the
single market are often also generic barriers to entry
affecting domestic firms too. In other words, the
elimination of these barriers may require well-
coordinated actions at EU level to complete the single
market in services, but interventions at Member State
level are also necessary to remove those obstacles
presenting national specificities or particular
difficulties. In some cases, these may be the most
effective way of eliminating some of those obstacles.
This is why it is important to ensure coordination and
complementarities in the reform efforts undertaken at
EU and national levels as well as in the monitoring
and identification of those reforms.
Complementarities between actions at national and
EU levels are important in the governance of
economic integration. Integration is a complex
process that requires not just the elimination of legal
and regulatory barriers but actual and effective
market integration that can allow an efficient
allocation of resources. But in addition, it is also
necessary to provide the right governance
environment to ensure stability and a smooth market
operation.
significant costs to the internationalisation of
exporting EU firms. These have been grouped in
three categories: barriers hampering internal demand
and infrastructures; regulatory barriers; and barriers
limiting the free movement of skills in the single
market.
3.3.1.1 Structural barriers limiting the
potential of the Single Market at
present: Low demand, vast volume
and enabling infrastructures
On average, around three quarters of the EU's
manufacturing output is not exported outside the EU
and, hence, relies on internal demand. In this regard,
three types of value chains can be identified. First, in
value chains such as food & beverages and building
materials, exports account for less than 20 % of total
production value, which means they are highly
dependent on EU demand. Second, some value chains
export between 20 % and 40 % of their output outside
the EU. Examples include the motor vehicles and
chemicals value chains. Finally, machinery and
pharma are the least dependent on internal EU
demand since they export over 40 % of their
production (Figure 3.38).
With the sharp drop in EU demand in all value chains
since 2008 – except in aerospace, pharma, food &
beverages and chemicals – those with limited access
to external markets have struggled more. Paper &
wood, metals and building materials have been
affected the most by falling internal demand since
they only export between 10 % and 15 % of their
gross output. In short, declining internal
consumption, together with more limited access to
external markets, has severely affected EU-based
companies (Figure 3.38).
3.3.1
Regulatory barriers in economically
significant sectors for
competitiveness
163
(
163
)
A recent study
has identified a number of
infrastructure bottlenecks in logistics that add
(
162
)
For a detailed presentation of these practices and their
compatibility with EU law see European Commission,
A
partnership for new growth in services 2012-2015,
COM(2012) 261 final.
Boston Consulting Group (2015),
Inventory of Europe's
Industrial Assets for Growth,
October.
88
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3.3
Remaining barriers to integration in the Single Market
Figure 3.38:
Proportion of the EU's gross output that is exported and growth of apparent
consumption, per value chain
Source:
Eurostat, Oxford Economics, UN Comtrade, BCG analysis
Single market demand for innovative products also
has a significant impact on the competitiveness of
certain value chains. The early adoption of new
technologies in the single market allows local
companies to enhance their capabilities and situate
themselves at the forefront of emerging and
innovative market segments.
For example, early local adoption of new types of
cars and trucks, such as autonomous vehicles (AVs),
could strengthen the EU's global leadership.
Manufacturers can develop top-tier capabilities to
serve local customers, thereby becoming more
competitive to serve export markets as soon as
demand ramps up in other regions.
Similarly, in the EU's textile value chain, increasing
demand for fast fashion could support the EU's
recovery. Fast fashion retailers require a short time-
to-market. If demand for fast fashion products is
strong in the EU, manufacturing textile products in
the EU may become more attractive for companies
since they would be able to reduce their lead times to
serve their customers. Proximity to demand is
becoming increasingly relevant when deciding on the
location of production facilities.
Finally, infrastructures are a critical factor in avoiding
bottlenecks and spurring demand. There are currently
inefficiencies affecting several value chains that may
limit expected demand growth. Examples include the
EU's electric car charging network, which is not
harmonized nor does it have enough charging
stations, air traffic management (ATM) capacity,
which constrains air traffic and aircraft demand
growth, and fuelling stations to guarantee supplies for
LNG-powered ships.
3.3.1.2 Large pool of highly qualified talent
that can move freely across the EU
The third major single market asset is the provision of
highly qualified talent. There are nearly 225 million
persons employed in the EU. Despite Europe's ageing
population, the number of graduates per year in the
highest skill levels – ISCED levels 5 and 6 – is rising
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3.3
Remaining barriers to integration in the Single Market
considerably. In areas such as mathematics,
computing and engineering, the number of new
graduates per year has increased by 20–50 % since
2003.
In manufacturing alone, there are 31.5 million
workers in the EU, which is more than Japan's and
the US' manufacturing workforces combined. In
tandem with the overall increasing number of highly
Figure 3.39:
skilled graduates, the European manufacturing
workforce's average skills level has also increased in
recent years.
Two elements need to be in place in order for this
talent base to foster a knowledge-driven economy.
Talent must have the skills that companies require,
and they should be able to move freely across
Member States.
Import/export balance in European OECD countries in the refining value chain (2013)
Source:
Eurostat, European Commission, IEA, BCG analysis
Even though Europe's economy has been recovering
from the recession, unemployment has continued to
be significantly higher than before the recession. The
overall unemployment rate has reached 10 %, an
increase of 3 percentage points since 2008. More
importantly, the youth unemployment rate is twice as
high, with over 22 % of those under the age of 25
remaining unemployed (Fig 3.39). This problem is
particularly severe in countries such as Spain or
Greece, where more than half of the youth population
does not have a job.
