BEU, Alm.del - 2011-12 - Endeligt svar på spørgsmål 168: Spm. om oversendelse af Monti 2-rapporten, til beskæftigelsesministeren

"Tous ceux qui ont essayé de régler les problèmes économiques que posait letraité de Rome en oubliant le coté politique de la chose sont allés à un échec etaussi longtemps qu'on examinera [ces] problèmes uniquement sur le planéconomique et sans penser à la politique, je le crains, nous irons à des échecsrépétés.""All those who, in trying to meet the economic challenges set out by the treatyof Rome, neglected the political dimension have failed. As long as [those]challenges will be addressed exclusively in an economic perspective,disregarding their political angle, we will run – I am afraid – into repeatedfailures."Paul-Henri SpaakDiscours à la Chambre des Représentants14 June 1961

Bruxelles, 20 October 2009Pres(2009)D/2250Dear Professor,The Single Market has been, and remains, the cornerstone of Europe's integrationand sustainable growth. But this major European project requires renewedpolitical determination so that it can fulfill all its potential. As I have indicatedin my political guidelines, the Commission intends to lead this process, fullyengaging the Member States, the European Parliament and all stakeholders.As we approach the twentieth anniversary of the symbolic date of 1992 which laid theground for today's Single Market, the EU is confronted with three urgentchallenges:- The recent crisis has shown that there remains a strong temptation, particularlywhen times are hard, to roll back the Single Market and seek refuge informsof economic nationalism. The Commission has been, and will continue tobe, a determined defender of the Single Market through the full use of itsenforcement powers, particularly in the areas of the Internal Market andCompetition policy, including State-aid control. But there is a need for a newawareness, in the public opinion as well as in political circles, of thedramatic consequences that would derive from undermining the SingleMarket. That would erode the basis for economic integration and growth andemployment throughout the EU, at a time when the emergence of new globalpowers and of severe environmental challenges make a cohesive EU morenecessary than ever, in the interest of European citizens as well as of aneffective global governance.The full potential of the Single Market has not yet been delivered. In manyareas the Single Market is far from being completely in place. In addition,there are missing links¶ which prevent a still fragmented market from actingas a powerful engine for growth and delivering the full benefits to consumers.The Commission intends to take a more systematic and integrated approach,with a view to both achieving a fully-fledged Single Market and monitoringit effectively.Professor Mario MONTIPresidenteUniversità Commerciale L. BocconiViaSarfatti25IT-20100 Milano

-The crisis has induced some critical reconsideration of the functioning ofmarkets. It has also enhanced concerns about the social dimension. The Treatyof Lisbon, soon to enter into force, make it explicit for the first time - though theprinciple was already clearly set out in the preamble of the Treaty of Rome -that "the Union [...] shall work [...]for a highly competitive social marketeconomy". All this calls for afresh look at how the market and the socialdimensions of an integrated European economy can be mutually strengthened.In view of obtaining helpful and valuable inputs for an initiative to relaunch theSingle Market as a key strategic objective of the new Commission, I would UL¶ toentrust you with the mission of preparing a report containing options andrecommendations. Should you accept this mission, you will conduct it under yoursole responsibility and you will report directly to me on progress and conclusions.You will be able to rely on the Commission's expertise and support. You may holdconsultations, as appropriate, with the European Parliament, with the relevantCommissioners, with the competent authorities of Members States and with otherstakeholders.Yours sincerely,

TABLE OF CONTENTSMISSION LETTER FROM THE PRESIDENT OF THE EUROPEAN COMMISSION3EXECUTIVE SUMMARY6A NEW STRATEGY FOR THE SINGLE MARKET6CHAPTER 1. A MARKET IN SEARCH OF A STRATEGY111.1. Turning "yesterday's business into a key political priority………………………………121.2. The single market as a strategic objective: 1985 and 2010 …………………………………131.3. Listening to Europeans …………………………………………………………………………171.4. Less popular than ever, more needed than ever ………………………………………..…201.5. Does the single market really need consensus? ………………………………………….…211.6. Identifying the concerns …………………………………………………………………………221.7. Addressing the concerns …………………………………………………………………………301.8. A new strategy ……………………………………………………………………………………3136CHAPTER 2. BUILDING A STRONGER SINGLE MARKET2.1. Bottlenecks, missing links and new frontiers372.2. Making the single market work for citizens, consumers and SMEs382.3. Shaping Europe's digital single market442.4. The single market and green growth: energy, climate change, environment…472.5. The single market for goods: reaping the full benefits502.6. The single market for services: the powerhouse of European economy532.7. Workers in the single market: old problems and new challenges562.8. The single market for capital and financial services …………………………………………612.9. The physical infrastructure of the single market: meeting the investment challenge64CHAPTER 3. BUILDING CONSENSUS ON A STRONGER SINGLE MARKET673.1. A single market for a "highly competitive social market economy"683.2. Economic freedms and workers' rights after Viking and Laval683.3. Social services and the single market733.4. Harnessing public procurement for Europe's policy goals763.5. The tax dimension of the single market: working together to safeguard tax sovereignity793.6. Competitiveness and cohesion: the regional dimension of the single market843.7. The single market and industrial policy863.8. Open, but not disarmed: the external dimension of the single market89CHAPTER 4. DELIVERING A STRONG SINGLE MARKET924.1. Regulating the single market, "ma non troppo"…………………...……………….....934.2. Reinforcing enforcement95CHAPTER 5. A POLITICAL INITIATIVE TO STRENGTHEN THE SINGLEMARKET (AND ECONOMIC AND MONETARY UNION)…………………………..1045.1. New political initiative………………………………………………………………………….1055.2. Refocusing EU institutions on the single market…………………………………………….1055.3. The place of the single market in EU policy making…………………………...………...107

EXECUTIVE SUMMARYA new Strategy for the single marketIn his "Political guidelines for the new Commission" President Barrosoidentified the single market as a key strategic objective for Europe, to bepursued with renewed political determination. Based on the mandate receivedfrom President Barroso, this report examines the challenges that an initiative torelaunch the single market faces today and outlines a comprehensive strategy tomake such a relaunch politically successful and economically and sociallyviable.The report highlights that today the single market is at a critical juncture, as itfaces three challenges (chapter 1). The first challenge comes from the erosion ofthe political and social support for market integration in Europe. The singlemarket is seen by many Europeans – citizens as well as political leaders – withsuspicion, fear and sometimes open hostility. Two mutually reinforcing trendsare at work: an "integration fatigue", eroding the appetite for more Europe andfor asinglemarket; and more recently, a "market fatigue", with a reducedconfidence in the role of themarket.The single market today is less popularthan ever, while Europe needs it more than ever.The second challenge comes from uneven policy attention given to thedevelopment of the various components of an effective and sustainable singlemarket. Some of the difficulties encountered by the single market in recent yearscan be traced back not only to the incomplete "welding together" of the nationalmarkets into one European market, but also to the unfinished business on twoother fronts: the expansion to new sectors to accompany a fast changingeconomy and the effort to ensure that the single market is a space of freedomand opportunity that works for all, citizens, consumers and SMEs.A third challenge comes from a sense of complacency that gained strength in thepast decade, as if the single market had been really completed and could thus beput to rest as a political priority. The single market was felt to be "yesterday'sbusiness", in need of regular maintenance but not of active promotion. The shiftof attention away from the single market was further strengthened by the need toconcentrate the EU's political energy on other challenging building blocks of theEuropean construction: monetary union, enlargement and institutional reforms.With the entry into force of the Lisbon Treaty in January 2010, all the threemajor priorities have been achieved, and there is no reason to deflect attentionaway from the single market. On the contrary, the correct functioning of themonetary union and of enlargement call the single market back on stage.

There is now a window of opportunity to bring back the political focus on thesingle market. Exploiting such a window of opportunity requires awareness thatboth the objective and subjective conditions for a political initiative on the singlemarket are much more complex than at the time of Jacques Delors' initiative of1985.The single market itself is today part of a context, which has dramaticallychanged. In turn, the actors to be involved in the initiative – Europe's policymakers and stakeholders – are more diverse and present a wider range ofpreferences and interests.Based on a very extensive consultation process, the report draws a map of theexpectations and concerns surrounding the single market. It identifies differentconcerns over time (before the economic crisis, during the crisis, following thecrisis and in the long term), by areas of concern (consumers', citizens', social,environmental and business concerns) and by Member States. In this respect, thereport describes the different approaches to the single market that can beidentified in four clusters of Member States: continental social-market economycountries, Anglo-Saxon countries, Central and Eastern European countries,Nordic countries.Reconciling these widespread and diverse positions around an agenda for therelaunch of the single market is both necessary and possible. It is necessarybecause achieving a deep and efficient single market is a key factor determiningthe EU's overall macroeconomic performance. It is particularly crucial for thesolidity of the euro and for monetary union to deliver the promised economicbenefits. It is possible, provided a substantial and proactive political investmentis made, based on a carefully defined new strategy.The report thus proposes a new strategy to safeguard the single market from therisk of economic nationalism, to extend it into new areas key for Europe'sgrowth and to build an adequate degree of consensus around it.Such a new strategy has to be comprehensive. Many policies traditionally notregarded as policies for the single market have to be integrated into a singlemarket strategic objective. The comprehensive approach consists of three broadsets of initiatives:1. Initiatives to build astrongersingle market;2. Initiatives to buildconsensuson a stronger single market;3. Initiatives todelivera stronger single market.7

If consensus is not generated, it is unlikely that the initiatives to build a strongersingle market could ever be adopted and implemented. Even if they were, theirsustainability over time and their ability to withstand "bad weather" in economicor political conditions affecting the EU would be in doubt.In turn, a stronger single market – which openly seeks the consensus necessaryfor its construction and rules out the option of acquiescing to discontent bysoftening enforcement – does need strengthened delivery, enforcement andgovernance.Several initiatives to build a stronger single market are presented in chapter 2.These initiatives aim at removing the remaining bottlenecks and plugging thegaps and missing links that hamper innovation and dampen growth potential inthe single market. They are grouped in clusters of recommendations concerning:- ensuring better functioning of the single market in the perspective of citizens,consumers and SMEs;- creating a digital single market;- exploiting the potential of the single market to support green growth andEurope's transition to a low-carbon, resource efficient economy;- reaping the full benefits of the single market for goods;- fully exploiting the potential of the single market for services;- ensuring geographical labour mobility in the single market.- establishing the "physical" infrastructure for the single market;Pointing to new initiatives is key to generate new momentum, but may be notsufficient to create the political climate for sustainable action. Chapter 3 presentsthe initiatives to address the concerns identified through the consultation andthus build consensus on a stronger single market. They are cast in the context ofthe reference in the Lisbon Treaty to "a highly competitive social marketeconomy". These initiatives deal in particular with the following problems:- the conciliation between economic freedoms in the single market and workers'rights, following the Viking, Laval and other rulings of the European Court ofJustice;- the place of social services within the single market;8

- the integration of EU's policy goals in public procurement policy;- how to use tax coordination to safeguard national tax sovereignty as marketintegration proceeds;- the balancing of competitiveness and cohesion within the single marketthrough regional development policies;- the potential for an active industrial policy based on sound competition andstate aid policies;- how to ensure that the single market remains open, but not disarmed, vis-à-viscompetitors at a global level.In chapter 4, several recommendations are formulated to step up the toolsneeded to deliver the relaunch of the single market. Two aspects are discussed:- ensuring light but effective regulation in the single market;- reinforcing enforcement, by establishing a coherent system in whichinfringement actions, informal problem solving mechanisms and privateenforcement form a seamless web of remedies against breaches of EU law.The new comprehensive strategy outlined above should be seen as a "packagedeal", in which Member States with the different cultural traditions, concernsand political preferences could each find elements of appeal important enough tojustify some concessions, relative to their past positions.In particular, Member States with a tradition as social market economies couldbe more prepared to a new commitment on fully embracing competition and thesingle market, including a plan with deadlines on putting in place the singlemarket in areas where it is still lacking, if Member States in the Anglo-saxontradition show readiness to address some social concerns through targetedmeasures, including forms of tax coordination and cooperation, while there is noneed to pursue tax harmonisation as such.The new Member States, who definitely support a serious programme tostrengthen the single market, including in the areas of infrastructure andcohesion, might in turn become more open on forms of tax coordination.The report underlines that the economic, fiscal and social legacy of the crisisenhances the rationale for reinforcing the single market. Given the very limited9

margins available for budgetary stimuli, making the single market more efficientis Europe's best endogenous source of growth and job creation.Similarly, the need to cope with the growing priority assigned by public opinionto the issue of inequalities, in a context of fiscal crisis for many countries, maylead to more favour for a greater coordination of policies within the frameworkof the single market. Finally, the tensions occurred recently in the Euro-areademonstrate the need to make full use of the single market as a vector toenhance total factor productivity and competitiveness in Euro-area economiesFor the new strategy to succeed it is also necessary to reconsider the place of thesingle market in the overall context of the EU policy making (chapter 5). In linewith that, it also seems necessary to bring more unitary vision and greaterconsistency to the numerous and diverse policy areas that are relevant topromote and deliver a stronger single market. This may require some innovationin the way in which the Commission, the Parliament and the Council deal withthose policies. Some recommendations are made to that effect.

"Nobody can fall in love with the single market", used to say Jacques Delors.That the single market is not loved, is normal and even reassuring. A market isan instrument, not an end in itself. When the market is regarded as a superiorentity, as if it were always able to deliver efficiently and did not needappropriate regulation and rigorous supervision, dangers are likely to lie ahead,as shown by the financial crisis. It was forgotten by many that the market "is agood servant but a bad master".Yet the single market is a crucial servant for the European Union. First, it is anecessary – though not sufficient - condition for a good performance of theEuropeaneconomy,just as well-functioning domestic markets are for nationaleconomies. Secondly, and even more importantly, a robust single market is keyto the overall health of the EuropeanUnion,because it represents the veryfoundation of the integration project.But today the single market not only is not loved. It is seen by many Europeans– citizens as well as political leaders – with suspicion, fear and sometimes openhostility.Two trends have been visible for a number of years: an "integration fatigue",eroding the appetite for asinglemarket; and, more recently, a "market fatigue",with a reduced confidence in the role of themarket.Reinforcing each other,these trends have been undermining the acceptance, in each of its twocomponents, of the single market.As this drift in public opinion was taking place, European and national policy-makers focused on other important priorities, such as institutional reform and theLisbon strategy. "The internal market programme – warned Wim Kok in 2005 –is felt to be yesterday's business and does not receive the priority it should. Thisis a fatal policy error".When the financial and then economic crisis erupted, the Barroso I Commissionwas able, withstanding considerable pressures, to ensure enforcement of therules and to prevent fragmentation of the single market, while allowing a degreeof flexibility in coping with emergency situations.This proved once again, under unprecedented strains, the merits of anenforcement system which is solidly rooted in the community method andentrusted to the Commission as the guardian of the Treaties, under the control ofthe European Court of Justice. The enforcement system of the Stability andGrowth Pact, more intergovernmental by nature, has not proven equally12

effective, not only during the crisis – when some leeway may well have hadacceptable macroeconomic justifications – but even before, in the "good" years.After having made use of the Commission's single market enforcement powersto counter the risks of disintegration brought about by the crisis, PresidentBarroso decided to go one step further. In his "Political guidelines for the newCommission" of September 2009, he identified the single market as a keystrategic objective to be pursued with renewed political determination. He alsostated his intention that the Commission should lead this process, fully engagingthe Member States, the European Parliament and all stakeholders.In view of obtaining inputs for such initiative, in October 2009 he commissionedthis report. The report aims at identifying whether, and how, the single marketmay be turned from a perception of being "yesterday's business" into a keypolitical priority, to meet the growing challenges of European integration.1.2. The single market as a strategic objective: 1985 and 2010Exactly 25 years ago Jacques Delors, then President of the Commission,launched with Lord Cockfield, Vice President and Commissioner for the internalmarket, the single market project with the White Paper on "Completing theInternal Market" for the European Council of June 1985, held in Milan.1TheCommission asked "the European Council to pledge itself to completion of afully unified internal market by 1992 and to approve the necessary programmetogether with a realistic and binding timetable". The European Council did so.A major effort was then undertaken by European institutions, Member States,economic agents and, by the end of 1992, much of what had been planned wasactually adopted and to a large extent, though by no means completely,implemented. Getting ready for the advent of the single market proved a keydriver for investment, restructuring and legislative modernization. More deeply,there was a change in attitude. Policy makers and economic agents alike felt thepressure to think and act in a wider framework, as regards bothtime(in 1985they started to make plans for "1992", as the project was called) andspace(theywanted to get ready for Europe-wide competition). They reacted to this

