Single Market Economy

EU Monitor

European integration

The Single European Market 20 years on

October 31, 2013

Author Stefan Vetter +49 69 910-21261 stefan.vetter@db.com Editor Barbara Böttcher Deutsche Bank AG DB Research Frankfurt am Main Germany E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 www.dbresearch.com DB Research Management Ralf Hoffmann

Achievements, unfulfilled expectations & further potential

The Single Market is the core of Europe's economic and integration architecture. It has guaranteed the free movement of people, goods, services and capital in the European Economic Area since 1993 and has been continuously modified since then to keep pace with more recent developments, such as the growing importance of the service sector. Has the Single European Market fulfilled the expectations placed upon it? The answer is a cautious “yes”. Some expectations were probably unrealistically high. After a period of now more than 20 years the general consensus is that the Single Market has had (i) substantial positive growth effects, which (ii) have, however, been less pronounced than predicted by the widely quoted Cecchini Report of 1988 and that (iii) have not yet fully materialised. Empirical analyses show that the Single Market has realistically increased GDP in the EU by some 2-3%. Exports and foreign direct investment in particular have received a major boost. The dismantling of trade barriers has created cost advantages, intensified competition in the Single Market and made companies more competitive in the global arena. The reduction of barriers to intra-EU trade has also made the countries in the EU more attractive for investment by foreign firms. Given the structural problems in the eurozone and Europe's long-term dwindling importance for the global economy the continuing development of the Single Market is one absolutely essential element. In some areas, national borders in Europe still constitute unnecessary obstacles. For instance, the trade in industrial goods...