According to Eurofound's survey, the EU suffers
from a severe skills mismatch. Only 57 % of EU
employees hold jobs that match their skills. The
remaining employees are either overeducated, which
is a key issue in Greece and Lithuania, or
undereducated, which mostly takes place in the most
advanced countries. For example, approximately 30
% of employees are under-qualified in France, Ireland
and Finland. In addition, the limited cross-national
data available suggests that occupational mismatch
still persists for tertiary graduates, with 25 % of them
having jobs that would traditionally be viewed as not
requiring a tertiary qualification.
164
(
164
)
European Commission,
Education and Training Monitor
2015,
Staff Working Document,
http://ec.europa.eu/education/tools/et-monitor_en.htm.
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Remaining barriers to integration in the Single Market
Due to this mismatch, 39 % of firms in Europe have
difficulties finding talent with the required skills; up
from 35 % in 2005. When analyzing countries, the
three Baltic States fall behind when compared to the
rest of the EU. Moreover, manufacturing companies
face more difficulties than the general economy's
average. In European industry, 43 % of firms have
skills matching issues, while the figure is only 30 %
for companies from the financial services sector.
Multiple factors explain these difficulties, including
less attractive working conditions, such as
geographical location, or poor recruiting policies.
means many of them cannot venture beyond their
regional or national market. Fixed costs of entry in
export markets, difficulties to access capital and
market failures specific to the activities of SMEs
discourage many SMEs to internationalise.
The percentage of SMEs selling their goods and/or
services to at least another Member State or to a third
country reflects these difficulties. According to
Eurostat figures, only 17 % of firms buy from another
Member State and 9 % beyond EU borders. The share
of SMEs selling in the single market is limited to 14
% while 10 % export to third countries. These
percentages vary considerably across Member States,
ranging from 39 % of SME intra-EU exporters in
Estonia to 4.6 % in Malta. (see table 3.3)
3.3.2
Barriers affecting SMEs and the
special case of exporting start-ups
Given their flexibility, number and weight in the
economy, SMEs play a very important role in the EU.
However, the relatively small size of many SMEs
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3.3
Remaining barriers to integration in the Single Market
Table 3.3:
Internationalisation of SMEs in and beyond the Single Market
Share of SMEs involved in
intra-EU
trade of goods in 2012
Imports
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
EU
58,74%
66,67%
17,09%
22,01%
24,38%
7,62%
37,04%
38,95%
27,67%
4,95%
38,91%
8,23%
21,01%
31,38%
15,72%
37,19%
19,00%
28,63%
20,90%
4,75%
11,55%
25,70%
21,35%
14,96%
35,92%
5,77%
20,15%
14,19%
17,05%
Exports
27,08%
34,33%
15,35%
12,57%
5,13%
7,63%
24,39%
39,24%
10,61%
8,18%
29,30%
5,70%
17,30%
17,72%
16,29%
25,33%
16,12%
20,47%
4,55%
5,26%
11,44%
17,45%
12,97%
8,40%
20,61%
5,75%
14,38%
15,64%
14,12%
Share of SMEs involved in
extra-EU
trade of goods in 2012
Imports
16,23%
15,01%
9,14%
15,03%
14,40%
2,81%
23,77%
18,02%
12,67%
7,27%
14,39%
7,17%
5,83%
49,50%
7,89%
10,34%
8,21%
17,82%
18,03%
12,95%
4,90%
4,96%
6,56%
2,33%
12,21%
6,93%
13,32%
13,49%
8,60%
Exports
15,67%
11,05%
7,77%
10,32%
5,02%
2,38%
21,19%
14,39%
11,82%
9,39%
15,10%
6,26%
4,81%
31,15%
14,21%
9,49%
9,13%
11,13%
6,97%
9,09%
5,93%
9,11%
4,42%
1,78%
12,57%
10,42%
13,59%
14,05%
10,20%
Source:
Eurostat
The share of EU SMEs selling to another EU country
did not increase between 2008 and 2012, while the
share of exporters to the rest of the world went up to
10.2 % in 2012 from 9.09 % in 2008. The volumes of
exports of SMEs have remained relatively stable
since the 2010 recovery (see Figure 3.40). However,
the evolution of EU-15 is different from the EU-13
minus Croatia. The latter display a steady growth
while for the EU-15 SMEs exports have remained
stagnant in recent years.
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3.3
Remaining barriers to integration in the Single Market
Figure 3.40:
Exports of goods by SMEs to the
EU-28 (million Euros)
technology and/or exclusive design. They fill
important gaps in global value chains. Data from the
Global Entrepreneurship Monitor (2011) show that
they constitute about 2.5 % of all SMEs and 12 % of
young enterprises. Similar results can also be shown
from national data for Austria, Estonia and Sweden.
Born global start-ups are particularly important for
the dynamic development of the EU economy.
Available data highlight that BG start-ups are more
innovative
than other SMEs.
166
More competitive
firms that bring new products and services to market
are also likely to outlast and outgrow their
competitors. 45 % of European BG start-ups indicate
to have none or only few competitors, compared to
about one-third of SMEs. 37 % of born globals
consider their products/services new for their
customers while 26 % of SMEs do so. Finally, about
30 % of both BG and other start-ups assess that the
technology required for their products has been
available for a maximum of five years, while only 20
% of SMEs are confronted with such short life cycles.
(See Figure 3.41)
167
Source:
to be added
The EU has a clearly defined policy in support of
SMEs to help them overcome the obstacles to trade,
especially in the single market. Traditional theory
about international business suggests that companies
first establish a solid home market and go global only
in later stages of their life cycle.