This report uses the expression "single market", except when quoting documents, which refer to the "internalmarket". From a conceptual and communication point of view, "single" seems more appropriate than "internal".Firstly, citizens of any EU country are likely to understand the term "internal market" as referring to their owndomestic market, rather than the EU-wide market. Secondly, when used with non-European interlocutors, theexpression European "internal market" may convey a flavour of closure, of "fortress Europe", that in general isfar from reality and that it is not in the EU's interest to nurture. Thirdly, "single" is a more committingdescription. In fact, the market for any particular good or service within the EU is "internal" by definition, butrequires actions by policy makers and market participants, if it is to be really "single", rather than fragmented.

challenge with enthusiasm. This helped the European economy to recover fromthe "eurosclerosis" of the previous years.After 1992, the single market has certainly not been left unattended. In additionto a great number of specific initiatives to consolidate the achievements of"1992", and to apply the principles of the single market to newly emergingactivities in different industries, there have been two broader policy initiatives,the "Single Market Action Plan", launched in June 1997, and the "FinancialServices Action Plan", launched in May 1999. There has also been a continuouscommitment of competition policy, to ensure that the market in the EU be notonly single, but also working under conditions of vigorous competition.Yet, towards the end of the Nineties the focus on the single market was not asstrong as before. Two requirements for an effective and sustainable singlemarket did not receive the attention they deserved.First, the 1985 White Paper itself had clearly indicated that "the objective ofcompleting the internal market has three aspects: […] the welding together ofthe […] markets of the Member States into onesinglemarket; […] ensuring thatthis single market is also anexpandingmarket; […] ensuring that the market isflexible."The White Paper admitted that it was directed primarily to the first ofthe three objectives, but that achieving the other two was equally crucial.Indeed, some of the difficulties encountered by the single market in recent yearscan be traced not only to the still incomplete "welding together" of the nationalmarkets, but also to the unfinished business on the other two fronts of the"completion" in the full sense. In spite of some progress achieved, for example,as regards Trans-European Networks and the Lisbon strategy, substantial effortsremain to be done on these accompanying policies, which in reality are integralparts of putting in place a satisfactory single market.Secondly, excessive reliance by some Member States on the self-regulatingabilities of financial markets resulted in delays and inadequacies in designingand putting in place the appropriate regulatory and supervisory frameworks toaccompany effectively the process of financial liberalization and of creation ofthe single market for financial services. This contributed to the fragility of thisimportant component of the single market.While the consequences of neglecting the two requirements above would havebecome visible only a few years later, there was, at the turn of the century, asense of complacency, as if the single market had really been "completed" andcould thus be put to rest, as a political priority. In addition, there wasundoubtedly the need to concentrate the EU's political energy on other

challenging building blocks of the European construction: monetary union,enlargement, institutional reform.With the entry into force of the Lisbon Treaty in January 2010, all three buildingblocks are finally in place. There is no reason that they should continue todeflect an overwhelming proportion of political attention away from the singlemarket. In fact, two of them – monetary union and enlargement – seem rather tobe calling the single market back on the stage.The weaknesses in monetary union, exposed by the Greek crisis, have theirimmediate manifestations in the reactions of financial markets to public financedisequilibria. However, if we look at the underlying causes of such disequilibria,one of them is certainly the inadequate competitiveness of the real economy. Inturn this is largely due to the fact that corporatism and rent-seeking, both in thepublic and private sectors, still keep the domestic economy partly sheltered fromthe full play of the single market and competition, thus preventing the neededimprovements in overall productivity. This situation, by no means exclusive ofGreece, calls for more single market, i.e. a strengthening of the economic leg ofEconomic and Monetary Union, if monetary union and the euro are to be solidand deliver the expected economic benefits.Enlargement, too, calls – and, at the same time, allows – for a renewed focus onthe single market.First, both the new Member States and the EU as a whole have benefited fromenlargement, also in economic terms. But should there be a widespread tendencytowards renationalization of policies and business strategies, as was seen duringthe crisis, the economies of new Member States would be the first ones to suffer.Secondly, an effort must be made to regain full confidence in an enlarged singlemarket by the public opinions of old Member States, which had beeninadequately prepared to cope with this major change.Thirdly, most new Member States have a political orientation, which appears tobe more strongly in favour of the single market and competition than it nowseems to be the case for some of the Member States that had been at theforefront of economic integration in the past decades. For a strategy to relaunchthe single market, it is crucial to make the most of the support and impulsionthat can be provided by the newer members of the EU.In view of the above circumstances, it might now become more possible than inthe last twenty years to focus the minds and will of European policy makers onthe challenges confronting the single market. But this will require awareness that15

both the objective and subjective conditions for a strategic initiative on thesingle market are more complex than at the time of Jacques Delors' initiative of1985.The object of the initiative – the single market – is today part of a context, whichhas dramatically changed. In turn, the subjects to be involved in the initiative –Europe's policy makers and stakeholders – are themselves a vastly morearticulated set of agents. No initiative could reasonably be launched withoutpreviously consulting them in depth, against the background of the new context.The changes in the context are individually well known, but it is sometimesneglected how profoundly their combined action has changed the way ofoperating of the single market and what citizens and business expect from it. Itwill be sufficient to list the key changes, all of which intervened in the 25 yearssince the White Paper.Some changes took place well beyond Europe:- Globalization and the emergence of new economic powers;- The technological revolution, triggered in particular by Information andCommunication Technology;- The growing importance of services in the economy;- The growing awareness of environmental and climate-change challenges.Besides having to respond to these global changes, Europe's single market hashad to cope with a number of deep transformations, which were specific toEurope:- The collapse of the Soviet block, hence of a threat that had been a key driver ofintegration;- Enlargement, from 10 to 27 Member States;- Much greater economic diversity, also linked to enlargement;- Introduction of a single currency, now shared by 16 Member States;- Increase in migrations and in cultural diversity;- Open rejection of further (or even existing) EU integration, through referendain several Member States;- Explicit clarification of the limits of acceptability, by one Member State, offurther EU integration in the future (ruling of the German Federal ConstitutionalCourt of July 2009);- Lisbon Treaty: "The Union […] shall work for […] sustainable development[and] a highly competitive social market economy" (article 3, Treaty on theFunctioning of the European Union).

Before launching the single market project with the 1985 White Paper, JacquesDelors had prepared the initiative through a "tour des capitales" of the then 10Member States, plus Spain and Portugal who were soon to join. Today theEuropean Union is not only larger and more diverse, with its 27 Member States,but also more complex in its articulation, with a much broader involvement ofstakeholders and civil society.In line with the new landscape, the drafting of this report was preceded by a veryextensive process of formal and informal consultations. Therefore, the analysisand recommendations herewith submitted to the President of the EuropeanCommission, while engaging the sole responsibility of the author, reflect theoutcome of what can be considered an exploratory mission that he conducted atthe request of the President.The exploration, carried out between November 2009 and April 2010, has dealtwith the perceptions on the single market, its strengths and shortcomings, themeasures that could improve and deepen the single market while addressing theconcerns surrounding it, the policy strategies that might facilitate the adoption ofsuch measures. It has involved extensively the various stakeholders of the singlemarket and groups in civil society, as well as representatives of politicalinstitutions.At the top of EU institutions, the author had the privilege to draw on the viewsof the Presidents of the European Parliament Jerzy Buzek and of the EuropeanCouncil, Herman Van Rompuy In addition, he had of course the benefit ofseveral discussions with the President of the European Commission, JoséManuel Barroso. He also benefitted from exchanges of views with the Presidentof the European Central Bank Jean-Claude Trichet, the President of theEuropean Investment Bank Philippe Maystadt and the European OmbudsmanNikiforos Diamandouros.

At the European Parliament, the consultation has involved separately thefollowing political groups: European People's Party, Progressive Alliance ofSocialists and Democrats, Alliance of Liberals and Democrats, Greens/EuropeanFree Alliance, European Conservatives and Reformists, European United Left-Nordic Green Left. There have also been hearings and debates with the InternalMarket and Consumer Protection Committee, the Economic and MonetaryAffairs Committee on the occasion of its meeting with National Parliaments, andthe Special Committee on the Financial, Economic and Social Crisis. TheInternal Market and Consumer Protection Committee has prepared an own-initiative report, intended as the Parliament's contribution to the present report.This initiative has been much appreciated and has contributed significantly tothe preparation of the present report. A specific joint consultation was also heldwith all the rapporteurs of the Parliament on the package on financialsupervision currently undergoing the legislative process.With the Council, the consultation has taken the form of exchanges of viewsfirst, at the initiative of the Swedish Presidency, with the Ambassadors at theCommittee of Permanent Representatives (Coreper); then, at the initiative of theSpanish Presidency, with the Ministers at the Ecofin Council and at theCompetitiveness Council. A dialogue has been opened with the current SpanishPresidency as well as, in view of future initiatives on the single market, with thePresidencies that will follow in the next two years.As regards Member States, the dialogue has involved all of them in the contextof the Council, as described above. In addition there have been bilateralconsultations, at their request, with governments of most Member States, eitherin their respective capitals or in Brussels. The interlocutors have been typicallythe Ministers who participate in the Ecofin and the Competitiveness Council. Ina few cases, there were meetings also with Heads of States and Governments.The author also had the benefit of exchanges of views with Felipe Gonzalez,Chairman, and the other fellow members of the Reflection group on the future ofEurope, on which he served at the request of the European Council2. He alsoconsulted a small number of personalities who, although currently not holdingofficial positions in EU institutions or Member States, contributed significantlyto the advancement of the European construction and in particular of economicintegration, such as Giuliano Amato, Georges Berthoin3, Leon Brittan, EtienneDavignon, Jacques Delors, Joschka Fischer, Valéry Giscard d'Estaing, WimKok, Karl Lamers, Pascal Lamy, Tommaso Padoa-Schioppa, Chris Patten,Romano Prodi, Peter Sutherland and Antonio Vitorino.There is full coherence between the approach taken on the single market in the Gonzalez Report and the onedeveloped more extensively in the present report.3Georges Berthoin held, amongst others, the position of Head of cabinet of Jean Monnet.2

Great attention has been devoted to the consultation of the wide variety ofstakeholders of the single market and groups in civil society which take aninterest in the single market and more broadly in European integration. This hasbeen done at the level of their respective European bodies in Brussels and at thenational level on the occasion of visits to Member States.In this context, numerous exchanges of views have taken place in particular withconsumers associations, business organizations, trade-union bodies. In an effortto understand the converging positions, as well as the remaining divergencesbetween the social partners on some critical issues, a joint meeting has also beenorganized with Business Europe and the European Trade Union Confederation.Numerous submissions have been received. Many of them deal with sectoralissues, sometimes highly specific. It is in the nature of the single market to bethe playing field for a great multitude of industries and activities. Each has itsown problems and warrants specific policy attention. It is important that theEuropean institutions should listen to, and work on, all the relevant sectoraldimensions. This report, however, aims at capturing the broad picture of thesingle market today and to suggest a comprehensive strategy for its relaunch. Todo so, it was necessary to focus on a relatively small number of key issues.While some stakeholders may not see their submissions explicitly followed up,each has contributed to shaping the positions presented in this report. Similarly,each stakeholder stands to benefit if the single market at large is fortified anddeveloped.Other stakeholders that have been consulted include environmental groups,providers of services of general interest, organizations of regions andmunicipalities, associations working in the social field, family organizations andnetworks of non-governmental organizations.Particular attention has been devoted to drawing on the expertise of think-tanksworking on European policy issues, both in Brussels and elsewhere in Europe,and of individual academics. This has been done through bilateral meetings andthrough participation in conferences and workshops, some of them especiallyorganized to elicit views on the topic of this report.Although it is unlikely that any institution or person consulted would fullyidentify with each component of the strategy recommended in this report, theauthor is confident that the exploratory mission carried out at the request ofPresident Barroso may have paved the way for a rather wide basis of consensuson a number of key points. It is hoped that such platform might facilitate theCommission's task of launching a promising strategic initiative.

An uncomfortable feature of the single market today emerges prominently fromthe consultations, although it is seldom brought out explicitly: the single marketis less popular than ever, yet it is more needed than ever. Highlighting thiscontrast will perhaps be considered political incorrect. But only by addressing itopenly will it be possible to work for a genuine and sustainable relaunch of thesingle market.In the extremely diverse prism of positions, three different groups may beidentified.a. Radical criticsSome interlocutors confine themselves to the expression of concerns: they seethe single market as a source of tensions, dislocations and fears. They do notwant a relaunch of the single market. They would rather see less economicintegration and perhaps a lesser role for markets in general in our societies.b. Conditional supportersA vast majority of Member States, political groups and stakeholders, on thecontrary, do regard – to different degrees - the single market as an importantingredient for the economic advancement of Europe. At the same time, they dohave concerns, for one or both of the following reasons. They themselvesconsider the single market to be insufficiently mindful of other objectives (forexample, social or environmental) and would support a relaunch only ifaccompanied by some reorientation. Even when they do not share thoseconcerns, they recognize that they are widespread across Europe. Therefore,they believe that a relaunch of the single market is likely to meet seriousopposition unless it addresses such concerns.c. Unwavering supportersFinally, both among the Member States and the stakeholders, there is a smallcore of strong and unwavering advocates of the single market. They of coursefully support the idea of a relaunch. Their support is a precious ingredient for apolitical initiative. At the same time, their advocacy risks being less effectivethan they would like, because they do not seem to be fully aware of the concernsthat, in many other countries or contexts, have reduced the acceptance of thesingle market

In constructing, and then promoting, a new strategy for the single market it willbe necessary to engage with each of these three positions.The case for the single market needs to be made afresh, in a context that isprofoundly different from the one in which the project was launched 25 yearsago. Globalization was not created by the European single market. But the singlemarket, if it is strengthened to resist nationalism and adjourned to be moreconsistent with other concerns and policy objectives, is the best response toglobalization. With Economic Union, the economic, social and environmentalwelfare of European citizens can be defended better than with economicdisintegration and purely national measures. This does not exclude that theexternal dimension of the single market – to keep it open, but not disarmed –may warrant further consideration, as will be done in this report.Making the case for the single market in an updated and non-dogmatic waymight induce some of the "radical critics" to a partial reconsideration. It shouldalso reinforce the conviction in the "conditional supporters". Member States,political groups and stakeholders in the latter category – which is the largest,though considerably heterogeneous – are likely to enhance their support for arelaunch of the single market if they see it address their concerns.The key political consideration will then be how to address these concerns in anexplicit and focused way in order to make a relaunch of the single market morewidely accepted, while not softening or diluting it.Strategically, the question will be how to gain the support of the "conditionalsupporters" and yet retain the support of the "unwavering supporters". Thisrequires that the latter be, first, made fully aware of the threats confronting thesingle market today, let alone its relaunch; then, persuaded that the"concessions" included in a comprehensive strategy to allow a relaunch to gothrough, are not such as to undermine the efficiency of the single market insupport of a competitive European economy.1.5.Does the single market really need consensus?

