Post World Wars the European economy was struggling to compete with the increasing power and growth of economies of America and Japan. The European leaders felt that a unified Europe can provide increased competition to these nations and emerge as a global leader. The decision to integrate European economies was based on the strategy to make the EU the most competitive global market leaders. The European Commission’s Directorate General conducted market research studies for Internal Market to analyse the benefits and barriers to the process of economic integration.
These studies concluded that this effort could result in maximizing economic gains and leveraging Europe’s market in global perspective if numerous existing trade barriers within EU are removed. The Act to establish a Single European Market was signed in the year 1986 between the members of the European Union. The single market according to this act is defined as “an area without frontiers in which free movement of goods, services, people, and capital is ensured” (Tiscali, 2009).
A common market for European goods and services will help in strengthening their ability to meet global economic challenges. The SEM was enforced with the objective of developing a common system of law and increasing self reliance within the European Union. Currently the SEM has 25 member countries. “The single market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU – individuals, consumers, and businesses – to make the most of the opportunities offered to them by having direct access to 27 countries and 480 million people” (EU Commission, 2008).
This kind of economic structure is instrumental in stimulating economic growth, increasing job opportunities and promoting European economic goals of becoming a leading global player. Process of Integration The SEM has served to bring down the trade barriers and open the national markets to firms and businesses that can now operate freely in the European market. Once the Single European Act was passed in the year 1987 various efforts were made to remove these trade barriers and this included liberalization policies adopted in the telecommunications, banking and electricity sectors.
This economic structure has wider implications on business environment promoting healthy industrial growth and competition, lowering prices of goods and services and offering a wide range of alternatives to the consumers. It has also leveraged the companies to expand their economies of scale and enhance their capabilities to compete in globalized markets. The process of integration was achieved through measures that included abolition of internal tariffs, standardizing trade regulations across EU, introducing a common currency EURO and implementing uniform monetary policy across EU with the objective of achieving a common fiscal policy.
In the year 1968 internal tariff and quota barriers were removed. The SEM was based on four pillars that included free movement of goods, services, capital and people between member states; approximation of relevant laws, regulations and administrative provisions between member states; EU-wide competition policy, administered by the Commission; and a single Common External Tariffs (Delors, 2008). The process of integration is an “ongoing process requiring constant effort, vigilance, and updating” (EU Commission, 2008).
The changing business dynamics and the impact of technological and political developments on the business environment make this process of integration a complex task. There are many gaps that still remain in the single market. Most of the internal market regulations and controls within different European nations have been lifted but there are still some barriers that remain. Some controls and regulations in the financial and service sectors still remain as barriers to free trade.
The objectives of SEM is directed by free movement of capital, goods, services and people across the European member states and this can be effective only when the national and European policies create a favorable climate for businesses to grow and prosper across geographic boundaries. “Firms need to be confident that they can compete on a level playing field and that appropriate legal structures exist to allow all businesses, whatever their size, to operate effectively across the EU” (European Commission, 2008). Evaluation of the impact of Integration
Wim Kok in his report (2003) on the integration of European markets had recommended that European and national policies should be directed at economic growth and convergence. The SEM has created many controversies across the globe but the EU institutions and member nations have made unified efforts to remove all types of barriers that can pose restrictions on free trade and movement of capital and goods. The efforts have been well received in the past few years and are evident in increasing economic growth and prosperity in the region.
A key dimension of the SEM structure is the rapid increase in trade and investment between the member countries has brought increased economic gains. The single market for goods has ensured competitive growth of firms to capture a greater share of the extended market region comprising of more than 450 million consumers. There are still some restrictions imposed on the movement of risky products that might pose threat to public health, environment or safety.
Pharmaceuticals and construction products are some of the product sectors that are categorized as risky products. The SEM does not impose any restrictions on the quantity of purchase or trade of goods. The service sector market accounts for nearly 70 percent of the economic activity in the SEM. The European Commission feels that despite the progress in the service sectors “the overall Internal Market is not yet working as well as it should.
The goods markets have benefited greatly from the single market structure but there are still cross border regulations existing in the service sector that has restricted the free movement of services across the member countries. The dominance of small and medium sized enterprises in the member countries is seen as a hindrance to the free movement in this sector owing to their reduced capacity in meeting cross border regulations and controls.
The European Commission has adopted the Service Directive in the year 2006 that aims to remove the barriers existing in the free movement of the service sector. The primary objective of this directive is to improve the competitive market for service sectors and promote the European industry by removing any kind of discriminatory barriers, simplify the legal and administrative framework through extensive use of information technology and increase cooperation among members.
SEM has enabled small and medium sized enterprises to benefit from lowered costs, reduced regulations and improved accessibility to markets. Prior to the formation of the SEM European countries used to invest in local markets, but the incorporation of a more liberalized economic approach among member countries has promoted investors to venture into new markets and benefit from wider market approach. Single markets can function smoothly only with the free movement of capital across borders to enable better allocation of resources and facilitate trade between member countries.
The SEM economic structure has assisted the growth of financial services industries with leading players establishing their operations in new and expanded market region. The unrestricted movement of labor across geographical boundaries has contributed to the transfer of skills and manpower resources from one region to another. This aspect of the SEM has helped in creating increased job opportunities. Statistics reports from the European Commission observes that the single market has helped in creating 2. million new jobs and increased personal wealth among individuals to nearly ? 800 billion since the year 1993.
The Lisbon Strategy in 2000 defined the strategies to promote EU as the most competitive and dynamic economy in the world. The targets included completing the single market in areas such as telecom, energy and financial services since they represent the key areas in economic development. Increasing internet access and promote technology innovation in industrial and service sector to boost efficiency was yet another target identified in the Lisbon Strategy.
The stress on boosting the knowledge economy to gain competitive advantage has proved successful in promoting efficient services and increased number of skilled professionals in the region. The Lisbon strategy has provided a great impetus to the European Union economy resulting in increased job opportunities and consumerism. A significant step in unifying the European markets was the introduction of a common currency – Euro that has served to remove the currency exchange variations between the member countries. The uniform currency adopted across the region has served to ease business transactions and commerce.
The single market has helped in unifying and creating increased business opportunities while expanding the scope of generating more profits and gains from expanded market size. However, this process of integration has taken a long time in gaining the acceptance from the member countries. During the oil crisis in the year 1980 many member countries adopted protectionist attitudes by increasing trade regulations and controls to survive the crisis. This proved a setback to the SEM. However, the SEM has fought back resolving issues and challenges to present a unified European economy.