However, this view is challenged by research that
shows that some firms internationalise quickly after
start-up – so-called ‘born globals’. “Born global”
(BG) start-ups are enterprises
165
that, soon after
inception, intensively engage in international
activities. They can be found in all sectors of the
economy, but their product/service portfolio is
characterised by a high level of innovation,
(
165
)
There is no standardised/harmonised definition of BG start-
ups,. Eurofound (2012) suggests a ‘European definition’ of
born globals including among others the following elements:
It has been started, is a spin-off, or has been a business
transfer; it has an active, strategic intention to
internationalise; it has an export share of at least 25 % of
total sales during at least two of these first five years; it is
active in at least two foreign countries, with ‘close markets’
(as regards geographic and cultural distance or language)
also being considered as different markets. All served
countries can be within Europe.
(
166
)
(
167
)
Innovativeness was measured by managers’ and owners’
answers to three following questions: ‘Right now are there
many, few, or no other business offering the same products
or services to your potential customers?’, ‘Do all, some or
none of your potential customers consider the
product/service as new and unfamiliar?’, ‘Have the
technologies or procedure required for this product or
service been available for less than a year, or between one to
five years. Or longer than five years?’.
Similar results can also be shown by national data. In
Austria, around three-quarters of BG star-ups introduced at
least one new product, service or method between 2010 and
2012, compared to around 70 % of young enterprises and
SMEs. In Sweden, around 70 % of these firms significantly
improved or developed new products and/or services in the
past three years, compared to around half of young
enterprises and SMEs. Sources:
Survey of the Austrian
Institute for SME Research on behalf of the Austrian
Federal Economic Chamber, 2013;
Survey of the
Swedish
Agency for Economic and Regional Growth, 2014.
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3.3
Remaining barriers to integration in the Single Market
Figure 3.41:
Innovativeness by type of company, selected Member States (2011)
Customers consider the product/service as
new of unfamiliar
All
Some
None
Existence of competitors
None
Few
Many
Length of availability of technologies
required for the product/service
Less than a year
Longer than five years
Between one to five years
Born
globals
Young
enterprises
SMEs
0%
50%
100%
0%
20%
40%
60%
80%
100%
0%
20%
40%
60%
80%
100%
Source:
GEM 2011 APS
BG start-ups are also comparatively dynamic
job
creators
and likely to create high-quality and
sustainable jobs and might also have some labour
market integration effects, particularly for youth.
GEM data from 2011 show that on average in
European countries, these firms employ 9.6 staff,
Figure 3.42:
compared to 5.6 in other start-ups (up to 3.5 years)
and 6.7 in SMEs in general. As shown by the
examples of Estonia and Austria in graph 3.42 BG
start-ups also show a greater employment potential
than other start-ups or SMEs in general.
Employment change by company type, Austria and Estonia
Austria, 2010-2012
Decreased sharply (>5%)
Remained the same
Increased sharply (>5%)
100%
90%
80%
Decreased somewhat (up to 5%)
Increased somewhat (up to 5%)
Estonia, 2000-2012 (mean number of employees)
Born globals
16
14
12
Young enterprises
SMEs
70%
60%
50%
40%
10
8
6
30%
4
20%
10%
0%
2
0
Born globals
Young enterprises
SMEs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source:
Survey of the Austrian Institute for SME Research on behalf of the Austrian Federal Economic Chamber, 2013; Statistics from
Estonian foreign trade data combined with business registry data
The dynamism of the EU economy could be
significantly improved if the single market provided a
more favorable environment for the creation,
expansion and growth of BG start-ups. A number of
case studies at EU and EU level provide evidence of
problems currently faced by this type of exporting
start-ups. Born globals face some specific challenges
that hamper their potential. Some of these problems
are also common to SMEs in general, but they often
present special for BG start-ups difficulties given the
nascent nature or high export intensity of these firms.
These problems affect not just to their exporting
activities but also to their sourcing of key human and
capital inputs.
Access to finance:
the fragmentation of the
single market for capitals is an additional
handicap for the creation of BG start-ups.
These companies often require specific
financing products that take into account the
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3.3
Remaining barriers to integration in the Single Market
provision of risk or other forms of venture
capital with the risks associated to the
exporting activities. These products are not
equally available across the single market.
Even in Member States with a diversified
availability of financial products, these
companies report special difficulties. For
instance, 28 % of Swedish BG start-ups report
limited access to loans as an obstacle for
business development/growth, compared to 16
% of other start-ups and 13 % of companies in
general.
168
Business environment:
The fragmentation of
the single market in national markets with
different
national
regulations
requires
(
168
)
Survey of the Swedish Agency for Economic and Regional
Growth, 2014.
additional efforts for BG start-ups to market
their products or services in different EU
markets as well as beyond EU borders. These
differences in legislations and regulations act
as entry barriers limiting the extension of the
activities of these firms. For example, among
Swedish BG start-ups, laws and government
regulations are mentioned as a large obstacle
to business development and growth by almost
40 % of the entrepreneurs, compared to about
20 % for SMEs in general. This could refer to
the number of legal pieces a company has to
familiarise itself with and adhere to, their
complexity and continuous changes which
make it time consuming for a born global to
stay updated. Furthermore, long procedures,
e.g. for authorisations, might hamper the
company development (see Figure 3.43).
Figure 3.43:
40%
Labour law related growth obstacles by company type, Sweden (2014)
SMEs
Young enterprises
Born globals
35%
30%
25%
20%
15%
10%
5%
0%
Sick pay regulations
Hiring and firing
Employee time off
Working time
regulations
Working
environment
regulations
Diversity and
equality
Source:
Survey of the Swedish Agency for Economic and Regional Growth, 2014
Migration legislation:
Due to their
international orientation and experienced lack
of skills in the home market, BG start-ups
often need to be open to hire foreign workers.
As regards non-European candidates, several
of the interviewed entrepreneurs mentioned
unfavourable migration legislation as a barrier
for job creation. Lengthy and difficult-to-
understand application processes make it
difficult for them to recruit international
talents from outside the EU.