A distinction must be made between the enforcement of existing rules and theadoption of new rules or, more broadly, policy initiatives to relaunch anddevelop the single market.As regards enforcement, the Commission is indeed entrusted with a set ofinstruments that it has the right, and the duty, to use as guardian of the Treaties,under the sole control of the European Court of Justice and with no need forconsensus by anybody else.It is important, however, that enforcement policies, as well as specificenforcement decisions, be conducted and presented in such a way as to generatewide understanding and even consensus. The more vigorous is enforcement, asis needed to ensure a competitive single market, the more it is necessary toexplain it persuasively, so as to avoid backlashes against the EU generally andthe single market specifically.As for the adoption of new rules or other policy initiatives to relaunch the singlemarket – including perhaps the granting of further and more effectiveenforcement powers – consensus will obviously be required. The degree ofconsensus necessary will depend on the decision-making rules foreseen by theTreaties for the different policy areas. Support by the European Parliament andby the Council will be essential. As far as the Council is concerned, unanimitymay be required in some areas, while in others qualified majority will besufficient.Consensus building – fully engaging the European Parliament, Member States,the Council, stakeholders - will thus be a crucial component of a new strategyfor the single market. The effort to generate consensus will have to show fullawareness of the main concerns surrounding the single market today. Theseconcerns are often shared, to some extent, even by those Member States,political groups and stakeholders who regard the single market as a key asset ofEurope and would like to see it strengthened.1.6.Identifying the concerns

a. Concerns over timea.1. Before the crisisWell before the crisis erupted in 2008, a certain "integration fatigue" hadbecome visible. On one hand, economic and political establishments becamereluctant to see the logic of the single market go deeper into the heart ofeconomic power at the national level. Hence, for example, the difficult process -and modest result - as regards the introduction of the take-over directive; theresistance opposed to the enforcement of free movement of capital in the area of"golden shares" and other special rights; some attempts to block cross-borderacquisitions.On the other hand, in different segments of society, concerns emerged on someeven more basic aspects of the single market, such as free movement of peopleor services. It was as if, all of a sudden, principles that had been introduced halfa century before by the Treaty of Rome, and had been largely practiced eversince, had become sources of tensions and anxieties, in particular in the contextof the accession of 12 new Member States in 2004 and 2007. In fact, thatenlargement was prepared very effectively in all respects, except for the publicopinions in the old Member States. The perception of an imminent new reality -a single market having within itself an unprecedented degree of diversity -created fears that had a role in alienating portions of public opinion, as shownmost vividly by the outcome of the French and Dutch referenda of 2005.a.2. During the crisisDuring the crisis, the single market came under risk for a different reason, thetendency to seek emergency solutions at the national level, which characterizedmany governments but also parts of the business community and, in particular,of the financial services industry under stress. The determined enforcementpolicy of the Commission, mentioned in paragraph 1 above, and a shared senseof responsibility among Member States allowed the single market to survivevirtually unscathed. Yet, the years 2008 and 2009, provided a worrying reminderof the very serious problems into which the single market may run, in case of asevere and prolonged crisis. Although very solidly planted in the legal systemand in the economy, the single market is not yet as rooted in mindsets – and asendowed with powers and mechanisms for crisis-management – as it would benecessary for it to be fully resilient and safely beyond the "point of no return"even in a worst-case scenario.

a.3. Following the crisisFollowing the crisis, a certain "market fatigue" has intervened. Support for themarket economy has become less broad and less deep than it had been since theEighties. The limits to what the market can deliver have become more visible.The market is now seen by many as unfair, having generated unacceptableinequalities; and inefficient, having attracted massive resources into financialactivities whose contribution to the economy is questioned. This "marketfatigue" adds to the "integration fatigue" noted above. At the time of the 1985White Paper, and for the following twenty years, it was thoseopposingtheadvances of the market, of competition, of integration, who were forced on thedefensive. Now, and presumably for a number of years to come, it is rather thosewho want topromotemore market, more competition, more integration, whowill have to bear the "burden of the proof" in the public opinion and policyarenas. The "product" which is promoted – for example more single market, asin this report – will have to be more genuinely responsive to the concerns thatthe crisis has amplified. Equally, the way of promoting it will have to becomemuch more convincing, as the advocacy has now to lean against the wind, notwith the wind as until recently.Good-faith cooperation between Member States and European institutions willbe particularly important, so as to avoid that a third fatigue which has emergedsince several years - the "reform fatigue" generated by structural reforms - isalso imputed by public opinions to the EU and its single market, whereas thereforms are first and foremost in each country's interest.a.4. In the longer-termAlso in the longer-term, even when the crisis and its cultural impact will havebeen absorbed, it is likely that the ground for more market-based integration willbe less fertile than it has been since the beginning of European integration. Thistopic goes well beyond the scope of the present report. But the future of thesingle market, and of integration more broadly, will have to reckon with thetrend – visible in many old and new Member States alike – of more fragmentedelectoral landscapes, with a relative decline of the larger parties that have beentraditionally supporting European integration, the emergence on the right as wellas on the left of the political spectrum of smaller but growing parties which havein common a very critical stance on integration, be it global or European. Eventhe larger pro-EU parties find it increasingly difficult, in competing for theelectorates, to stick to their vision and often are induced to take less forwardingpositions on the benefits of integration.

The single market can be the first victim of this upcoming political scenario, if itis seen as the "blind aggressor" of localism and its traditional values. But it canalso become - if properly reconfigured so as to bring real, visible, material andnon-material benefits to citizens, while addressing the concerns and fears thatthey often associate with the market – a key component in a broader politicalproject aimed at reconciling citizens with Europe.b. Concerns by areab.1. Rent-seekers' concernsTo the extent that the single market brings openness and competition, itobviously raises the concern, and often the vigorous opposition, of those whosee their situation of rent eroded by it. This is inevitable and even an indicationthat the process is helpful for economic growth, through greater efficiency, andoften for social progress as well. Elimination of protections for insiders allowsthe rest of society not to be "taxed" by the rent-seekers and permits outsiders,often the younger and the less privileged, to get better chances economically andsocially. There is, however, the question of how to minimize the hijacking ofpublic opinion and politicians by these special-interests groups against the singlemarket and, more broadly, the EU as a vector of competition and change.b.2 Consumers' concernsConsumers are great beneficiaries of the single market. There are, however,many cases where benefits are late to materialize because the single market hasbeen introduced but there is still insufficient competition, or because access tothe single market is precluded or difficult, or because there is inadequateconsumer protection. Like for other concerns listed below, in this paragraph theconcerns are mentioned concisely, so as to allow the overall picture to emerge.They will be examined more closely in subsequent chapters, where proposals aremade to tackle them.b.3. Citizens' concernsThe freedoms that are brought, in principle, by the single market have also non-economic dimensions, that citizens of the EU want to be able to enjoy. But theexercise of these rights is often very problematic, sometimes simply precluded.Besides causing justified frustration, these situations put the single market in abad light. Citizens may see here a confirmation of their often held – no matterwhether unfounded – conviction that the single market cannot really be activelyused by them, whereas they feel that they are passively subject to the threats itbrings with it.25

b.4. Social concernsThis is a very diverse set of concerns. Some have to do specifically with labourissues, others with dissatisfaction concerning inequalities. Although the singlemarket has significantly contributed over time both to job-creation and toimproving the absolute and relative conditions of the less advanced MemberStates and regions, there is a widespread – though normally misplaced -perception that restructurings and delocalisation of companies are in some wayrelated to insufficient protection granted by the EU vis-à-vis the rest of theworld or to the actual inducement to intra-EU relocations as an effect of thesingle market.Also, some fear that others – in an enlarged EU with still vastly divergingstandards of living – may, through free movement of labour or services orthrough posted workers, threaten their own position in the labour market andeven some fundamental workers' rights.Finally, it is undeniable that the single market, by fostering economicintegration, does contribute to creating, at least temporarily, winners and losers,in the context of a positive overall process of growth and job-creation. MemberStates, through their social policies, try in various ways to compensate the losersfinancially and to retrain them for active participation in the process. But thebudgetary means to enact redistribution policies may be eroded by somepronounced forms of tax competition, which in addition tilt the tax burden to theadvantage of the more mobile tax bases, like capital income or very highprofessional incomes, and to the disadvantage of less mobile bases, like labourincome, unskilled labour income in particular.Hence some tensions between market integration and social objectives. Theseare even more vividly exposed, now that the Lisbon Treaty has introduced, evenformally, the objective of achieving a "highly competitive social marketeconomy". If themarketand thesocialcomponents do not find an appropriatereconciliation, something has to give in. Following the crisis, with the decliningappetite for the market and the increasing concern about inequalities, it is by nomeans clear that it would be the market, i.e. the single market, to prevail.A distinct category of social concerns has to do with services of generaleconomic interest and the real or perceived threats posed to them by the singlemarket.

b.5. Environmental concernsThese concerns pertain to the broad question of whether the single market, ascurrently legislated and implemented, can provide adequate responses to thepolicy objectives of the EU in terms of environment, fight against climatechange and resource efficiency. This is again an interface, between sustainabilityand the single market, that is highlighted by the Lisbon Treaty. Relative to thesocial concerns surrounding the single market, environmental concerns are ofcourse more recent but are making rapid inroads in the policy debate. While theobjective of green growth involves a wide spectrum of EU and Member States'policies, there is certainly a specific dimension regarding the structure and wayof functioning of the single market. Intellectually and politically, this is arelatively new ground, warranting serious investment.b.6. Business concernsBusiness, which has always tended to be the strongest promoter and engine ofthe single market, still keeps a keen interest in its further development. But alsothe business community has its concerns. Naturally enough, they tend to differby industry and size of companies. The consultation preparing this report hasallowed consideration of numerous different perspectives, many of which haveto some extent informed the views presented in the subsequent chapters (as hasbeen the case for the consultations held with other stakeholders). For thepurpose of mapping the concerns at this big-picture level, three broad concernscan be singled out.Across industry lines, business is unhappy with the many remaining obstacles interms of fragmentation and bottlenecks. There is a strong demand for moreeffective level playing field, for prompter enforcement, for resolute advances inareas, like the digital economy, where the single market does not yet exist.There is also, in particular with the SMEs but not only, a demand forsimplification and less burdensome regulation, although the progress made inthese respects is not denied.At the other end of the spectrum, among large companies acting globally theretends to be a concern about the external dimension of the single market, with theEU being seen as not sufficiently forceful in pressing for market access in somekey countries and to some extent penalizing its own companies as a consequenceof a heavier regulatory environment – including state aid control – than iscommon elsewhere.

It is also worth mentioning that the main business organizations, although ofcourse promoting the business community's vision of the single market, showincreasing awareness of the need to address the concerns of other stakeholders,as summarized above, if the single market is to be able to withstand thetemptations of economic nationalism and to sustainably achieve the strongadvances that are deemed necessary.c. Concerns across Member StatesThe concerns outlined above, though rather widespread, are not uniformlydistributed across Member States. In view of identifying a space for a potentialforward-looking deal, it may be interesting to see how the perspectives divergeamong groups of Member States which to some extent have a shared vision ofthe single market, resulting from their cultural traditions, even more than fromthe political majority currently in power. Needless to say, this exercise must betaken for what it is, i.e. a first - but perhaps not unhelpful - approximation.c.1. Continental social-market economy countriesIn these countries there tends to be a less central role attributed to the consumeras the intended primary beneficiary of the single market, than is the case forexample in the Anglo-saxon countries. The position of the worker and of theentrepreneur tend to be seen as deserving a perhaps higher priority.Manufacturing, more than services, is regarded as a particularly importantcomponent of the productive structure. Greater attention is given to socialconcerns in relation to the effects of market processes. Services of generaleconomic interest are considered to be a key sphere for broad social policy, atthe national, regional and local level.Competition policy and particularly state-aid control have often been viewedmore critically than in Member States attributable to the other groups. Similarly,enforcement of single market rules has not always been welcomed.Whereas these Member States had long been the engines of market integrationin Europe, that role was subsequently taken by the Anglo-saxon countries. Theless enthusiastic stance on the single market and competition by the social-market economy countries has been determined to some extent by their socialconcerns. Attempts to temper the social effects of single market integration, forexample through some coordination of tax policies, met with the resistance inparticular of the Anglo-saxon countries.

c.2. Anglo-saxon countriesThe approach of the Anglo-saxon Member States has traditionally been ratherspecular to the one described above for the continental social market economies.Consumer welfare as guiding principle of economic policy; strong favour formarket opening and vigorous competition policy; acceptance of market-drivenchanges in the structure of the economy without concern for the shift frommanufacturing to services, financial services in particular; indifference, in mostcases, for the transfer of control of companies in foreign hands, have beenfeatures observed over the last two decades in Anglo-saxon countries. Socialconcerns have of course not been absent, but have been catered to a large extentvia policies aimed at enhancing employability coupled with reliance on market-based growth.Consistently with this approach, when it comes to shaping EU policies theAnglo-saxon Member States have been a driving force for the single market,competition policy, encouragement of economic reforms at Member States'level, light regulation; while they have not been sympathetic to the idea that theEU might become more active in terms of social policies, tax coordination,industrial policy or protection of services of general economic interest.c.3. New Member StatesThe political culture prevailing in the new Member States and the need to makeup for decades of inefficient management of the economy tend to make themstrong advocates of the market and competition, giving priority to growth overheavy social protection. Being new and, in most cases, not large Member States,they greatly value the vigorous enforcement of single market and competitionrules done by the European Commission, as a guarantee of equal treatmentrelative to the larger and economically more powerful old Member States. Theirappetite for all the above makes of the new Member States a remarkablepotential political engine of further development of the single market, at a timewhen, on the one hand, some of the Continental social market economies havebecome less enthusiastic about it and, on the other hand, the financial crisis hasmade the Anglo-saxon countries less persuasive, at least for a while, in theirmarket advocacy.The new Member States have their own specific priorities for the improvementof the single market, as in the areas of free movement of labour and of services,infrastructures for a genuine "physical" single market, cohesion policies. Theyhave also practiced, in many cases, bold policies of tax competition. Whileinsisting on their merits in early stages of membership of the EU, some of themseem to be open to now view those policies in a broader perspective. The current29

budgetary difficulties following the crisis and the possibility of obtaining a moresatisfactory single market and cohesion context if some moderation is exercisedin the tax area, may offer ground for some policy reorientation.c.4. Nordic countriesNordic countries, in recent years, have seen their economic and social modeloften praised by observers from other countries and international organizations.In fact, they combine rather effectively market opening and competition, on onehand, and social protection based more on safety nets for individual workersthan on the preservation of specific jobs made obsolete by technological andeconomic change (flexi-curity), on the other.At the same time, they provide an illustration that, while tax considerationobviously play a role in determining an economy's competitiveness and abilityto attract investments, they are by no means the exclusive or indeed the mainfactor. What the public sector does with tax revenues, especially in terms ofproviding good education and supporting research and development, plays anequally, if not more important, role.If the single market – through the new strategy that this report aims atdeveloping – is at the same time strengthened in terms of openness andcompetition and made more reassuring as regards the social and environmentaldimensions, then the gap between the Nordic countries and other parts of the EUwould be somewhat reduced.1.7. Addressing the concernsGiven the widespread and diverse concerns surrounding the single market –which are more likely to increase rather than decrease in the longer term - twoalternative responses can be conceived, a defensive option and a proactiveoption.a. Defensive optionThe defensive option would consist in, first of all, not discussing the concernstoo openly, for fear that this might itself contribute to eroding confidence in thesingle market.Secondly, enforcement of the existing rules should of course go on. To theextent that highly sensitive cases arise, enforcement policies should try tobalance the required vigour with the need to avoid too harsh confrontations withMember States.30

Thirdly, bold initiatives to relaunch and extend the single market would beviewed with some caution, in view of the likely oppositions fed by thewidespread concerns identified above and in order not to exacerbate them.b. Proactive optionThe proactive option would seek to achieve a substantial strengthening of thesingle market, through: an even more robust enforcement system to cope withthreats of economic nationalism that are unlikely to disappear and withdistortions of competition caused by governments and companies; an extensionof the single market to areas where it is insufficiently developed; a deeperleveraging on the single market as a key condition for Economic and MonetaryUnion to be sustainable and deliver the promised benefits.The pursuit of such a proactive option would require substantial politicalinvestment, in particular in terms of relentless advocacy of the merits of marketintegration and vigorous competition, as well as a number of focused policyinitiatives to address the most serious concerns and points of tension betweenthe single market and other policy objectives.This report recommends the proactive option, which seems to be fully in linewith the political initiative undertaken by President Barroso.1.8. A new strategyThe rest of the report tries to develop a new strategy for the single market. Suchstrategy appears necessary, if the proactive option recommended above is tohave any chance of success. The challenge is nothing less than bringing forwardEuropean integration – overcoming visible risks of disintegration - in a societythat appears to be less disposed to integration than was the case in 1957, at thetime of the Rome Treaty, or in 1985, at the time of the Delors White Paper.a. A comprehensive approachThe new strategy has to be comprehensive. Many policies traditionally notregarded as policies for the single market have to be integrated into a singlemarket strategic objective. They include not only competition policy,traditionally seen as a powerful instrument to integrate markets and to makethem competitive, but also, amongst others, industrial, consumer, energy,transport, digital, social, environment, climate change, trade, tax and regionalpolicies, but also policies that seem more remote from economic aspects, such asjustice and citizenship. In turn, achieving a deep and efficient single market is akey factor determining the EU's overall macroeconomic performance. It is31

particularly crucial for the solidity of the euro and for monetary union to deliverthe promised economic benefits.The comprehensive approach, deploying the range of policies mentioned above,needs to consist of three broad sets of initiatives:1. Initiatives to build a stronger single market;2. Initiatives to build consensus on a stronger single market;3. Initiatives to deliver a stronger single market.If consensus is not built, it is unlikely that the initiatives to build a strongersingle market could ever be adopted and implemented. Even if they were, theirsustainability over time and their ability to withstand "bad weather" in economicor political conditions affecting the EU, would be in doubt.In turn, a stronger single market – which openly seeks the consensus necessaryfor its construction and rules out the option of acquiescing to discontent bysoftening enforcement – does need strengthened delivery, enforcement andgovernance.b. Building a stronger single marketThe initiatives to build a stronger single market are presented in chapter 2.These initiatives - which also address the call by President Barroso, endorsed bythe European Council, to tackle the issues of bottlenecks and missing links in thesingle market (paragraph 2.1) - are grouped in clusters of recommendationsconcerning:- a better functioning of the single market in the perspective of citizens,consumers and SMEs ( 2.2);- the digital single market (2.3);- the single market and green growth: energy, climate change and environment(2.4);- the single market for goods (2.5);- the single market for services (2.6);

- workers in the single market (2.7);- the single market for capital and financial services (2.8);- The physical infrastructure of the single market: meeting the investmentchallenge (2.9).c. Building consensus on a stronger single marketThe initiatives to build consensus on a stronger single market are presented inchapter 3. They are cast in the context of the reference in the Lisbon Treaty to "ahighly competitive social market economy" (paragraph 3.1). They seek toaddress the concerns identified through the consultation and described above inparagraph 1.6. At the same time, they are mindful of the need of notundermining the central objective of strengthening the single market.These initiatives deal in particular with the following problems:- the conciliation between economic freedoms in the single market and workers'rights, a sensitive issue following the Viking, Laval and other rulings of theEuropean Court of Justice (3.2);- social services and the single market (3.3);- harnessing public procurement for the EU's policy goals (3.4);- the tax dimension of the single market: tax coordination to safeguard taxsovereignty as market integration proceeds (3.5);- competitiveness and cohesion: the regional dimension of the single market(3.6);- industrial policy in the single market (3.7);- the external dimension of the single market: open, but not disarmed (3.8).d. Delivering a stronger single marketThe initiatives to deliver a stronger single market are presented in chapter 4.Several recommendations are formulated, dealing with two key aspects:- regulation in the single market (4.1);33

- reinforcing enforcement (4.2).e. A package dealThe new comprehensive strategy outlined above should be substantiated in apackage deal, in which Member States with the different cultural traditions,political preferences and concerns analysed above could each find elements ofappeal important enough to justify some concessions, relative to their pastpositions.In particular, Member States with a tradition as social market economies couldbe more prepared to a new commitment on fully embracing competition and thesingle market, including a plan with deadlines on putting in place the singlemarket in areas where it is still lacking, if Member States in the Anglo-saxontradition show readiness to address some social concerns through targetedmeasures, including limited forms of tax coordination.The Member States of Central and Eastern Europe, who would be happy to see aserious programme to strengthen the single market, including in the areas ofinfrastructure and cohesion, might in turn become more open on forms of taxcoordination.A fresh approach to these sensitive topics should be pursued, leveraging oncircumstances that have occurred recently and should facilitate a greater sense ofbelonging to a common project, leaving behind entrenched positions of the past.One such circumstance is certainly the economic, fiscal and social legacy of thecrisis, which should allow everyone to see the value, greater than ever before, ofextracting more growth and job creation from making the single market moreefficient, given the very limited margins available for budgetary stimuli.Similarly, the need to cope with the growing priority assigned by public opinionto the issue of inequalities, in a context of fiscal crisis for many countries, maylead to more favour for a more cooperative approach as regard tax policies.More profoundly, the crisis has upset many consolidated views on hierarchies ofeconomic models and brought about a more pragmatic and modest attitude, aswell as some more predisposition to economic policy coordination.Finally, tensions which have occurred recently in the Eurozone provide forgreater evidence than ever before of the need to make full use of the singlemarket as a vector to enhance total factor productivity and competitiveness inEurozone economies.

