End of term report on the single market

Written by Chris Huhne MEP and published in the Evening Standard on Thu 13th Dec 2001

The Euro is arriving just in time to give new impetus to Europe's single market, which might otherwise look as if it is running out of puff. The EU Commission's annual survey of progress shows that the big gains in the single market have been tailing off.

One key benchmark is the scale of the price differences within and between EU member states. The better integrated the EU market, the smaller the price differences ought to be. In a perfectly functioning market, any variation in prices should be gradually reduced by some merchant willing to buy in the cheaper area and sell in the most expensive. Price differences should reflect no more than transport costs and the differing service of sales outlets.

That is far from the case now. True, the variability around the average price for consumers' spending has fallen from 21 per cent in 1990 to a little under 15 per cent today. That is real progress. But price variability has been stuck at about the same level for three years, which is why the Euro-area needs the single currency to increase price competition. Price differences between member states are still three to five times greater than price differences within member states.

The Commission also finds that its second-best market-opening solution - pushing through mutual recognition of national standards - is not as effective as full harmonisation. Many firms say that they do not believe that EU partner countries will accept other EU countries' standards, and continue to produce slightly different specification goods to meet differing national standards even when in theory the same product should be accepted. There needs to be greater certainty about EU-wide approval.

There are, though, some real successes. Public procurement is gradually being opened up to competition: open tendering accounts for 15 per cent of total procurement, nearly double the proportion in 1995. The introduction of the Euro is also continuing to integrate financial markets.

Any area where currency risk used to be an obstacle has suddenly taken off. The corporate bond market, private equity finance, cross-border shareholdings and foreign direct investment (in plant) from one member state to another are all soaring. The Commission says that the amount of new capital raised by domestic companies rose by 49 per cent last year in the Euro-area. Pension and investment funds have started to shift their holdings of assets in a dramatic way, and both now hold fewer than half their assets in domestic securities.

Perhaps most interesting is the vast increase in direct investment within the EU as companies establish subsidiaries in other member states. Although manufacturing output has not even doubled since 1992, such foreign direct investment has soared to nine times its 1992 level compared with a fourfold increase for direct investment outside the EU.

There are also some political successes to report which will help integrate euro-area markets even more rapidly. At present, the cost of small payments are far higher if they go across borders - even in the Euro-area - than if they take place within a country. A €100 cross-border payment can cost €24 to make. (€ equals a euro).

Both the Parliament and the Council of Ministers have agreed to the proposal brought forward by the Commission under which card payments and cash withdrawals will cost the same as they do within the member country anywhere in the EU as from July 2002. This small payments regulation - it applies to euro payments of less than €12,500 - will do as much to encourage trade as the physical reality of notes and coin, and has been passed in record time.

It also contains a provision insisted upon by the Swedish and Danish governments. Even though they are not yet participating in the euro, they will be able to require that their banks charge no more for transfers in and out of euro accounts anywhere in the euro area than the banks charge for domestic transfers in their national currencies. For many small businesses, that will encourage business with the euro-area. If the Chancellor is serious about our Euro prospects, he should apply the provision in Britain too.