Labour law:
The rigidity or lack of flexibility
of labour legislation and the complexity and
frequent changes make it difficult for SMEs to
handle them in practice. The Austrian
Working Time Act has been mentioned as a
barrier for employees who are working abroad
on a regular basis and may wish to work
longer hours abroad to benefit of
compensatory time-off when they return.
Between one-tenth and one-third of Swedish
SMEs report various elements of labour
legislation to be an important obstacle for their
business
development
and
growth.
169
However, a lower share of start-ups that have
been identified to be more dynamic in job
creation than SMEs on average – encounter
(
169
)
Survey of the Swedish Agency for Economic and Regional
Growth, 2014
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3.3
Remaining barriers to integration in the Single Market
these problems. This includes both exporting
and non-exporting start-ups.
construction product must be allowed free movement
onto the market of all EU Member States (Article
8(3) and 8(4) CPR).
Quality marks are permitted under the CPR, so long
as they do not cover essential characteristics and fulfil
a different function to the CE marking affixed under
the CPR. Member States are not permitted to stipulate
that a construction product must attain additional
national marks or approvals, over and above those
required by the CPR, before it can be legally
marketed within their territory.
Prior to the CPR, it was evident that trade in
construction products across Member States had been
impeded in various countries, some of which had
been referred to the ECJ. For instance, in 2008, the
ECJ found that the practice of Belgian authorities
encouraging economic operators to obtain Belgian
marks of conformity prior to the marketing of
construction
products
that
had
been
manufactured/marketed in accordance with the CPD
in another Member States, infringed the free
movement of goods principle (Article 34, Treaty on
the Functioning of the European Union).
More recently, a case was brought against Germany
where the ECJ ruled in favour of the Commission
with regard to the application of the German Ü mark
administered by the German Institute for
Construction Technology (DIBt).
A study recently conducted for the Commission
concerning the implementation of the CPR (final
report dated 15 September 2015, conducted by RPA)
concludes that mandatory CE marking of construction
products under the CPR has not enhanced the free
movement of construction products, partially because
national and quality marks are still in use in many
Member States (mainly in DE, FR, NL and UK, but
also in AT, BE, DK, PL, ES and SE). According to
the study, stakeholders report the existence of marks
linked with national standards,
de facto
mandatory
marks (for example, cases where quality marks are
requirements imposed under public procurement rules
or by insurers) and of market-driven quality marks
(which are recognised and highly rated by customers
and consumers) which restrict market access to
construction products. Where these practices exist, it
is SMEs who are hit hardest, as larger companies can
3.3.3
Remaining barriers to the free
circulation of construction products:
Barriers created by national or
quality marks
The construction sectors show relatively low levels of
integration. Intra-EU exchanges in construction
services represent a low percentage of total
exchanges, well below the share of construction
activities on GDP. The same applies to the cross-
border presence of Foreign Affiliates in other
Member States. The European Parliament (2014)
study
170
includes a case study on the situation in
construction materials. It reports on different barriers
affecting in particular SME operators in this sector. A
change from directives to regulations is estimated to
have a non-negligible impact on the sector.
To improve the situation in the construction materials
sector, the Construction Products Regulation (EU) No
305/2011 (CPR) entered into full force on the 1 July
2013, replacing the Construction Products Directive
89/106/EEC (CPD). A recent study has shown
considerable improvements as a result of the
Regulation. For instance, evidence indicates that
clarifying the obligations of economic operators has
been effective in terms of increasing legal certainty
and transparency regarding the rules. In turn, the
improved understanding of companies has facilitated
their ability to comply with the CPR and made
enforcement of the legislation easier for Market
Surveillance Authorities (MSAs). The legal certainty
provided by these provisions has also increased the
respect of legal obligations by economic operators.
The main objective of the CPR – compared with the
CPD – was to facilitate the consolidation of the
Single market for construction products through, inter
alia, simplification, clarification and increasing the
credibility of the legislative framework for
construction products. Under the CPR, the CE
marking shall be the only mark to attest conformity of
construction products with characteristics covered by
harmonised standards. Furthermore, CE marked
(
170
)
EPRS (2014),
The Cost of Non-Europe in the Single Market,
http://www.europarl.europa.eu/RegData/etudes/STUD/2014/
510981/EPRS_STU(2014)510981_REV1_EN.pdf.
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3.3
Remaining barriers to integration in the Single Market
rely on their good reputation and resources to obtain
additional marks.
Based on the study findings and on the ECJ
judgements, it is recommendable that Member States
analyse the situation in their territories to address the
market access issues which could be created by
national or quality marks.
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4
Financing the real economy
“State of the Union” in Financial Services
4.1
Single Market for Financial Services before the crisis: Financial convergence and
increased cross-border capital flows during EMU
steadily over time and has been accompanied by
significant imbalances.
171
The creation of EMU and the successive enlargement
of the euro area has given rise to rapid financial
convergence since the late 1990s. Financial
integration is a key element of the single market and
has brought significant benefits to EU Member
States. However, as pointed out elsewhere in this
report, economic convergence has not progressed
Figure 4.1:
(
171
)
This is a contribution of the Directorate General for
Financial Stability, Financial Services and Capital Markets
Union (DG FISMA).
Yields on 10-year government bonds (%)
Source:
Bloomberg
In the run-up to the introduction of the euro, a
remarkable convergence of interest rates towards the
lowest level took place. The expectation was that
ever-closer trade relations and increased coordination
of economic policies would reduce remaining
differences across Member States.