2.1. Bottlenecks, missing links and new frontiersThe Single Market is Europe's original idea and unfinished business. In hisPolitical guidelines for this Commission, President Barroso pointed to the gapsand "missing links" that hamper the functioning of the Single Market. Echoingthis orientation, the European Council of 26 March 2010 has agreed that the newEurope2020 strategy should address "the main bottlenecks…related to theworking of the internal market and infrastructure"."Missing links" and "bottlenecks" mean that, in many areas, the Single Marketexists in the books, but, in practice, multiple barriers and regulatory obstaclesfragment intra-EU trade and hamper economic initiative and innovation. Inothers, the potential for greater economic gains is frustrated by lack of physicaland legal infrastructure or by absence of dialogue between administrativesystems. TheITC revolution and rapid technological development add a thirdcategory to the list of missing pieces in the single market : sectors that did notexist when the single market was initially conceived, such as e-commerce,innovative services and eco-industries. These are the sectors which hold thelargest growth and employment dividends for the future. They represent the newfrontiers of the single market.Relaunching the single market requires tackling the different challenges posedby missing links, bottlenecks and new frontiers. In some sectors, such as in thesingle market for goods, market integration reached a mature stage. Policyaction can focus on "market maintenance" through market monitoring, targetedregulatory intervention, simplification and reduction of compliance costs. Inothers, as in the case of services, Europe is still in a phase of "marketconstruction" that requires breaking down barriers to cross-border activity,cutting the dead wood of national administrative and technical barriers andovercoming corporatist resistances. In the new frontiers, Europe should harnessthe full range of single market tools to drive forward the construction of a digitaland low-carbon resource efficient economy. The marginal gains from action inthis area are the greatest. Turning the attention to the new frontiers is key togenerate new momentum for and confidence in the single market as a priorityfor tomorrow's Europe.However, no project to relaunch the single market will have the necessarypolitical energy to succeed, if it fails to show citizens, consumers and SMEs thatit works first and foremost for them. The Report thus will start from there.

The single market and its four freedoms embodies an ideal: that of a spaceacross national boundaries within which citizens can move, work, do research orstart up a business without any discrimination. As the single market grew inscope and size, it was felt that this was not always the case. Market openingwould widen the horizons for big business, but would not work for the many andthe small : citizens, consumers, or SMEs.Surveys show that attitudes towards the single market today range from lack ofinterest to open rejection. In part, economic integration and its benefits havebecome business as usual and thus undervalued. Much of the disillusionmenthowever comes from frustration with remaining barriers or the feeling ofdisempowerment that citizens experience when dealing with the single market.Relaunching the single market serves to re-activate Europe's engine of growthand employment, and ultimately serves to expand opportunities for citizens. Thefirst challenge is thus to empower citizens, whether consumers or entrepreneurs,to become full actors within the single market. There are many ways in whichthe single market benefits them horizontally across policy areas, throughwidening the choice of providers, services and products or expanding mobilityoptions and ensuring safety of traded products. Some specific actions shouldnevertheless be undertaken to enable citizens, consumers and SMEs to activelyexploit this widened range of opportunities.The citizen in the single marketThe 2008 Lamassoure report on "The citizen and the application of Communitylaw" brought into sharp relief the link between mobility and citizens' rightswithin the single market. The pace at which this citizen dimension of the singlemarket progressed has fallen behind the evolution of social and economic trends.Whereas intra-EU mobility may still be limited when benchmarked against theUSA, it concerns more than 11.3 million Europeans. Around 350 000 Europeansper year engage in an international marriage with a national of another MemberState. Every year 180 000 European students move to another Member State forthe Erasmus programme or to attend a post graduate degree. Often, they stay onseeking employment.Yet, the single market is not an easy playing field for them. There is asignificant gap between what is in the law books and what happens in practice.The patchwork of barriers and hurdles to overcome is such that in his ReportAlain Lamassoure concluded that "creating a single space for citizens is still atthe stage before the Single European Act of 1986: the barriers may have beenabolished, the countless regulatory obstacles still make it difficult to achieve an38

harmonious life inside this common space"4.Progress in this area has been slow. The measures required fall under civil,commercial and even family law, areas close to the sovereignty of MemberStates. Moreover, national legal systems often present divergent solutions. Theunanimity requirement for measures linked to the establishment of an area ofjustice, security and freedom has also been a factor in slowing down change.There are several areas where policy action should be taken to untangle citizens'mobility from red tape and regulatory hurdles. The new provisions in the LisbonTreaty now offer a concrete opportunity to move forward in all those dimensionsof citizenship linked to the establishment of an area of justice, security andfreedom.Improving access to the right to move and reside in another Member StatesThe right of citizens to move and reside freely in another Member State shouldbe made as easy as possible. In this context, the regime set out by the Directive2004/38/EC is now starting to function after a slow and somewhat difficult start.In order to go even further, steps should be taken to ensure the free circulation ofofficial documents. Too many citizens' complaints concern requests to produce atranslation of documents or new certificates made by national administratorsreluctant to recognise EU rights. A system providing for mutual recognition ofofficial documents, such as authentic acts or civil status documents issued bynational administrations, would greatly facilitate mobility. In the same vein, astep change in favour of mobility would come from the creation of a EuropeanFree Movement Card that would contain in a single document all theinformation a European citizen may require in another Member State in additionto identity and nationality: work permit status, social status and right to socialsecurity. This would extend to all the information needed for communicatingwith national administrations the model that already exists for health and socialsecurity information included in the European Health Card.The recent initiative to launch an enhanced cooperation on a regulation on theapplicable law, jurisdiction and enforcement of judgments covering matrimonialproperty regimes provides a solution to the some 145 000 cases of internationaldivorce every year. Progress would also be important in the equally critical areaof cross border wills and successions.

Facilitating the solution of cross-border of commercial and civil law disputesThe rising number of cross-border commercial and civil disputes calls for aserious assessment of ways and means to facilitate the circulation of judgmentsand the recovery of cross border debts. This implies the abolition of theexequatur process. This procedural requirement imposes the assistance of alawyer and results in a cost that can reach 2000 euro for what is often a pureformality. At a time in which SMEs and service providers struggle to keep theirbooks in order, it is important to remove obstacles to cross-border debt recovery.This means prohibiting debtors' from moving funds from a bank account in oneMember State to an account in another Member State simply to avoid paying abill. To reduce to a minimum the number of unrecovered debts - today standingat 37% of cross border debts - a targeted legislative initiative would bewarranted. A wider use of the recently introduced European Small Claimsprocedure - which applies to claims below 2000 euro and allow for a treatmentof cases in a standard user-friendly format that does not require lawyersassistance - would also increase citizens and business trust in cross-bordertransactions. In the context of the current crisis, the possibility of reviewing theregulation on cross-border insolvency should be examined. More efficient andfaster insolvency proceedings - notably when cross-border groups of companiesare involved - would be in the interest of both debtors and creditors. Enhancingadministrative cooperation through the support of the E-justice portal could alsobring practical benefits in the short term.A single market for car drivers…Finally, administrative obstacles and legal uncertainty characterise theexperience of Europeans that move with their cars throughout the single market.It is not possible for instance to move a car from one country to another withouthaving to re-register the car and paying the relevant tax. This exposes citizens todouble taxation, complicated administrative procedures, extra costs and timewaste but is also a problem for business. Car rental companies, in fact lack theflexibility needed to manage their fleets across Member States depending on theseasonal variation of demand. Likewise, this fragmentation prevents the carindustry from fully exploiting economies of scale, as they have to adjusttechnical specifications to the requirements of various national markets. Pastattempts to regulate this area have not produced results, but there is some scopeto reassess the issue in the light of its cost for citizens and business. Legaluncertainty affects the citizens that are victim of one of the 500 000 cross-borderaccidents that happen every year in Europe.

While the rules on the applicable law have been clarified, the terms and timelimits to file insurance claims still give cause for confusion. An initiative toharmonise the terms and conditions for file insurance claims could give bothinsurances and citizens greater legal certainty.Key Recommendations:⇒Ensure the free circulation and recognition of official acts;⇒Introduce a European Free Movement Card ;⇒Make progress in the mutual recognition of civil acts relating tointernational marriages and to successions and wills;⇒Ensure easier cross-border debt recovery, including a wider use ofthe European Small Claim portal;⇒Abolish double taxation of registration for cars.Empowering consumersConsumers and consumer welfare should be at the centre of the next stage of thesingle market. A stronger consumer focus would mean a renewed attention tomarket integration and competition, an enhanced corpus of rights, protectionsand means of redress and a greater access to basic services.A number of actions discussed elsewhere in this Report contributes to consumerwelfare in the single market, such as access to services of general interest,energy consumption through smart metering, integration of consumers concernin market monitoring exercises, enhanced ADR and better enforcement.Consumer protection should be a horizontal concern when developing the singlemarket in new areas, such as the digital economy or e-commerce. As a startingpoint, the legislator should find without delay an agreement on the draftdirective on consumer rights, in order to ensure a high level of protection forconsumers in an integrated retail market.The wider choice of products and services and sharper competition that thesingle market provides should work for consumers through improved markettransparency and comparability. Progress should be made in the regulation ofindependent intermediaries, such as price comparison websites and productstest, to ensure that consumers identify the best quality and prices across the EUfrom among a vast choice of products and providers. Informed consumer choiceis a vehicle for rewarding and promoting the most innovative and efficientcompanies.

An EU mechanism for collective redressAs mass consumer markets are expanding cross-border, groups of consumers areincreasingly harmed by the same illegal behaviour of a trader who is oftenlocated in a different Member State. Today, cross-border claims represents 20%of mass claims and they are likely to increase even more in the future.Traditional litigation is not practical or cost-efficient for consumers andbusinesses in these cases. Bundling similar individual cases in a singleprocedure would allow savings through economies of scales for both consumersand businesses and increase the efficiency of national courts. Europe should thusmove forward in the creation of its own model of collective redress mechanism,while at the same time avoiding the US style class action model Action at EUlevel to promote both in-court and out-of court resolution (ADR) of massclaims, would increase the confidence of consumers in the single market,increase cross-border transactions and stimulate competition betweenbusinesses. This should be introduced as a priority for electronic commerce.Greater integration in the retail banking sectorFurther action to accelerate integration of retail banking services would allowconsumers to reap the full benefits of the integration of the European financialsector. Measures should be taken to improve the transparency of bank fees, toensure the availability of standardised and comparable information for retailfinancial products and to facilitate customer mobility. Ultimately, switchingbank accounts should be no more cumbersome than switching between mobiletelephone operators.Key recommendations:⇒Adopt EU legislation on collective redress⇒Improve the transparency of bank fees, ensure the availability ofstandardised and comparable information for retail financial products andfacilitate bank customer mobility.Creating a favourable business environment for SMEsThe typical European firm is an SME, nine times out of ten consisting of amicro-enterprise with less than 10 employees. The 20 million EU medium, smalland micro-enterprises are the backbone of the European economy, generating anincreasing share of value added and giving a crucial contribution to employmentgeneration. The single market is an important factor for their growth but,unfortunately, it is not always a friendly environment for them. Only 8% of

SMEs engage in cross-border trade and only about 5% have set up subsidiariesor joint ventures abroad.There a number areas in which this Report recommends action in order to createa business environment which is more tailored to SMEs needs: facilitating e-commerce, extending the new Approach to other goods areas, better enforcingEU rules, providing clearer and more effective information on opportunitiesprovided by EU law and faster problem solving structures, greater access topublic procurement, simpler e-invoicing rules, better regulation andsimplification, simpler and faster standardisation processes.This does not require changing current policies, as the Small Business Act(SBA) adopted by the Commission in 2008 is the best avenue to promote SMEscompetitiveness within the Single Market and beyond. The pace of progress inimplementing it and the approaches chosen by Member States are stillconsiderably different. To ensure a level playing field for all SMEs operating inthe single market, Member States should do more to fully implement theprinciples and actions set out in the SBA. Measures should be taken to ensurethat SMEs are able to fully take part in the development of standards and haveadequate access to them. More efforts should be made to simplify and speed upbankruptcy procedures in case of non-fraudulent bankruptcy.A Statute for a European Private CompanyGreater progress should be made towards the adoption of the Statute for aEuropean Private Company, which would allow entrepreneurs to set up theircompany in the same form, irrespective of whether they do business in their ownMember State or in another.Key recommendations:⇒Speed up implementation of the Small Business Act;⇒Adopt the Statute for a European Private Company.