172
But whereas
certain Member States based their growth model on
competitiveness and growing export market shares,
others opted for a model based on credit-driven
(
172
)
This was the expectation when the Council tasked
Commission in 2001 to monitor on a regular basis
evolution of financial integration in EMU; see
monitoring document published on an annual basis
http://ec.europa.eu/finance/financial-
analysis/reports/index_en.htm.
the
the
the
at:
domestic demand. As a result, the latter group of
countries persistently lost competitiveness and
experienced higher than average inflation rates,
higher unit costs of labour, and higher deficits on
their current account in that period. Economic
fundamentals, country-specific risks, and national
policies diverged increasingly and were not offset by
correction mechanisms at the supranational level.
Moreover, an inadequate perception and evaluation of
risks by market participants, in some cases
encouraged by statements from international
organizations or prominent academics, also
contributed to a lack of correction of growing
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4.2
Significant divergences in economic fundamentals during EMU giving rise to imbalances and capital misallocation
macroeconomic imbalances that built up during the
first decade of EMU.
As a result, sovereign debt interest rates of euro area
countries converged remarkably in the run-up to
EMU and continued to move in lockstep throughout
EMU (until the September 2008 global financial
crisis and more in particular the May 2010 euro area
sovereign debt crisis) (Figure 4.1). At the same time,
the introduction of the euro reinforced the global
growth in cross-border capital flows, thanks to the
elimination of exchange rate risk (Lane and Miles-
Ferretti (2008)). The surge in cross-border capital
flows occurred mainly through portfolio debt flows
(bank-based debt driven capital flows).
4.2
Significant divergences in economic fundamentals during EMU giving rise to
imbalances and capital misallocation
Figure 4.2:
Cumulative inflation since 2000
Since its creation and up to the global financial crisis
of 2007/8 and the euro area sovereign debt crisis in
2011/12, EMU has been characterized by its unique
institutional framework with a single monetary policy
but primarily national fiscal, economic, and financial
policies (including supervision of financial
institutions, financial crisis management, and deposit
insurance). In this setting, low labour and/or capital
mobility and limited fiscal transfers across countries
make Member States potentially vulnerable to
asymmetric external shocks or persistent differences
in current accounts, wages costs or inflation.
Figures 4.2 and 4.3 exhibit the divergences in
Member States’ economic fundamentals, such as
inflation rates and unit labour costs. As a result of the
diverging economic fundamentals, significant
imbalances in the current and capital account had
been built up over the pre-crisis period (Figure 4.4).
Source:
ECB and own calculations.
Figure 4.3:
Unit labour cost, 2000=100
Source:
ECB and own calculations. ()
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4.3
Single Market for Financial Services in the wake of the financial crisis
Figure 4.4:
Current account balance (% GDP)
Source:
Bloomberg
In some Member States growing current account
deficits were financed by increasing and mostly short-
term capital inflows, predominantly in the form of
cross-border debt via the banking system. Moreover,
longer-term capital flows were often financing
activities such as real estate development that have
strong immediate effects on economic activity but
with limited impact on long-term growth; dynamic
real estate investment also contributed and in some
cases was driving growing credit bubbles in some
countries. However, growth dynamics dominated by
credit financed consumption spending and real estate
investment successfully attracted savings from other
parts of the monetary union as well as from the rest of
the world, deepening the mis-allocation of resources
towards the least productive uses.
When the international financial crisis broke in 2007-
2008, market perceptions were reviewed, including
financial and country risks. Short-term capital
movements to countries with severe macroeconomic
imbalances stopped and reversed, starting a severe
and disruptive process of adjustment that would
widen up further the gap in financing conditions
among Member States. The apparently high level of
integration in the Eurozone financial markets
vanished and monetary policy transmission
mechanisms stopped functioning adding to the
difficulties of the recovery.
4.3
Single Market for Financial Services in the wake of the financial crisis
restructuring mechanisms, suggesting that a sovereign
default would be disorderly. In addition, a sovereign
default would give rise to major difficulties for
domestic and foreign banks, and hence indirectly
other Member States. Banks have a home bias
towards holding sovereign debt of the home country
but often hold sizeable portfolios of other countries
bonds as well. Banks also are often exposed to each
other.
4.3.1
Dispersion and fragmentation in
credit conditions
Interventions to rescue the banks pushed public
deficits up significantly in 2009. The fiscal situation
of some Member States became unsustainable and
investors were no longer willing to finance the
deficits and refinance the debt roll-overs. The
problem was worsened by the lack of sovereign debt
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4.3
Single Market for Financial Services in the wake of the financial crisis
Figure 4.5:
Interest rates on mortgages (%)
Note:
Data for new loans
Source:
European Central Bank
Figure 4.6:
Interest rates on loans to SMEs (%)
Note:
Data for new loans
Source:
European Central Bank
The fate of banks and Member States in the euro area
turned out to be highly interconnected giving rise to a
vicious circle between states and banks: Insolvent
states threaten to take down their banks because
banks hold large amounts of sovereign debt on their
balance sheets (in particular of the home country) and
because their stability depends on the public trust in
the robustness of the public safety nets. Insolvent
banks threaten to take down their sovereigns because
of the disproportionate amount of required
government interventions (capital injections and debt
guarantees).
In sum, the global financial and euro area sovereign
debt crisis has shown that financial integration also
carries financial stability risks. An integrated and
properly regulated financial system with a stable and
predictable governance system can contribute very
effectively to the adjustment process when
asymmetric shocks hit by ensuring liquidity and more
stable lending conditions in the economies in
difficulty. Deprived of the right regulatory and
governance conditions, financial integration turns
fragile and renders financial markets less effective to
contribute to the recovery.
Financial integration, if not properly regulated, may
unravel and give rise to renewed fragmentation.
Triggered by the crisis, cross-border bank exposures
declined after 2008 and cross-border credit flows
reversed again, in particular in interbank market.
Banks focussed increasingly on “core” and home
markets and meeting domestic lending commitments.