2.3. Shaping Europe's digital single marketDigital technologies are radically transforming the way we live, work andinteract. The propagation of digital technology is a spontaneous process ofinnovation and transformation. Yet, regulatory and social conditions influencethe speed and extent of the uptake of new technologies and the spread of thebenefits of a digital economy. Europe is moving at a slower speed than the US.A number of obstacles reduce the capacity of industry in Europe to innovate andgenerate value added in the digital sphere: the fragmentation of online markets,ill-adapted intellectual property legislation, the lack of trust and interoperability,the lack of high-speed transmission infrastructure and the lack of digital skills.Many of these obstacles point to a simple cause: a lack of a Digital singlemarket.The cost of non-digital Europe is significant: According to a recent study5theEU could gain 4 % of GDP by stimulating the fast development of the digitalsingle market by 2020. This corresponds to a gain of almost € 500 billion andmeans that the digital single market alone could have an impact similar to the1992 internal market programme.In its Europe2020 strategy the Commission has recognised the hugeopportunities of digital Europe. Urgent action is necessary to remove a numberof bottlenecks that are currently still hampering the rapid development of thedigital single market. The online single market must become the main driver of aEuropean digital agenda and of Europe's transformation into a digital economy.A seamless regulatoryinfrastructuresspacefortelecommunicationsservicesand

Telecommunications services and infrastructures in the EU are currently stillhighly fragmented along national borders. The existing regulatory framework atEU level has been instrumental in market opening but has not yet created asingle regulatory space for electronic communications. Market fragmentationleads to numerous negative effects: it facilitates the creation of market power, itprevents operators from achieving economies of scale, it slows down investmentin new infrastructures and services, it reduces growth potential and hinders theemergence of European champions to the detriment of Europe's globalcompetitiveness.The swift and full implementation of the new EU regulatory framework and thevigorous application of the competition and state aid rules remain a priority inCopenhagen Economics, The Economic Impact of a European Digital Single Market, Final Report, March2010.5

the immediate term. However, more needs to be done to overcome marketfragmentation and to remove regulatory barriers in the internal market. In orderto create a seamless regulatory space for telecommunications services andinfrastructures a more coherent framework is required which includes:strengthening the regulatory oversight at European level, the introduction of apan-European licensing system and the management and allocation ofradiofrequencies at European level. The Commission should launch acomprehensive review of the telecommunications sector with a view topresenting the proposals required for creating an integrated European-widemarket for electronic communications.E-commerce: a pan European online retail marketThe importance of E-commerce is rapidly increasing as the number ofindividuals in the EU27 who order goods or services over the Internet is steadilyrising. The percentage of consumers in the EU who had been buying goods orservices via the Internet during the previous 12 months has increased from 20%in 2004 to 37% in 2009.6Nevertheless, an important potential remains untappedbecause the markets are fragmented and a number of obstacles for cross bordere-commerce persist.In many cases, consumers make the experience that online traders refuse toaccept orders from consumers from another country. Consumers are alsouncertain about the confidentiality of their data, the security of the transactionand their rights in case of a problem. For retailers, the main regulatory barriersto cross-border e-commerce result from differences in consumer protection rulesand other rules, such as rules on VAT, recycling fees and levies. Thesedifferences create a complex and unpredictable environment for businesses andlead to a reluctance of traders, in particular SMEs, to consider selling cross-border. The EU should urgently address the remaining obstacles to create a panEuropean online retail market by 2012.A single market for online digital contentThe European markets for online digital content are still underdeveloped as thecomplexity and lack of transparency of the copyright regime creates anunfavourable business environment. It is urgent to simplify copyright clearanceand management by facilitating pan-European content licensing, by developingEU-wide copy-right rules, including a framework for digital rights management.The regulatory regime should also ensure the conditions for developing thedigital content and broadcasting markets by addressing licensing and copyright6

levies. A clear and predictable EU framework for orphan works would unleashan important untapped potential.To maintain the trust of right-holders and users and facilitate cross-borderlicensing, the governance and transparency of collective rights managementneeds to improve and adapt to technological progress. Easier, more uniform andtechnologically neutral solutions for cross-border and pan-European licensing inthe audiovisual sector will stimulate creativity and help the content producersand broadcasters, to the benefit of European citizens. Such solutions shouldpreserve the contractual freedom of right holders to restrict their licenses tocertain territories and to contractually set the level of licenses fees.Additional measures should also be examined to take into account thespecificities of all the different forms of on-line content, such as furtherharmonisation of copyright, creation of an EU copyright title, considering thatcross-border online transactions take place at the location of supply andextended collective licensing.Key recommendationsTelecommunications services and infrastructures⇒Review of the sector to prepare proposals for creating a seamless regulatoryspace for electronic communications, including proposals to reinforce EUlevel regulatory oversight, to introduce pan-European licensing and EU levelfrequency allocation and administration.E-commerce⇒Present proposals to end the fragmentation of EU consumer legislation andintroduce in particular harmonised rules for delivery, warranty and disputeresolution.⇒Present proposals to simplify the business environment for cross-border retailtransactions, including VAT rules, the cross border management of recyclingrules and of copyright levies on blank media and equipment.Online digital Content⇒proposals for an EU copyright law, including an EU framework for copyrightclearance and management⇒proposals for a legal framework for EU-wide online broadcasting.

2.4. The single market and green growth: energy, climate change,environmentThe energy sector is one of the late arrivals in the single market. At the sametime, it is the sector on which the highest expectations are placed today. 2012will not be the 20thanniversary of the single market for energy. Rather it willjust mark the beginning of the consolidation of a common energy market. Thereis no time to waste, however. For electricity and gas, Europe needs the newregulatory architecture created under the third Internal Energy Market Package(Agency for the Cooperation of Energy Regulators (ACER), European Networkof Transmission System Operator organisations (ENTSOs), frameworkguidelines and network codes, 10 Years Network Development Plans, etc.) fullyin place by that date. The single market sits at the nexus of all Europe's energypolicy objectives: competitiveness, security of supply, and sustainability. Europeneeds a functioning single market for energy to ensure secure and affordablesupplies for its consumers and business. It has to harness its potential to turn itspolitical leadership on climate change in a concrete chance for its innovativeindustries.Enhancing consumers' welfareA fully functioning single market for energy benefits consumers with widerchoice and lower prices. Since 2007, in almost all Member States, consumershave had the right freely to choose their electricity and gas supplier, while thethird Internal Energy Market package recognises the existing public servicerequirements. More should be done to enable all consumers, especiallyvulnerable ones to benefit fully from competition and fair prices, starting bystrengthening the common minimum standards. The ongoing work on improvingthe provision of information and ease of contact to consumers must also beactively pursued. The development of smart metering - enabling energyconsumers to be completely aware of their consumption patterns and theassociated costs- requires further regulatory action to ensure the quick uptake ofnew technologies and greater efficiency through competition in energy services.In order to ensure transparent pricing, a European regulatory framework needsto be developed for energy wholesale markets, avoiding the riskof divergingnational regulatory initiatives.Interconnecting Europe's energy markets, guaranteeing security of supplyWell integrated markets are crucially important for Europe's security of supply.They allow Member States to share resources, getting the most out of thediversity of national energy supplies, flexibility of demand and spare capacity.Interconnections and network flexibility make Europe better equipped to47

withstand supply crises and add leverage to the EU position towards itsinternational partners. There is still much work to do to interconnect MemberStates capacity and construct new infrastructure, particularly across borders. Allthe EU's new regulatory and investment planning tools should be used tomobilise the highest level of private investments. One way to speed up work onmajor cross-border infrastructure projects - which are often delayed by complexand controversial authorisation procedures - would be to explore the possibilityfor an EU level consensus building/arbitration mechanism to facilitate theprocess. Innovative solutions for incentive setting and facilitation at the EU levelwould help break deadlocks and accelerate the implementation of projects.Greater uptake of low carbon products and technologiesGlobal markets for eco-friendly and low-carbon products, services andtechnologies are growing at a rate unparalleled by any other markets. The globalmarket is currently estimated at €1 trillion annually and is projected to reach €3trillion world-wide by 2020. The EU industry is one of the most competitive–with market shares ranging from 30% to 50% - and is fast growing. It generatesalready a turnover of €300 billion and provides nearly 3.5 million jobs7.However, competitors are moving fast and Europe's prime mover advantagecould be rapidly lost. A single energy market is Europe's best asset to promotethe shift to the low carbon, resource efficient growth outlined by theEurope2020 Strategy and reap the benefits of the expected growth in eco-industries. Only a single market for energy offers the scale necessary foraccelerating the uptake of new and young low carbon technologies along thewhole energy value chain. There is a need to use the full potential of the singlemarket for energy to lower the costs and speed up the roll-out of suchtechnologies in the EU. This requires delivering a stable regulatory frameworkfor large scale infrastructure products and proactive use of standardisation topromote innovative green products and technologies, exploring the applicationof the New Approach model in this area. Competition policy should also be usedproactively to create the right environment for new technologies to mature andenter the market.Lead markets must be single markets from the outset. There is a risk that theeffort sharing approach on renewable energy, which leaves the choice of policyinstruments up to Member States results in the "renationalisation" of energypolicy. Renewables support policies will have to become an integral part of theinternal energy market in order to avoid market distortion which can lead towrong pricing signals to investors. Requirements for other low-carbon relatedtechnologies and products should continue to be defined at EU level, avoidingEuropean Commission, EU Manufacturing Industry: What are the Challenges and Opportunities for theComing Years?, paper presented at the 2ndHigh level Conference on Industrial Competitiveness, 26 April 2010.7

proliferation of national approaches. Likewise, the introduction at national levelof "green" product labels should be avoided, as this risks fragmenting themarket.Meeting a €50 billion investment challenge: stepping up EU funding€50 billion in additional public and private investment is needed over the nextten years to implement the necessary energy technologies that will enhanceenergy security and tackle climate change. As the energy sector is one thatrequires long lead times for investments and substantial capital investment toensure returns in the medium to long term, for future investment decisions thecompetitive energy market needs to send reliable price signals at the wholesalelevel. At the same time, there is a case for considering the contribution that EUlevel funding could bring in addition to what the market is already providing.Consistent and targeted EU funding can make the difference in terms ofaccelerating the build-up of critical interconnection capacity, realising criticalback-up capacities for security of supply reasons and shortening lead times forbringing new low carbon technologies into the market. Part of the discussion oninvestment should cover the issue of support measures for renewable energytechnologies across the Member States.Key recommendations:⇒Establish new EU regulatory frameworks for the large scale deploymentof renewable sources, smart metering, smart grids and transparentwholesale energy markets;⇒Establish a single market for green products, by developing EU-widestandards for measuring and auditing carbon footprints and for energyefficient products, including trade certificates for renewable energyproducts;⇒Step up targeted EU funding for energy infrastructure.

2.5. The single market for goods: reaping the full benefitsThe single market for goods is today a mature construction. The 2007 singlemarket review concluded that all technical barriers for goods had been lifted.For many citizens, single market means first of all a wide variety of choice inthe products available in their domestic markets. The trade in goods is a majordriver of growth in EU manufacturing industries. Some 25% of the EU-27 GDPis generated by the goods sector. Intra-EU trade of goods represents 75% ofintra-EU trade flows. It has increased at an annual rate of 7.6% between 1999and 2007.It would be a mistake to conclude that the job is done. Firstly, goodsmanufacture is an ever-changing business, as it responds to innovation, changingconsumer tastes and new technologies. Policies and regulatory frameworks needto be regularly updated if they are to remain relevant, based, where appropriate,on market monitoring exercises. There are creeping obstacles constantlygenerated by licensing practices and new technical and administrative rules atnational level. The stakeholders' submissions during the consultation phaserevealed a long list of small scale bottlenecks. Third, when benchmarked againstthe US, the Single Market for goods reveals a substantial untapped potential.The ratio of intra-US exports to GDP, is still around 70% higher than the ratio ofintra-EU 15 exports to GDP. Fourth, new challenges emerge, as not only goodsbut also markets evolve. Examples of this are the acceleration of products cyclesor the globalisation of supply chains. Fifth, e-commerce is on the rise andpresents its own set of challenges, that are examined in the Report's section onthe digital Single Market.Maintaining a dynamic and expanding single market for goods requires buildingon the full implementation of the goods package approved in 2008, particularlywith regard to the mutual recognition principle and market surveillance. Theapplication of the principles of the New legislative framework should also beextended to other areas of product legislation and the new Approach should beexpanded to new areas across the board.The full potential of the single market for goods cannot be released without thesupport of a modern standardisation process, a seamless and efficient logisticsand transport system and an effective and accessible regime for the protection ofintellectual property.Reforming the standardisation processStandardisation is key for the governance of the single market. Europe needstoday faster and more efficient setting of interoperable and market-relevant50

standards, based on internationally accepted models. It is necessary to reviewthe European standards process, maintaining the benefits of the current systemwhile striking the right balance between European and national dimension.Special attention should be paid to enhancing private sector access to thestandardisation process and to making standards cheaper and easier to use forSMEs.A seamless, flexible and efficient logistics and transport systemReaping the full benefits of a single market for goods depends on the existenceof a seamless, flexible and efficient logistics and transport system. Yet, EUtransport policy took off late compared to its initial recognition in the Treaty andhas developed unevenly across transport modes. The resulting fragmentation isincreasingly perceived as an obstacle to free movement. Administrative andtechnical barriers results in "bottlenecks" to mobility within Europe. There issimply no single market for maritime transport, as customs formalities for shipstravelling between two European ports remain subject to custom formalitiesidentical to the ones foreseen for international maritime transport. In the railsector, track gauges, energy supply and signalling systems differ from oneMember State to another as an inheritance from the times in which railwayswere still national monopolies. This hinders cross-border circulation of trainsand increases the cost of rolling stock used in international operations, whichhas to be equipped with multiple systems. Furthermore, the market for railfreight services is still not yet functioning due to incorrect or incompletetransposition of Community law by Member States. In road transport, nationalmarkets have only recently opened to "cabotage". Europe needs a step changetowards multi-modal transport, but legal, administrative and technical barriersare multiplied. There is no single transport document, but different modes oftransport require different documentation. Liability rules also differ. A singletransport document (hopefully electronic) and a single liability system wouldincrease legal certainty and decrease significantly costs for business andcitizens. The creation of a modern single market requires tackling the lack ofinteroperability and the infrastructure gaps that reduce the efficiency andweaken the global competitiveness of the EU logistics industry.Breaking the deadlock on the European PatentFailure to agree on EU patent is one the most serious missing links in the singlemarket. The legal basis now offered by Art 118 of the Lisbon Treaty and theEurope2020 strategy bring new momentum to the search for an agreement. It iskey to capitalise on this momentum and break the deadlock on the issue of thetranslation regime applicable to an EU patent. A European patent is the testground on which to measure the seriousness of the commitment to a re-launch of51

the single market. Business and innovators need a single patent regime – and asingle jurisdiction system – across Europe, which is attractive and cost effectivefor users. For SMEs low-cost and legally secure protection of intellectualproperty rights is of great importance. The Commission should not reduce itslevel of ambition in this area.Key recommendations:⇒Assess the effects of the 2008 package on the functioning of the internalmarket for goods and identify possible further steps⇒Review the EU standard setting system striking the right balance betweenEU and national levels;⇒Adopt new measures to deal with remaining technical and administrativebarriers which prevent the establishment of a single market for rail;⇒Establish a single transport document and liability regime for multimodaltransport;⇒Adopt the EU patent and a single patent jurisdiction as a matter ofurgency.

The services sectors are crucially important for our economies. They account for70% of GDP, they are the most important source of foreign direct investment,and they are the only sector of net job creation in the EU. Nevertheless, servicesmarkets remain strongly fragmented with only 20% of the services provided inthe EU having a cross-border dimension. As a result, the productivity gapbetween the US and the Euro area remains much wider than acceptable (about30%).The Services Directive brings significant improvements for the functioning ofthe single market for services. Administration and supervision by nationalauthorities are made simpler and more modern. The rights of users andconsumers are strengthened. It has been estimated that the potential economicgains from the implementation of the services directive range between €60bnand 140bn, which represents a growth potential of between 0,6 and 1,5 % GDP.Committing to a rapid implementation of the Services DirectiveThe implementation of the Services Directive requires an unprecedented effortfrom Member States. They have to make important administrative andlegislative changes, which include a thorough review of the regulatoryframework applicable to a wide range of economic activities at national,regional and local level.The results so far are encouraging but there is no reason to be complacent.Member States must fully implement the Services Directive as soon as possible.Priority should be given to the following areas: The Member States that have notfinalised the screening of legislation should do so as a matter of urgency; Theadoption of the remaining implementing legislation should be given a highpolitical priority in all Member states concerned; The Member States that risk toincurring significant delays in completing all required changes should make anutmost effort to speed up the process; Member States that have not yet set uppoints of single contacts or have established points of single contacts that areinsufficient should rapidly take the necessary steps to comply with the relevantrequirements of the Directive. Furthermore, Member States should ensure thatnational authorities make effective use of the Internal Market InformationSystem (IMI) to comply with their cooperation obligations.The Commission should take all the necessary enforcement measures andmaintain the pressure on Member States that are lagging behind to ensure arapid full implementation of the Directive. The Commission should also keepthe European Parliament, the Council and stakeholders informed of the state ofimplementation of the Directive. At the same time, the Commission should53

continue to work with the Member States in order to further improve theadministrative procedures and administrative cooperation mechanisms. Thepoints of single contact should ultimately develop into comprehensive e-government centres which could extend to areas and procedures not covered bythe directive such as taxation.In addition, the Member States and the Commission should take an ambitiousapproach to the mutual evaluation process foreseen by the Directive for 2010.The results of this evaluation should be used to steer further and targeted action.Industrial servicesEuropean industry must move further into the provision of services in order toremain competitive at the global level. Companies operating in industry sectorsand manufacturing need to develop new business opportunities by spurringrelated services such as maintenance, support, training and financing. In general,the growth potential of these services is much higher than that of the productbusiness itself. The EU should strengthen the single market for industrial andbusiness services by removing the remaining obstacles to the free movement ofsuch services, by improving the EU-level framework for service standardizationand by promoting innovative servicesRemoving barriers to cross-border health-care provisionServices markets extend beyond the sectors covered by the Directive. In thiscontext the Commission should in particular consider further steps to be takenregarding the numerous types of services that are currently not, or not fully,covered by the Directive.An area not covered by the Services Directive that should be given particularattention is the health care sector. The proposed directive on cross-borderhealthcare aims at ensuring a clear and transparent framework for the provisionof safe, high quality and efficient cross-border healthcare within the EU, forthose occasions where patients seek care in a Member State other than in theirhome country. According to the proposed rules, patients would be reimbursedup to the amount that would have been paid had they obtained that treatment athome, but they bear the financial risk of any additional costs arising. Theproposal dating from 2008 should now urgently be adopted.In addition, a number of supporting actions should be taken in order to fostermarket integration in the health sector. The Commission should launch, togetherwith the Member States a detailed benchmarking of health systems across theEuropean Union. It should develop and spread knowledge on best technologiesin the health care sector, building on the health technology pilot project. The useof e-health technologies to support decision-making within health systemsshould be encouraged in order to systematise the uptake of identified best54