Financing costs became increasingly dispersed across
countries. The divergence of sovereign yields in a
context of strong connection between banks and
sovereigns resulted in financial fragmentation and
segmentation of risks along national borders. Banks
located in countries with difficulties found increasing
difficulty in refinancing on the market, due to the
perceived poorer quality of the collateral they were
holding. Cross border activity dropped across the
board. The segmentation of bank funding costs was
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4.3
Single Market for Financial Services in the wake of the financial crisis
passed on to retail borrowers and non-financial firms
(Figure 4.5).
ECB, effective since 4 November 2014 (after a
rigorous Asset Quality Review and stress-test).
The objectives of Banking Union are to break the
nexus between banks and states described above, to
ensure that a common high-quality supervision is
applied consistently to all banks, to ensure a stable
cross-border
EU
banking
system
through
supranational resolution, and to build the necessary
trust between member states as a necessary condition
to introduce common public financial safety nets
(such as the European Stability Mechanism or ESM).
Figure 4.7:
Sovereign spreads for selected
countries over 10-year German
bund, 1 January 2007 to 1
January 2015
4.3.2
Importance of Banking Union to
break the bank-state nexus
A number of extraordinary interventions and
European financial assistance mechanisms provided
an impressive safety net
173
for Member States, but
these crisis mechanisms did not deal with the bank-
sovereign nexus, the fragmentation of the EU banking
sector, the heterogeneity in bank supervision, and the
distortions arising from banks being European
(global) in life, but national in death. Insolvent states
threaten to take down their banks because banks hold
large amounts of sovereign debt on their balance
sheets
174
(in particular of the home country) and
because their stability depends on the public trust in
the robustness of the public safety nets.
Banking Union was announced on 29 June 2012,
following a historical meeting of euro area heads of
state. Banking Union refers to the framework in
which banking sector policy decisions are taken and
executed at the level of participating countries (euro
zone and member states outside the euro zone that
wish to participate), in particular regulation,
supervision, and resolution.
175
Banking Union is mainly defined by two of these
policies, known as the Single Supervisory
Mechanism (SSM) and the Single Resolution
Mechanism (SRM). The SSM transfers the power to
grant or withdraw banking licenses and related
supervisory duties from national authorities to the
(
173
)
Alongside the EFSM, EFSF and ESM, funding from the
International Monetary Fund (IMF) and possible ECB
(European Central Bank) purchases of sovereign debt on
secondary markets was made available; for Member States
that have not yet adopted the euro, the Balance-of-Payments
(BoP) assistance was used.
The zero risk weights and hence capital requirements on
sovereign exposures, the exclusion of zero risk weighted
sovereigns from existing limits within the applicable large
exposure regime, and the categorisation of high-quality
government bonds as highly liquid assets in the EU
regulatory framework for banks have also promoted the
nexus. See also the 2015 “ESRB report on the regulatory
treatment of sovereign exposures”.
A single deposit insurance is not part of the Banking Union
framework, but it is highlighted in the 5 Presidents report of
June
2015
(http://ec.europa.eu/priorities/economic-
monetary-union/docs/5-presidents-report_en.pdf)
as
a
crucial reform to complete the Economic and Monetary
Union and to address the bank-sovereign negative feedback
loops which were at the root of the financial .c
Source:
Bloomberg.
(
174
)
The political announcement of Banking Union was
the game changer the ECB needed to, in turn, launch
its unprecedented Outright Monetary Transactions
(OMT) programme.
176
The OMT programme
signalled the ECB’s readiness to buy sovereign bonds
of distressed member states, under certain conditions,
in order to ensure the effectiveness of monetary
policy throughout the euro area. So, the major
reversal in sovereign spreads on Italian and Spanish
(
176
)
The OMT was announced in general terms on 2 August and
in more technical detail on 6 September. It was alluded to
already by ECB President Draghi in London on 26 July
2012, when he stated that “we
think the euro is
irreversible… Within its mandate, the ECB is ready to do
whatever it takes to preserve the euro.”
President of the
European Council Herman Van Rompuy in a speech noted
that “the European Central Bank was only able to take this
OMT decision because of the preliminary political decision,
by the EU’s Heads of State and Government to build a
Banking Union. This was the famous European Council of
June 2012, so just weeks before Mr Draghi’s statement in
London; he himself said to me, during that Council, that this
was exactly the game-changer he needed.”
(
175
)
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4.3
Single Market for Financial Services in the wake of the financial crisis
debt vis-à-vis German Bund, visible in Figure 4.7 in
July 2012, can be attributed to the introduction of
Banking Union and related flanking measures.
4.3.3
Importance of CMU for the
financing of the EU real economy
The Capital Markets Union (CMU) is a complement
to the regulatory financial reform agenda enacted
after the financial crisis and to the Banking Union.
While the latter provide stability and resilience to
financial markets by creating a safer regulatory
environment, CMU will make a critical contribution
to the financing of the real economy of the EU.
177
The CMU is aimed at rebalancing the sources of
financing in Europe by making capital markets
stronger, which will complement Europe's strong
tradition of bank financing. It will offer to both
borrowers and investors a broader set of financial
instruments to meet their needs, and better connect
financing to companies and investment projects
across the EU. The CMU wants to help complete the
single market for financial services, which will foster
competition and make capital markets deeper, more
(
177
)
For a detailed analysis we refer to the CMU Action Plan
published on 30 September 2015 as well as the
accompanying economic analysis Staff Working Document
(see http://ec.europa.eu/finance/capital-markets-union).
liquid and more efficient. This will bring three main
advantages to companies seeking finance (Figure
4.8): (i) improve their access to finance, (ii) optimize
their capital costs by creating competition among
investors, and (iii) reduce the risk of disruption in
financing by diversifying their funding sources. On
the investors' side, the benefits come from more
investment opportunities. Efficient capital markets
offer investors a broader set of financial products to
(i) meet their investment objectives, (ii) diversify and
manage their risks, and (iii) optimize their risk-return
profile, while respecting their investment constraints
– whether in terms of risk, duration, or other assets'
characteristics. This results in a greater mobilisation
of resources and an optimized allocation of investors'
capital.