2.7. Workers in the single market: old problems and new challengesTransnational labour mobility matters for Europe. It underpins the broadermobility, occupational – between jobs and sectors, and social – between socialgroups, that is widely seen as the pre-condition for Europe's success in theeconomy that will emerge from the global recession. Closed national labourmarkets or job sectors shielded from competition, will deliver neither greateremployment nor faster growth. Labour mobility is also key to absorbasymmetric shocks and respond to local restructuring processes within the euro-area, where exchange rate and monetary policy are tools no longer available tonational authorities. Yet, Europe still lacks the labour mobility it needs toenhance labour markets efficiency and to ensure a correct functioning of itsmonetary union.Labour mobility between Member States is made harder by a number of de factobarriers created by linguistic or cultural factors, family patterns and housingmarket structure. A number of legal and administrative barriers still remain, butoverall freedom of movement of workers is a success from a legal point of view.However, from an economic and political angle, it is still fraught by twoparadoxes.First, freedom of movement of workers is the most contested and at the sametime the least used of the four freedoms. A large proportion of the Europeanpublic - as shown by the debates on enlargement and on the ratification of theConstitutional and Lisbon Treaties - are concerned that labour migration drivesdown wages, takes jobs away from local workers and becomes a burden on thesocial security system. In stark contrast, Europe is an area of low mobility.Today only 2,3% of Europeans live in a Member State different from that oftheir nationality. In a federal system and a unified economy as the United States,the proportion of US citizens changing States in the same year is about threetimes higher. The stock of people working in another Member State remainedstable over time. Since 2001, the number of EU-citizens living in anotherMember State has increased by around 4 million. Migration from non-EUcountries is by comparison a much more significant phenomenon for theMember States' labour markets. The number of non-EU nationals in the EUamounted in 2008 to 19.5 million, or 3.9% of the overall population. Moreover,Eurobarometer surveys show that the majority of Europeans are not interested orsee too many obstacles in working elsewhere in the EU. This cold attitude tomobility does not vary substantially between old and new Member States.The second paradox is that freedom of movement of workers faces a lowernumber of legal obstacles than the other three economic freedoms, but theseobstacles are the most momentous and the hardest to overcome. Updating the56

regulations on coordination of social security systems required 11 years ofnegotiation.The economic downturn has shown that even in times of crisis there are jobswhich are unfulfilled in the EU. Achieving Europe 2020 objectives requireEurope to face these paradoxes and encourage more mobility and more use offree movement rights. Rising unemployment levels, persisting income and wagedifferentials between various European regions will not automatically delivergreater mobility and certainly do not deliver the type of mobility from whichEurope can gain.Europe can reap the greatest benefits from mobility of highly skilled workers innew and innovative sectors, through adapting to new dynamic types of mobilityand by encouraging forms of intra-EU circular mobility that compensates braindrains with brain gains. This does not mean re-thinking settled policies. Rather,it is necessary to hit harder at some well-identified old legal and administrativeobstacles and explore how to address the new challenges posed by new andmore diversified types of mobile workers.Ensuring the coordination of social security rights and the portability ofpensions rights for allA key pre-condition for the free movement of workers is that the person movingwithin the EU does not see his/her social security status adversely affected. Thepackage on coordination of social security systems adopted in July 2009, afterlengthy negotiations, modernised Community provisions dating back to thefifties. It marks a significant progress but things have already moved forwardsince then. The existing rules are designed to address the problems and needs ofthe type of labour migration that characterised labour markets in the past. Thereis scope to further adapt them to the situation of new and more diversified typeof mobile workers and to take into account the specific situations of commutingworkers and of workers not insured in their home country.A specific problem is posed by the portability of supplementary pensions andhealth insurance rights. The current regulatory framework does cover socialsecurity entitlements but cannot avoid losses for non-statutory forms of socialprotections. This puts highly mobile workers in a particular disadvantage, asthey will often change system several times in their life careers while alsochanging employment status and type of assignment. A Commission proposal inthis area has been stuck in Council since 2008 despite strong support from theEuropean Parliament.

The Commission should prioritise the issue of obstacles to transnational labourmobility in its forthcoming consultation on the pensions systems in Europe. Inthis context, an option to explore would be to develop a 28thregime forsupplementary pension rights. This would be a regime entirely set by EU rulesbut existing in parallel to national rules, and thus optional for companies andworkers. A worker opting for this regime would be subject to the same rules forits non statutory benefits wherever it goes in Europe. To makes things easier, asub-option would be to limit the possibility to opt in this regime only to workerstaking up their first work contract. This would serve as an incentive for themobility of certain young workers, who are the keenest on internationalmobility.Some attention should also be given to removing tax obstacles to cross-borderwork. Differences in tax rates between Member States makes it impossible toachieve a fully neutral treatment of cross-border economic activities. This is anarea where progress was left to ECJ case law. There is scope perhaps for policyaction in order to ensure tax neutrality for instance on the taxes levied on theparts of the income that depends from expatriation allowances.Making recognition of professional qualifications faster and easierA second major obstacle standing in the way of enhanced cross-border labourmobility is the complexity of international recognition of professionalqualifications. Automatic recognition of qualifications applies only to seven outof more than 800 professions. In the other cases, administrative (mal)practices,delays in recognition processes and corporatist resistances at national level addto the cost and difficulty of exercising abroad and effectively increase barriers toentry into regulated professions. The current legal framework set out in theDirective 2005/36/EC to facilitate mutual recognition of professionalqualifications between Member States should therefore be clarified andstrengthened. There is now scope to raise the bar in this area. The Treaty forEuropean Union replaces unanimity in the Council of Ministers by qualifiedmajority. Moreover, there is a greater awareness that despite the Bolognaprocess training contents across Member States are not converging to a degreethat makes further action superfluous. To make recognition of professionalqualifications easier, theacquisin this area, should be modernised. The scopefor automatic recognition of qualifications to new professions should beexpanded to new sectors in addition to the seven professions today, targeting inparticular new professions required for green and digital industries to facilitatethe mobility of highly skilled workers.It is of equally fundamental importance to develop the European Skills andCompetences Taxonomy. This system will ensure that skills and competences of58

job seekers or the requirement of a job formulated in a job vacancy areunderstood in the same way everywhere in Europe and are easily transferable.Better matching skills with vacancies across the single marketA third order of obstacles to free movement of workers concerns the efficientmatching of skills with cross-border vacancies. Action is necessary both at EUand national level, on various fronts. The EURES network is a success story. Itmanages today 1 000 000 job vacancies and plays a key role in givingcomprehensive advice to cross border job seekers and companies looking torecruit, linking together the public employment services of all Member States.Over time, it has expanded its tasks, graduating from a simple EU-wide databaseinto a platform for international job placement in Europe. This process should becontinued by developing EURES links with Public employment services, socialpartners and private employment agencies and strengthening its skills matchingcapacity and coverage of all phases of mobility. It should also develop links withinformation and problem solving networks, such as SOLVIT, to respond to allconcerns and issues raised by citizens when using their mobility rights. Greaterattention should be devoted also to the provision of information, advice andincentives to workers who want to return to their home countries after a workexperience abroad. Return to the country of origin falls under the free movementof workers and cooperation between EU institutions and national PES shouldensure that mobility brings value added to home countries as well.National public employment services and national policies, together with socialpartners at national level, also have a key contribution to make in order to shapea more mobile- friendly environment in Europe and to monitor the correctimplementation of rights and obligations of workers and companies. The EUstructural funds, and in particular the European Social Fund, should support andfacilitate actions to encourage intra-EU mobility and strengthen information andadvisory services on mobility-related rights.

2.8. The single market for capital and financial servicesSupervision for a single market, not fragmentation of the market throughsupervisionThe single market for capital and the closely interrelated single market forfinancial services are critical for the efficient allocation of resources – a keydriver of growth and employment – and for the stability of the economy. In theSeventies and Eighties, particularly in Europe, a tight system of restrictions tocompetition and constraints on allocation in the financial services industry, oftendesigned to favour the financing of public sector deficits, had negativeimplications for investments and growth. The subsequent phase of financialliberalization since the Nineties, not accompanied – particularly in the UnitedStates - by corresponding improvements in prudential regulation andsupervision, was a key determinant of the financial crisis.The European Union, also in the context of the G20, is currently engaged in anambitious programme with the objective of putting in place an adequatesupervisory system. The programme was triggered by the De Larosière Report,commissioned by the European Commission.In this area, the policy process is being pursued as a matter of priority by the EUinstitutions. It does not appear necessary for the present report to review suchongoing work (1).What does appear necessary, however, is to stress the critical importance that, inthe forthcoming legislative decisions to be made by Parliament and Council, theimplications on the single market for financial services be given centralconsideration. The supervisory structures that will be put in place followingthose decisions are likely to mark the EU’s financial landscape for a long time.It would be a serious strategic mistake if the Council, under the pressure ofMember States giving priority to a natural tendency to protect nationalsupervisory competences, were to favour timid solutions. These would presentthe risk of leading to a fragmented and more vulnerable single market.Supporting the single market and financial integration, through the issuance ofE-bondsThe EU needs a modern and developed financial system, built around a liquidrisk-free asset class, which - being the benchmark for pricing other assets -would provide the basis for efficiently performing the essential functions ofallocating resources, intermediating savings to investment, supporting better risk61

sharing and ensuring a more uniform transmission of the single monetary policyacross the euro area. This would reinforce the strengths of the Single Market,underpin the euro as a global currency and support the smooth functioning of theEU economies, during normal times but also in the face of external shocks andfinancial crises, ultimately amplifying the growth and jobs dividend for MemberStates.The government bond market has acted as a catalyst in fostering the integrationof European financial markets since the creation of the euro, supported by theemergence of a larger and diversified investor base, reducing transaction andfinancing costs for governments, and in turn spurring the development ofmarkets for other related asset classes (such as corporate bonds, covered bonds,asset-backed securities and a range of derivative instruments).Nevertheless, the government bond market is still fragmented, as debt issuanceremains at the national level and no step has been taken to date – besides somemore transparency and coordination of issuances - to achieve the economies ofscale allowed by the euro. Fragmentation means that the European bond marketis less liquid than the corresponding US and Japanese markets,8resulting incosts for investors, issuers, other debtors and, ultimately, European citizens. Forexample, households are unnecessarily paying higher interest rates for theirmortgages, which are priced using government bonds as a benchmark.9Companies, in particular smaller ones, can hardly get bond financing, whichexposes them to risks in terms of corporate governance associated to equityfinancing. Major public infrastructure in Europe, such as the TENs, istransnational, unfit for the currently fragmented national schemes, and theirfunding suffers from the absence of a liquid bond market for very longmaturities, while long-term investors such as Pension funds cannot find a supplyof bonds matching their investment needs. Financial operations carried out byEU institutions are also probably more expensive than it could be. The currentfragmentation deters foreign capital from coming to Europe – for example,sovereign wealth funds are not attracted by small-size issuances – and if itcomes, it asks for a premium to compensate for the illiquidity of the Europeanbond market, implying a net transfer of wealth to the rest of the world. Finally,non-functioning financial markets can hamper reforms in other areas.10Overall,the potential of the euro is inevitably constrained without the underpinning ofadequate financial instruments for portfolio investment within a single financialmarket, making the euro area a less attractive location for financial investment,As witnessed by low turnover in the cash market and the migration of liquidity to the derivatives markets, thefact that issuances are still relatively small and that there is no efficient and fully representative benchmarkinstrument across maturities and typologies - which, despite appearance, the German Bund is not.9For a 100.000€ mortgage over ten years, every basis point of interests reflecting the inefficiency of thegovernment bond market implies over 50€ of additional interest payments over the period.10By allowing economic agents to bridge short-term income losses and smooth consumption over time,functioning financial markets bring forward the long-term gains of reforms.8

particularly in times of financial crisis, which reduces the capital available toEurope and hence its potential growth and employment.In Europe, there is a government bond which is perceived as a liquid and safeasset: the German Bund. Its strength reflects the relative preference of investorscompared to other government bonds within Europe. But, seen from a globalviewpoint, the Bund is a relatively small entity. The recent fall of the euroduring the Greek crisis reflects a capital outflow from Europe towards US-Treasuries, which even the quality of the Bund was not able to contain. Europeclearly loses from its lack of a global asset.Addressing the fragmentation of the government bond market requires creating anew, European-wide market, with a global dimension. At the same time,legitimate concerns need to be taken care of: any solution must ensure thatfiscally-responsible countries cannot be forced to bail-out undisciplined memberstates, in one form or another. The simple fear of this would affect their currentfavourable market standing, thereby making any proposal immediatelyunattractive. Prudent changes in issuance practices need therefore to be pursued,so that they could at the same time improve the functioning of the single marketand ensure the respect of the no-bail out rule of the Treaty. On top of a moreeffective multilateral surveillance, tackling moral hazard would benefit fromstronger market discipline on profligate governments.11This could be achievedby increasing the sensitivity of markets to national budgetary developments, andby making the possibility of a default of national debt more manageable by otherEU countries, hence more likely and easier to price by markets.Against this background, borrowing at large scale through a European body, andthen on-lending to Member States, may represent a balanced solution. On-lending to Member States should not exceed a given level of a country's GDP(the same for all Member states) so that, for their financing needs not coveredthrough this mechanism, governments would continue to issue their own,national debt for which they would remain individually responsible.Given that Member States would get access to cheaper funding through thismechanism, they would consider the European body a preferred creditor,compared to holders of their debt floating on the market, theoretically increasingthe possibility of a default only on the latter. In turn, this should increase marketpressure (and yields) on the floating debt, creating a stronger incentive forMember States to quickly reduce such debt through sound fiscal policies.Such mechanism could include all EU countries, with the non-euro areacountries also getting loans denominated in euro. This would reinforce theirincentives to ensure stability vis-à-vis the euro, consistently with the ERM-IIrequirements, supporting the euro area enlargement process. In turn, the larger11

the number of EU countries participating in the mechanism, the larger theissuances by the European body, and the greater the benefits in terms of liquidityand depth of the European bond market, and ultimately for the EU SingleMarket.Starting with a smaller set of countries would be interesting, provided it createsan issuer which is relevant on the global scene. Hence, the mechanism wouldalready be attractive if EU Member States with smaller and medium size debtswould join it, and the more so with large debt countries taking part. However,the real benefits for the EU would be reaped in full only if Germany wouldwillingly participate in this process. For Europe, this would mean a significantstep towards a more efficient financial market and a stronger Single Market,underpinning the euro as an international currency and the overall Europeaneconomy. To Germany, it would provide the possibility to guide a process whichis highly relevant for Europe both politically and economically, and to influencethe design of the mechanism in a way which deals with its concerns of securingstronger fiscal discipline in the EU and maintaining its favourable financingconditions.

2.9. The physical infrastructure of the single market : meeting theinvestment challengeIt is impossible to imagine a single market without the physical infrastructureconnecting its parts: roads and other transport connections, electricity grids,electronic communications and water networks. Infrastructures are vital forensuring the mobility that underpins a functioning integrated market and forpromoting growth and sustainable development. They are key to ensuringterritorial cohesion. Despite the recognition of the importance of theinfrastructure dimension of the single market and the central role played by theEU in developing Trans-European networks, a range of obstacles still preventfrom "thinking European" in this area.