Non-bank financing does not merely substitute for
investment that was previously funded by banks, but
it enables additional investment that banks would not
be ready to fund. In fact, non-bank financing tends to
be better suited to fund riskier investment projects
(with a higher required rate of return), and is also
generally more flexible than bank finance. Overall,
capital markets (especially equity investment)
facilitate entrepreneurial and other risk-taking
activities, which have a positive effect on economic
growth. Capital markets enlarge the potential investor
base, because they act in complement to bank
financing.
Figure 4.8:
A stylised view of the economic benefits of integrated and well-functioning capital
markets
Source:
European Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union)
The CMU goes beyond previous initiatives to foster
the single market for financial services and deepen
financial integration. The CMU shares some
economic objectives with its predecessor, the
Financial Services Action Plan (FSAP), which led to
the adoption of 42 regulatory measures, including 24
103
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1560449_0055.png
4.4
Business financing remains a concern, although of a less pressing nature
legislative measures between 1999 and 2004.
178
The
FSAP also aimed at reducing obstacles for cross-
border financial investment, thereby unleashing
(
178
)
FSAP was followed by the Commission White Paper on
Financial services policy 2005-2010, which focused on
implementation and enforcement of existing regulation and
on delivering targeted improvements in the existing
regulatory and supervisory frameworks.
efficiency gains through higher competition and
realisation of scale effects and allowing better
diversification of risks on integrated financial
markets. The CMU focuses on remaining obstacles to
cross-border investment and the role of non-banks in
the EU financial system.
4.4
Business financing remains a concern, although of a less pressing nature
bank loans to be available. Bank lending rates have
been trending downwards since the third quarter of
last year. The average loan duration remains stable
and loan amounts are increasing overall.
Yet, there is a slight increase in the rejection of bank
loans applications by SMEs. The highest rejection of
loan application is reported by SMEs in the
Netherlands (39 %), Lithuania (36 %), Greece (27
%), Latvia (30 %) and Slovenia (24 %). However, the
relevance of bank loans as a source of financing may
differ between member states, as well as the size of
SME sector. The difficulties of accessing bank loans
are particularly affecting smaller and younger
companies. The highest rejection rate (20 %) is
among micro enterprises employing fewer than 10
people. In addition to the problem of loan
applications being rejected, 18 % of successfully
applying companies received less than they applied
for and 4 % declined the loan offer from the bank
because they found its cost unacceptable. This means
that more than a third of SMEs didn’t get all the
financing they asked their banks for in 2014.
181
SMEs also report a substantial net increase in
collateral and other requirements for bank loans.
Collateral requirements are considered as tightened
by SMEs in all EU countries, with the highest
average increase in Cyprus, Greece and Slovenia.
Access to finance remains a concern for European
businesses, even if it is becoming a less pressing
one.
179
Financial flows to SMEs are increasing but
remain subdued. On the monetary side, Quantitative
Easing (QE) by the European Central Bank (ECB) is
having a stronger than expected impact on financial
markets, contributing to lower interest rates and
expectations of improving credit conditions.
SMEs continue to be disadvantaged compared with
large firms in terms of interest rates and the overall
cost of borrowing. Also, more innovative enterprises
experience more problems than less innovative
enterprises.
180
Financing conditions for SMEs continue to differ
significantly across Member States. SMEs consider
financing as the most pressing problem in Cyprus,
Greece and Slovenia; and as the least pressing in
Sweden, the Czech Republic and Denmark.
Comparing across different types of enterprises,
SMEs in the construction sector consider the problem
of access to finance the most pressing.
4.4.1
Bank financing is improving
overall, but difficulties subsist for
several SMEs
There has been an overall improvement in bank
financing conditions. On average, SMEs perceive
(
181
)
(
179
)
According to the European Commission’s and the ECB’s
latest
Survey on the Access to Finance of Enterprises
(SAFE), access to finance moved down from being the third
to being the fifth most pressing problem for euro area SMEs
compared to the previous survey round.
European Commission,
Survey on the Access to Finance of
Enterprises in the euro area,
November 2014.
European Commission,
SME access to finance survey,
November 2014.
(
180
)
104
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1560449_0056.png
4.5
Conclusions
Figure 4.9:
70%
SMEs not receiving most of the amount of bank loan requested (as % of total SMEs
requesting bank loans)
applied and got a limited part of it
applied but refused because cost too high
applied but was rejected
60%
50%
40%
30%
20%
10%
0%
LU CZ AT EE BE DK FI FR MT UK DE PT SE PL EU HR SK BG HU RO ES SI IT IE LT LV NL CY EL
Source:
European Commission - European Central Bank SAFE survey (2014)
Financial market fragmentation along national lines
has diminished, but remains too high. This
fragmentation hinders the development of deep and
liquid markets, impeding the flow of finance within
the EU and with the rest of the world. Bank lending
rates have gradually showed less dispersion across
Member States, yet significant spreads remains.
Indeed, interest rates above 7 % are reported in
Portugal and Greece, while SMEs in Austria,
Belgium and Luxemburg report rates below 4 %. In
dynamic terms, the highest net percentage of SMEs
reporting an increase in interest rates were in Italy,
Cyprus and Slovenia, while a net decrease was
reported in Sweden, Belgium, Germany and France.
been enhanced by improving and speeding up
administrative procedures. Yet, as bank financing
conditions improve, it is expected that their role in
supporting the financing of businesses will decrease.