Planning, financing and management of infrastructure projects take placepredominantly along national lines. As production and distribution are becomingmore integrated across national borders and as sectors such as energy andelectronic communication call for new interconnections, the cross-borderinfrastructure gap is becoming more acute in Europe. On the one hand,bottlenecks still exist within the single market, notably in the new MemberStates. On the other hand, new infrastructure must be put in place if Europewants to accelerate the transition to a green, knowledge-based economy.Plugging this infrastructure gap is a technical and coordination challenge, but itis also a financial challenge. The economic crisis has a major impact on MemberStates' capacity to fund new infrastructure projects when priority should begiven to fiscal consolidation. At the same time, the private sector faces severeconstraints in raising funds and needs legal security in terms of clear guidelineson the implementation of competition policy (anti-trust and state aid) in thisarea, as well as incentives to invest in networks in a competitive environment.Europe needs to have a fresh look at the economics of cross-border investmentand at innovative ways to ensure its financing. The key issue for Europe is howto raise new resources for medium and long term investments of Europeanimportance. One way to address the problem is to explore all combinationsbetween public and private funding, including a wider use of innovative sourceof financing, such as user charges. The reduced fiscal space available forgovernments will naturally enhance the importance of public-privatepartnerships as a delivery tool for infrastructure investments. Facilitating thecombination of public-private partnerships with the use of structural funds willbe crucial in this respect.Another option is to improve the incentives for long term investors (financialinstitutions with a public mandate but also private investors, including pensionfunds) to direct their resources to long term infrastructure projects. The volumeof funds managed by long-term investors at global level is estimated at € 30 000billion, but only a fraction of these funds is used for infrastructure investment.Recent innovative experiences, such as the €1.5 billion Marguerite fund bringingtogether the European Investment Bank and the public financial institutions ofsix Member States are a good starting point. A reflection should be made onwhether anad hocEuropean legal framework should be developed for long terminvestors, with a view to encouraging their focus on infrastructure investments,while taking into account their specific characteristics and the variety of actorswithin such class of investors.Finally, relevant resources for infrastructure investments could be freed by thedevelopment in Europe of a liquid bond market for very long maturities. Thiscould serve to raise funds for major cross-border investments at EU level as well65

3.1. A single market for a "highly competitive social market economy"The central concern of this Report is how to renew the momentum behind thesingle market. Plugging gaps and pointing to new frontiers is crucial to generatenew energy and confidence in the single market project. It may not be sufficientto create the political climate for a sustainable action, when large sectors of theEuropean public – sometimes including political leaders and even businessleaders - doubt the benefits of market integration and think that the process ofmarket opening has gone beyond what was required or desirable.Over time, the EU system has accumulated internal asymmetries betweenmarket integration at supranational level and social protection at national level,which generate frictions and are a source of disenchantment and hostilitytowards market opening. To make the relaunch of the single market sustainableit is necessary to remove in a targeted way these sources of frictions. In somecases, this implies adjusting existing single market rules to take account of theneed of social and local contexts. In other cases, it is necessary to introducegreater coordination of the national regulatory systems, to ensure theircoherence and fit with the EU principles.In the next pages, the Report reviews policy challenges and possible actions inthe area of free movement of workers, social services of general interest, publicprocurement, industrial policy, coordination of taxation policies and regionalpolicy. These are building blocks for a reconciliation between the single marketand the social and citizens' dimension in the Treaty logic of a "highlycompetitive social market economy".3.2.Economic freedoms and workers' rights after Viking and Laval

Between 2007 and 2008 the European Court of Justice decisions in the Viking,Laval, Rüffert and Commission vs Luxembourg cases revived an old split thathad never been healed: the divide between advocates of greater marketintegration and those who feel that the call for economic freedoms and forbreaking up regulatory barriers is code for dismantling social rights protected atnational level.The revival of this divide has the potential to alienate from the Single Marketand the EU a segment of public opinion, workers' movements and trade unions,which has been over time a key supporter of economic integration.The Court's cases have exposed the fault lines that run between the singlemarket and the social dimension at national level in two ways.68

First, because the cases brought to the surface the strains to which the currentregulatory framework for posting of workers is subject, in a context of divergentsocial and employment conditions among Member States and acute sensitivityabout the perceived risks of social dumping and unfair competition. Secondly,the Court's decisions showed that the reach of the EU law extends to collectivelabour disputes. This has brought social partners and collective action straightinto the heart of the economic constitution of the single market. At the sametime, it implied that both national systems of industrial relations and the exerciseof the right to strike might have to adjust to fit with the economic freedomsestablished by the Treaty.Concrete and normative issues are closely intertwined. On a practical ground,the question is whether the Posting of workers directive still provides anadequate basis to manage the increasing flow of cross-border temporarysecondment of workers, while protecting workers' rights. On a normativeground, the question concerns the place of workers' right to take industrial actionwithin the single market and its status vis-à-vis economic freedoms.There is a broad awareness among policy makers that a clarification on theseissues should not be left to future occasional litigation before the ECJ or nationalcourts. Political forces have to engage in a search for a solution, in line with theTreaty objective of a "social market economy".President Barroso announced before the European Parliament the intention topresent a regulation to improve the way the Directive on posting of workers isinterpreted and implemented. The gulf between the positions and the requests ofsocial partners on this issue makes such an exercise highly sensitive.Given the salience of the issue, in the preparation of this report special attentionwas paid to listening to the views and the concerns of the social partners. A jointconsultation was organised with ETUC and BusinessEurope. Social partners hada chance to discuss their concerns, based on the positionsoutlinedin the "Reporton joint work of the European Social Partners on the ECJ rulings in the Viking,Laval, Rüffert and Luxembourg cases", adopted by four social partners on 19March 2010 in response to an invitation addressed by the Commission and theFrench Presidency of the EU. The consultation showed that positions are stilldistant, but there are areas of shared concern on which one could build to bringthe parties closer. One way to facilitate this convergence would be to addressboth the concrete and the normative aspects at stake in the debate. Yet, the twoissues require different strategies of balancing single market and socialrequirements.

More clarity in the implementation of the posting of workers directiveEnsuring a fair and balanced legal framework for posted workers requiresreducing the space for ambiguities in the interpretation and implementation ofthe posted workers directive. The Member States where the most significantproblems have arisen adapted, sometimes through a difficult political process,the implementing legislation. Action at European level, however, would behelpful to dispel the ambiguities that still affect the interpretation of the directiveby facilitating iaccess to information, strengthening the cooperation betweennational administrations and better sanctioning abuses. In this context, it is alsoof key importance that the fight against "letter box companies" is intensified andthat posted workers' access to legal remedies against abuses of their rightssuffered in the host country is strengthened.Protecting the rights of workers, rejecting protectionismThe second question is how to respond to the trade unions' concern that theoperation of economic freedoms reduces the protection for the right to strike.The ECJ rulings pre-date the entry into force of the Lisbon Treaty, whichexplicitly sets out the social market economy as an objective for the Union andmakes the European Charter of Fundamental Rights legally binding at Treatylevel. These elements should shape a new legal context, in which the issues andthe concerns raised by the trade unions should hopefully find an adequateresponse. If this is not the case, however, the scope for further policy actionshould be explored.In theory, two opposed strategies would be possible to balance economicfreedoms and the right to strike.On the one hand, trade unions propose to amend the Treaty in order to introducea clause that would exclude the right to strike from its scope of application– theso-called "social progress clause". Such a clause would be modelled on Art. 2 ofCouncil Regulation (EC) No 2679/98 on the functioning of the internal marketin relation to the free movement of goods among the Member States. A "socialprogress clause" would "immunise" the right of strike, as recognised at nationallevel, from the impact of single market rules. However, seeking Treaty changesdoes not seem a realistic option in the short term.On the other hand, the opposed alternative strategy would be to regulate theright to strike at EU level. Such a solution is openly prohibited by the Treaty.

The logic of a single market consistent with the "social market economy" nowadopted as a template by the Lisbon Treaty suggests a third strategy: a targetedintervention to better coordinate the interaction between social rights andeconomic freedoms within the EU system. The issue is to guarantee adequatespace of action for trade unions and workers to defend their interests and protecttheir rights in industrial actions without feeling unduly constrained by singlemarket rules. This is the context in which Council Regulation (EC) No 2679/98may offer a reference point in the search for a solution, although it targetssituations very different from labour disputes.The purpose of the Regulation in fact is to renew the commitment to the freemovement of goods while excluding any negative impact on the exercise of theright to strike. It sets out a prohibition of actions that "cause grave disruption tothe proper functioning of the internal market and inflict serious losses on theindividuals affected" whilst recognising that the right to strike is unaffected bythat prohibition. A system of early warning about obstacles to free movement ofgoods and exchange of information between the concerned Member States is setup to build mutual confidence. The Commission plays an arbitration role, as itcan request the Member State concerned to remove the identified obstacles tofree movement of goods by a given deadline.Without the need to touch the posting of workers directive, if measures areadopted to clarify its application, the Commission and the social partners couldexamine in that context whether to look at the model offered by CouncilRegulation (EC) No 2679/98. This would require to introduce a provisionensuring that the posting of workers in the context of the cross-border provisionof services, does not affect the right to take industrial action and the right tostrike as it is protected by the European Charter of Fundamental Rights and inaccordance with national law and practices which respect Community law. Afterall, a similar provision safeguarding labour law has been introduced in the textof the services directive, with slightly different terms from those of CouncilRegulation (EC) No 2679/9812. Such a provision could be complemented by asystem for the informal solutions of disputes concerning the application of theposted of workers directive when they risk causing a significant impediment tothe functioning of the single market. In such situations, the social partnersshould refer the matter to the host Member State. The Member State should seekan informal solution , keeping informed the Commission as well as the MemberState of origin of the posted workers and companies involved. If the partiesrefuse the solution proposed, they would be free to defend their rights in court.

The proposed solution would respond to the concerns with regard to the place ofthe right of strike in the context of the freedom of movement of workers andwould act as a confidence-building mechanism between the social partners. Itwould be a concrete way to signal that the Single Market is fully compatiblewith a social market economy.Key recommendations:⇒Clarify the implementation of the Posting of Workers Directive andstrengthen dissemination of information on the rights and obligations ofworkers and companies, administrative cooperation and sanctions in theframework of free movement of persons and cross-border provision ofservices;⇒If measures are adopted to clarify the interpretation and application of thePosting of Workers Directive, introduce a provision to guarantee the rightto strike modelled on Art. 2 of Council Regulation (EC) No 2679/98 and amechanism for the informal solutions of labour disputes concerning theapplication of the directive.

3.3. Social services and the single marketSince the nineties, the place of public services within the single market has beena persistent irritant in the European public debate. The discussion on the roleassigned to public services within the Treaty should have found its solution withthe Treaty of Lisbon. The Treaty's new Protocol and an amended Article 14TFEU establish a coherent basis allowing competent authorities to ensure thatcitizens throughout the EU can benefit from high-quality services of generalinterest.In spite of this renewed commitment made in the Lisbon Treaty the debate onthe exact interaction between EU rules and the discretion of national and localauthorities remains topical. In fact, whilst initially the European debate focusedon the macro-issue posed by the liberalisation of network industries, the focus ofthe debate today has shifted to social and local public services. The fundamentalchallenge for the provision of these services is to maintain their quality andscope in the context of increasing pressure on public finances, which sometimesrequires difficult trade-offs to be made. As these services are essentiallyfinanced by the Member States, it is primarily for them and not for the EU toaddress this challenge. Nevertheless, there are ways to assist Member States inmodernising these services and adapting them to a changing environment and tothe evolving needs of citizens regarding their scope and quality. At the sametime, the Commission can contribute to ensuring that where EU rules apply tothese services, the rules are predictable and proportionate.Predictability and flexibility: Ensuring that services of general interest can fulfiltheir public service missionsThe ongoing discussion and a number of consultations have shown that thepredictability and proportionality of the EU framework, in particular as regardsthe application of the state aid rules and the rules related to the selection of theprovider, are key concerns of many stakeholders. Over a number of years, theCommission therefore has made an effort to clarify the implications of theapplicable EU rules in order to ensure that services of general interest can fulfiltheir missions and contribute to a better quality of life for European citizens.There is room to strengthen the general approach adopted in 2005 in the packageof measures to increase the legal certainty about financial compensation paid forto a large number of small, often local, public services, which has beenwelcomed by a wide range of stakeholders. The Commission should examine,on the basis of the findings of its ongoing assessment of the package, allpossibilities to further increase the flexibility of the rules applicable to financialcompensation, including through an increase of the thresholds and/or through

expanding the list of activities for which compensation does not have to benotified irrespective of the amounts involved.As regards the application of EU rules to the selection of the provider similarconcerns have been expressed concerning the lack of legal certainty andflexibility and the administrative burden created by the EU public procurementrules. However, in the area of public procurement the Commission has not yettaken an initiative similar to the package adopted regarding financialcompensation. Given the very positive overall response to the state aid package,the Commission should review the procurement rules with a view to aligningthem with the rules on compensation in order to ensure a consistent approachconcerning small services of general economic interest.Inclusivity: Ensuring that all citizens can benefit from the Single MarketIn order to be able to effectively participate in the single market citizens needaccess to a number of basic services of general economic interest, in particularin the area of the network industries, such as postal services, transport servicesor telecommunications services. In the network industries, market opening at EUlevel has therefore always been accompanied by measures ensuring that auniversal service continued to be provided.The new Article 14 TFEU reiterates the joint responsibility of the EU and itsMember States for the proper functioning of services of general economicinterest and provide a specific legal base for EU regulations. It has beenproposed to address services of general economic interest in a horizontalframework regulation. However, the consultation has made clear that a proposalfor a framework regulation would have limited added value, if any, and that itschances of being adopted would be very small. At this stage, it does thereforenot seem appropriate for the Commission to present such a proposal.However, a re-launch of the single market should examine any gaps in theuniversal service provisions at EU level that could de facto prevent a relevantnumber of EU citizens from effectively accessing the single market. In thiscontext, the Commission should consider proposing, possibly on the basis ofArticle 14 TFEU, a regulation ensuring that all citizens are entitled to a numberof basic banking services. Today, having an account has become a pre-conditionfor accessing a number of services and for fully benefiting from the singlemarket. Nevertheless, according to a study conducted for the EuropeanCommission in 2008, 20% of adults in the EU-15 and almost half in EU-10(47%) still do not have a bank account and policy responses vary widelybetween Member States. An EU framework for financial inclusioncomplementing the ongoing comprehensive reform of financial servicesregulation at EU level would allow an important part of the population, in74

particular in the new Member States, to reap more fully the benefits of the singlemarket.Similarly, the full benefits of an online single market can only be enjoyed via afast broadband internet connection. In the light of the results of the ongoingpublic consultation on universal service in electronic communications theCommission should also examine whether there is a case for using Article 14TFEU to extend universal service in electronic communications to the provisionof broadband access.Moreover, the public service obligations in transport should be assessed and therights of air passengers be strengthened drawing on the lessons learned from theconsequences of the recent eruption of the Eyjafjallajöekull volcano in Iceland

Public purchases – the acquisition by public authorities/entities of goods, worksand services on the market – capture a sizeable share of Europe's GDP. In 2008,EU public procurement amounted to around 2155 billion Euro, equivalent to 17-18% of EU GDP. Out of this, public procurement tenders worth approximately389 billion Euro were covered by the rules set out in the EU Directives onpublic procurement.EU public procurement law plays a key role in the creation and maintenance ofthe single market. It ensures that suppliers and service providers from otherMember States are not excluded from the market of public purchases and thatpublic authorities' natural preference for keeping the purchases within their owncountry does not partition the EU market. In ensuring non-discriminatory accessto public bids, the EU law intends to achieve also good governance andefficiency objectives.There is no doubt that EU public procurement law has been largely a success,turning into one of the most developed and technically sophisticated areas of thesingle market. The number of procurement notices published at EU level isconstantly growing. Procedures are certainly more transparent than in the past.The score is high also on competitive impact. On average five bidders respondto each procurement tender published at EU level. The expectations of bettervalue for money have also been satisfied: estimates set the savings realised bypublic authorities between 5 to 8% of the price paid.There is however a mounting call for a review of public procurement policies,for different reasons and with different objectives. Two questions are at the heartof the debate: whether public procurement policy should be reformed andwhether such a review should lead to a greater integration of horizontal policyobjectives into public procurement. The Commission has launched an across-the-board evaluation of the 2004 public procurement directives, as a basis forfuture reform. This sets the scene for reflection on the issue. A re-think of thepolicy seems well-warranted, first of all in order to simplify, continue tomodernise and sharpen public procurement rules.Simplifying and further modernising public procurement rulesThere are gains that can be obtained by ensuring a better enforcement of rulesand greater openness to cross-border bidders. Price reductions differ amongsectors of activity and tend to benefit mostly large or centralized contractingauthorities/entities. Direct cross border procurement success is still ratherlimited, concerning on average only 2% of contracts. Some categories of76

services are also excluded from the full scope of application of the EU PublicProcurement Directives. Whilst for some services, such as certain socialservices, more flexibility should be sought, the review should provide anopportunity to assess for other, currently excluded, categories of serviceswhether such an exclusion is still valid.Reforming public procurement should be an opportunity to address teethingproblems of complexity, administrative burden and SME-unfriendliness. Allavenues towards simplification should therefore be used. Member States shouldalso be asked to scrutinize their own national public procurement legislationwhich, in many instances, is responsible for the complexity and theadministrative burden on contracting authorities and small businesses.Member States should make extensive use of the Code of Best Practices,adopted as part of the Small Business Act to improve SMEs access to publicprocurements.Better integrating horizontal policy concernsThe review of public procurement rules should also address the perceived areasof "friction" with the policy autonomy of national or local authorities. On theone hand, in fact, EU procurement rules are perceived as restricting the ability ofmunicipalities to provide services to citizens in the form they prefer ortraditionally privilege. This is the case for instance, where they would like the"in-house" provision of services or the establishment of public-publiccooperation. On the other hand, EU rules are perceived as not forthcomingenough in encouraging or even requiring that public purchases support broaderpolicy goals, such as climate change, innovation, gender equality employment orsocial inclusion goals.In the first area, some further clarification on the concept of "in-house" would bebeneficial based on recent ECJ case law. All the margins available under theWTO Government Procurement Agreement should be used to expand the scopeof action for public authorities. Allowing the use of the negotiated procedurewith prior publication as a standard procedure in the "classical sector" couldhelp greatly. This could also include applying to contracting authorities(especially local ones) the more flexible regime of the ‘utilities’ directiverelating to qualification lists.In the second area, there is probably room for a greater use of publicprocurement as a tool to achieve policy objectives set out at EU level. Publicpurchase can be a boost for innovative products and technologies in the area ofclimate change and energy. It may give a push to research and innovation,77

promote social cohesion and help meet the poverty reduction and employmentobjectives set out in the Strategy. Harnessing public procurement towards thesegoals would require assessing the possibility to impose mandatory requirementsrelating to policy objectives set out above in the Public procurement directives.Greater clarity regarding concrete operationalisation of the requirements shouldbe provided through legislation based on delegated acts.Key recommendations:⇒Re-think public procurement policy to make it simpler, more effective andless onerous for national and local authorities; Strengthen SMEsparticipation by applying the Small Business Act Code of Conduct;⇒Clarify the rules applicable to "in-house" provision;⇒Make public procurement work for innovation, green growth and socialinclusion by imposing specific mandatory requirements.