In parallel, measures have been taken to facilitate the
access and transfer of financial information (such as
in the United Kingdom and Spain). Also, the
establishment of development finance institutions in
several Member States has continued. The institution
being set up in Portugal received its financial
company license in September 2014, while a single
development bank has been established in Latvia this
year. Malta is currently considering the possibility of
creating a development bank.
Other policy measures to ease SME access to finance
recently adopted by Member States include
enhancing public venture capital funds (e.g. Finland,
Malta, Spain) and establishing a regulatory
framework for peer-to-peer lending (e.g. Finland,
Netherlands, Spain).
4.4.2
Policy response at national level
Loan guarantee systems have been the preferred
policy measure to ease bank lending. Their scope and
financial allocation have been broadened during the
credit constraint. Furthermore, their efficiency has
4.5
Conclusions
large economy needs to ensure high levels of
efficiency in the allocation of resources to be
competitive but also to remain stable and resilient to
shocks.
Economic studies indicate clearly that the
"…members of a union can share risk via cross-
ownership of productive assets, facilitated by a
The crisis has shown three things. First, there is a
direct relationship between the financial markets and
those for goods and services. Secondly, there are risks
from incomplete integration and that governance
structures must be adapted to market changes and the
stage of integration achieved. Finally, failures in the
process of integration in one area of the EU economy
can have dear consequences for the rest, because a
105
kom (2015) 0550 - Ingen titel
1560449_0057.png
4.5
Conclusions
developed market, and may smooth consumption by
adjusting the composition and size of their asset
portfolio."
182
To reap the full benefits of financial integration on a
sustainable basis, the governance and institutional
framework must evolve together with increased
integration. Before the crisis, there were no
supranational tools to monitor cross-border risks or to
control the build-up of imbalances, and there were no
tools to engage in coordinated crisis management and
resolution.
183
Cross-border openness of private financial markets
and highly mobile capital flows cannot be paired with
incomplete national-based supervisory, regulatory
and crisis management arrangements. This dichotomy
is detrimental in two ways; it prevents, in normal
conditions, a reaping of the full benefits of the
removal of barriers to cross-border movements of
capital and financial services; and it impedes, in crisis
times, even-handed action to maintain financial
stability that is consistent across the euro area. The
resulting fragilities become more apparent under
stress.
Financial integration, properly regulated, will remain
a powerful tool to attain higher standards of freedom,
equity and welfare for society as a whole. New
investment and diversification opportunities should
become available for households as well as firms.
Financial integration should do away with
impediments inherent in the current structure of the
EU financial system that prevent further allocative
efficiency and optimal risk sharing. In addition, more
sound governance, supervisory and regulatory
framework will transform integrated financial
markets into useful instruments to provide stability
and resilience to the real economy against asymmetric
shocks. Breaking up the bond between public
finances and the banking system will provide a more
stable and reliable source of financing to the real
economy.
(
182
)
(
183
)
The 5 Presidents Report of June 2015
184
outlines the
ways through which closer coordination of economic
policies can be achieved to ensure the smooth
functioning of the Economic and Monetary Union.
Progress must happen on four fronts: first, towards a
genuine Economic Union
that ensures each economy
has the structural features to prosper within the
Monetary Union. Second, towards a
Financial Union
that guarantees the integrity of our currency across
the Monetary Union and increases risk-sharing with
the private sector. This means completing the
Banking Union and accelerating the Capital Markets
Union. Third, towards a
Fiscal Union
that delivers
both fiscal sustainability and fiscal stabilisation. And
finally, towards a
Political Union
that provides the
foundation for all of the above through genuine
democratic
accountability,
legitimacy
and
institutional strengthening.
Several advances have been made and continue to be
made. On 30 September 2015, the Commission
presented its Action Plan towards Capital Markets
Union (CMU),
185
along with several initiatives.
186
It
sets out the steps that the Commission will take over
the next years in order to establish a CMU by 2019.
The CMU Action Plan foresees thirty three actions in
six main areas: (i) Financing for innovation, start-ups
and non-listed companies; (ii) Making it easier for
companies to enter and raise capital on public
markets; (iii) Investing for long-term, infrastructure
and sustainable investment; (iv) Fostering retail and
institutional investment; (v); Leveraging banking
capacity to support the wider economy; (vi)
Facilitating cross-border investment. The CMU will
ensure more diversified sources of finance so that
companies, including SMEs, can tap capital markets
and access other sources of non-bank finance in
addition to bank credit. At the same time, a well-
functioning CMU will strengthen cross-border risk-
sharing through deepening integration of bond and
equity markets, the latter of which is a key shock
absorber. Truly integrated capital markets will also
provide a buffer against systemic shocks in the
financial sector and strengthen private sector risk-
sharing across countries.
Sorensen and Yosha (1998). As a matter of fact, in the USA
62 % of shocks are absorbed by market transactions and
only 13 % by federal tax transfers (Asdrubali et al. (1996))
Financial prudential regulation has long been a subject of
EU competence, but financial supervision and financial
crisis resolution remained purely national prerogatives. This
situation was even true in the euro area where the single
currency resulted in even greater market integration than in
the EU in general, yet financial stability policy was no more
integrated there than in the EU. As a result, both the EU in
general and the euro area in particular were ill-prepared to
deal with the financial crisis.
(
184
)
(
185
)
(
186
)
http://ec.europa.eu/priorities/economic-monetary-
union/docs/5-presidents-report_en.pdf.
COM(2015)468 final.
http://ec.europa.eu/finance/capital-markets-
union/index_en.htm.
106
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