3.5. The tax dimension of the single market: working together to safeguardtax sovereigntyTax policy is an area that both the supporters of the single market and its radicalcritics tend not to like. Paradoxically, there are reasons why both should lookwith interest to it.Cutting tax-related administrative burdens and compliance costs for businessand citizensEurope has a highly fragmented tax landscape. In many areas, the operation of27 different set of rules implies significant compliance costs and administrativeburden for citizens and business operating cross-border. When an EU taxframework exists, it lacks transparency, leads to loopholes and opens the door touncertainties as regard the applicable rules or to instances of double taxation ortax discrimination. In is in the interest of business and citizens, to removebarriers to intra-EU operations by addressing the issue of cross-border relief forcompanies, simplifying and modernising VAT invoicing rules facilitatingelectronic invoicing, introducing a binding dispute settlement mechanismcovering double taxation suffered by individuals and extending the savingsdirective to close existing loopholes.Moreover, in some areas, progress on the tax policy side may offer the EU thepossibility to use taxation as a tool to complement regulation to achieve agreedpolicy objectives. The lack of agreement on the proposal for VAT for postalservices for instance weakens the prospective liberalisation of postal services inthe single market by 2010. Environmental taxation could provide support for thepolicy initiatives to fight climate change.Tackling the anti-labour bias of tax competition within the EUHowever, there is a second important aspect that gives to the taxation issue asystemic importance for the economic integration process. The functioning ofthe single market – coupled with the wider globalisation process - places agrowing challenge for the operation of domestic tax systems and may erode inthe long term their revenue raising capacity, as well as their ability to pursuesocial and redistribution policies at the national level. Addressing thisunderlying tension between market integration and tax sovereignty is one of theavenues for reconciling the market and the social dimension of the singlemarket.Tax competition is a widely used practice in an integrated market, as nationalsystems may use the fiscal tool to increase their attractiveness for businesses and79

capital. Tax competition, to some extent, serves a healthy purpose of puttingpressure on governments to keep spending under control. However, it presents adisturbing asymmetry. The liberalisation of financial markets and the expansionof the single market allow companies to pursue strategies of tax minimisationand regulatory shopping in search of the most convenient taxation area. Inresponse to this phenomenon, the burden of taxation within EU Member Stateshas progressively shifted from more mobile tax basis (capital income andcorporate income) towards a more extensive taxation of less mobile tax bases,notably labour. Over the past two decades, almost all Member States decreasedtheir statutory corporate tax rates, competing for internationally mobile capital.The EU-15 average went from close to 50% in 1985 to slightly less than 30%.The average for the twelve countries that joined the Union in 2004 and 2007 isabout 10 percentage points lower. At the same time, Member States broadenedthe tax bases, to eliminate opportunities for tax avoidance and safeguard theirtax revenues. In 2007, taxes on labour accounted for 46% of total tax revenueson the arithmetic EU-average, whereas taxes on corporate income accounted for9.8%. The average implicit tax rate on corporate income in the EU-25 amountedto 25.5% in 2007, while the average implicit tax rate on labour incomeamounted to 34.8%.According to these elements, the tax burden in Europe over the past decadetended to concentrate in a higher proportion on the less mobile bases, i.e. onlabour, through personal income taxes and social contributions. This is not atrend created by the single market. Yet, the operation of the single marketcontribute – involuntarily – to accentuate it. Such a phenomenon haverepercussions for the fairness of tax systems and for their long term ability tocollect revenue to fund social programmes, as tax avoidance and elusion opensgaps. Consequently, it is important to devise solutions that minimise harmful taxcompetition and remove the in-built bias towards taxation of less mobile basis.This does not mean depriving national system of a tool to exploit the fullpotential of the single market. Business surveys show that corporate tax levelsare only one of the factors taken into account by business when weighing theattractiveness of alternative locations for direct investments. Other factors, suchas stability of political and regulatory environment, infrastructure, productivityand labour costs are considered more important than corporate taxation.Automatic exchange of tax information and in general cooperation between taxadministrations of the Member States should also be improved in order to maketax collection more effective and fair.Thus, there is scope for exploring measures of tax coordination that wouldsmooth over rough edges - which produce distortions or incentives for taxavoidance - while respecting tax sovereignty. Bilateral solutions could not reach80

the same effect and would not be legally viable. Harmonisation itself should notbe an objective. Tax sovereignty reflects local preferences for different levels oftaxation and is rooted into the democratic process. It has therefore strongfoundations that make any attempts at harmonisation, other than for limitedaspects more closely linked to the functioning of the single market (VAT andexcises in particular), unnecessary and not very realistic.Fiscal exit strategies from the crisis and tax coordinationAn additional argument in favour of some measures of coordination of taxpolicy comes from the challenges that Member States tax authorities will have toface in devising credible fiscal exit strategies. The economic and financial crisishas led to an explosion of public debt in Europe and at global level. Within theEU, the massive stimulus packages undertaken by governments at the initiativeand with the coordination of the Commission, generated a surge in governmentdeficit and debts. Government headline deficits are forecast to reach, on a EUwide average, 7.5% in 2010 and 6.9% in 2011 while EU level debt will jump to83.7% in 2011. It is realistic to assume that reduction of huge public debt willrequire in several countries not only expenditure cuts and fiscal discipline butalso tax increases. It is also realistic to imagine that consolidation efforts willentail a shift from income taxation towards indirect taxation and a greateremphasis on less growth distorting taxes, notably environmental taxes. Underthese conditions, coordination of tax policies could be an important componentof a fiscal consolidation strategy at EU level and improve the effectiveness ofnational action. One advantage of coordination is that it would be more effectivein targeting mobile tax bases, plugging the gaps that permit tax arbitrage andavoidance. A second advantage would come from minimising the impact oncompetitiveness when taxation would target products that constitute input forindustrial production, as it would be the case for energy taxation. A thirdadvantage is that coordinated moves would limit regulatory and taxfragmentation that would distort competition within the single market andincrease compliance costs for business. They would also reduce the chances oftax induced asymmetric shocks in the Euro-area, thus facilitating the conduct ofmonetary policy by the European Central Bank. In short, some measures ofcoordination have the potential to turn a negative sum game within the SingleMarket in a game where all actors obtain benefits.Identifying areas suitable for measures of coordination of tax policiesThere are three areas in which the possibility of tax coordination could beexplored.

The first is the area of corporate taxation. Work towards a common definition ofcorporate tax bases replacing the plurality of rules existing in each of theMember States, dates back to 2001. The specific design of the proposal requiresa careful attention, but the time seems mature to move forward. The Code ofConduct Group on harmful business taxation – set up within the Council underthe ECOFIN resolution of 1stDecember 1997 - has done valuable work inidentifying and ensuring the removal of harmful tax practices. However, in thecontext of a relaunching of the single market the role and status of the codeshould be re-examined with a view to ensuring an even greater coordination ofpolicy in this area, with a wider examination of the effects of harmful regimes,mismatches and other negative effects of tax competition. The code group couldalso extend its coverage to some limited issues of personal income taxation thatare relevant in the context of harmful business tax competition and could lookmore closely at agreed definitions of tax abuse.A second area for potential consideration is the area of consumption taxes.Variation in VAT rates affect capital and trade movements, at least in the short –medium term, and are therefore relevant for the functioning of the single market.In a context of a trend towards increasing consumption taxes, coordination ofpolicies directed at raising standard VAT rates or limiting the application ofreduced VAT rates may be beneficial.A third area of relevance for coordination is that of environmental taxation. Thisis likely to play a key role in the future. It would be of great help to framediscussions on environmental taxation in the broader context of tax coordinationso that the benefits in terms of relieving the tax burden on labour would alsoemerge clearly.A Tax Policy GroupA move towards greater cooperation and coordination requires an appropriateforum for tax policy discussion. As long as tax issues are dealt with in afragmented and purely technical way, positions tend to be entrenched, oftenresulting in stalemate due to the lack of broader possibilities for compromises.To break the deadlock, there should be a forum for closer political dialoguebetween the Commission and the Member States revenue authorities at thehighest, political, level. A Tax Policy Group, chaired by the Commissionerresponsible for taxation and composed by personal representatives of theFinance Ministers of the Member States would provide the best format to launcha strategic dialogue on the possible benefits and limits of tax cooperation andcoordination within the single market. Such Group would be of substantial helpto the Commission in view of exercising its power of initiative in a way thatwould benefit from an open and constructive dialogue at the political level, in82

which Member States would be encouraged to share their expectations andconcerns. Being an instrument for the Commission to inform its initiatives infull awareness of Member States' views, the tax policy Group should be chairedby the Commissioner responsible for taxation. Precedent is provided by the taxpolicy group set up in 1996, chaired by the competent Commissioner, thatallowed the agreement at the ECOFIN on the December 1997 resolution.Key recommendations:⇒Further work on the elimination of tax barriers within the single market,modernising e-invoicing rules, updating rules on cross border relief,introducing a binding dispute settlement mechanism covering doubletaxation suffered by individuals and reviewing the savings directive;⇒Work towards a common definition of the corporate tax bases and moveforward with the work of the code of conduct group on business taxation;⇒Reform VAT rules in a single market-friendly way;⇒Develop the area of environmental taxation in the broader context of taxpolicy and their impact on growth and employment;⇒Agree on the establishment, at the initiative of the Commission, of a TaxPolicy Group chaired by the Commissioner in charge of taxation andcomposed of personal representatives of the Member States FinanceMinisters as a forum for strategic and comprehensive discussion of taxpolicy issues.

The link between greater economic and monetary integration and thedevelopment of regions is a red thread that runs trough the various steps ofEuropean integration, from the Werner Report to the Delors era, when areformed Community regional policy became one of the essential components ofthe package deal strategy designed for the relaunch of the single market.In the political vision of Delors, informed by the conclusions of the PadoaSchioppa Report on Efficiency, Stability and Equity, market integration could bea win-win process only when complemented by action at EU level to correctstructural imbalances at subnational level. Such action would give a push toperipheral regions that otherwise would not be able to participate in full to thesingle market and would prevent lagging regional economies from seeing theirgap from the most performing increase.Over time, EU cohesion policy has nuanced its original "structural adjustment"rationale, to place greater emphasis on the forward looking dimension ofsupporting the delivery of the Union's policy objectives and promotingdevelopment. The Commission Europe2020 Strategy confirms that cohesionpolicy is anchored into the broader long term policy priorities for the Union andthat the structural funds are one of the main delivery channels for the strategygoals, including social inclusion. As the debate on the future of EU cohesionpolicy is entering into an active phase, it is worth reflecting also an analysis onthe territorial implications of the planned relaunch of the single market.The transition to a green and digital economy, the reorientation ofmanufacturing into high-tech sectors and greater intra-EU labour mobility willtrigger several changes. As a result, all regions of the Union will experience amix of opportunities and adjustment needs. In addition, cohesion policy willcontinue to play a key role for upgrading the infrastructure of new MemberStates, which is essential to ensure the interconnection of the single market.These elements call for an in-depth analysis of the requirements that anexpanded and dynamic single market places on regional policy. This reflectionshould extend to assessing what type of reformed cohesion policy, based onstrong conditionality to ensure its efficiency, would be best suited to give allregions the opportunity to exploit the single market potential.

Using cohesion policy to promote Member States compliance with single marketrulesIf one of the goals of a reformed cohesion policy will be to help all regions andMember States benefit from the participation to the single market, and if agreater attention is paid to strengthening conditionality, there is a rationale forusing the leverage of EU financial support also to provide incentives for thetimely transposition of single market rules. One idea would be to set aside at thestart of the programming period of a performance reserve, for example equal to1% of the cohesion budget for each Member States. This reserve would beallocated to Member States based on an objective indicator of their transpositionperformance, such as the notifications of transposition measures for singlemarket directives. The Member State would then allocate the funds to its bestperforming programmes.Tightening anti-relocation provisions in the cohesion policy RegulationsThere is a wide concern among public opinion that companies decision torelocate to other Member States are distorted by the possibilities to get subsidiesfrom the recipient country, which may be co-funded by EU money. In thecurrent programming period, rules have been introduced to deter fund-shopping.Such rules have proved effective, but not entirely. In the cohesion policyregulations for the next programming period, some attention should be given totighten up anti-relocation rules, and appropriate channels should also be ensuredto coordinate the use of EU cohesion funding and the authorisation of state aidsupport in favour of the same company.Key recommendations:⇒Evaluate the potential impact on EU regions of the relaunch of the singlemarket;⇒Introduce a conditionality clause in Structural Funds to reward theMember States most disciplined in transposing single market directives;⇒Tighten up rules preventing the use of structural funds in support ofcompany re-location.

The word is no longer taboo. Europe's leaders are discussing again the merits,and limits, of an active industrial policy. The return of interest for industrialpolicy goes in parallel with a renewed attention to the importance ofmanufacturing for Europe's economy and a wide concern for the profoundtransformation of the European industrial base triggered by the crisis.There is in some quarters the concern that industrial policy and competitionrules are antagonistic terms. In that logic, an industrial policy could only emergein Europe through a softer enforcement of competition and a relaxation of stateaid rules. A sound competition and state aid policy is not in contrast with asound industrial policy. The opposite is true: competition is necessary to createthe varieties, comparative advantages and productivity gains on which growthand innovation flourish.Merger control: not an impediment to industrial activism but needs consistencyEurope needs an industrial policy that does not conflict, rather builds on itscompetition rules. Competition rules certainly don't stand in the way of theEuropean companies search for the best scale and size to compete globally.European competition rules have not opposed the birth of numerous Europeanchampions, from EADS to AirFrance-KLM to mention only two, and evennational champions. Even if Europe had had a more permissive regime, the dealswould have fallen under the jurisdiction of the competition authorities of theUnited States or Japan. They would have been struck down anyway. Europeneeds European champions that are able to grow on their own merits and to runwith their legs in the global race. National policies supporting nationalchampions would create coalitions of veto actors paralysing the single marketand dampening its potential as a tool to drive industrial innovation and structuralchanges. To build European and not national champions, merger controlmechanisms remain indispensable. There is therefore an interest in movingtowards a greater convergence as regards how mergers are assessed on thesubstance and the review process at national level. The objectives to ensure alevel playing field – sterilising the impact of national public policy concerns oncross border cases- and a "one stop shop" treatment of mergers – avoidingconcurrent review from NCAs - would require that NCAs would apply thesubstantive EU merger control rules also at national level where a merger hascross border effects. In parallel, cooperation between NCAs should beimproved, to ensure procedural and substantive convergence between them andwith the EU level. A more radical option would be to revise the mergersregulation's mechanisms for case allocation and re-allocation. This would meanabolishing the so called "two-thirds rule", which requires that mergers in86

principle eligible for EU review under the merger regulation are neverthelessleft to national competition authorities when more than two thirds of the partiesturn-over is realised in one and the same Member States. The advantage wouldbe a more consistent treatment of mergers in key areas of the EU economy.Why state aid control mattersMerger control is a global feature, while rigorous state aid control is rather aEuropean "unique". Should then Europe become much more relaxed in the wayit looks at public subsidies at national level? The argument goes that as Europeapplies a stricter state aid regime than its main competitors, firms located abroadhave more opportunities to improve their competitiveness while firms located inthe EU are increasingly attracted abroad. The argument is both normativelyweak and short on facts.Normatively, the rationale for a strict state aid regime is that Europe is not astate, but a supranational system covering a plurality of national systems. Stateaid control is an essential tool that keeps the single market open, integrated andcompetitive. If Member States would engage in a race to subsidies for their owncompanies, the single market would be disrupted as wealthier Member Stateswould win the contest against smaller Member States. In the process, lots ofpublic funds would be absorbed by non-performing investments.It is also not true that EU state aid rules are a hindrance to financial interventionby governmentsper se.They set a framework that directs state aid in a directionthat supports general public policy objectives and offsets market failures.Support for companies is not lower in the EU than in other jurisdictions.Independent studies show that subsidies aimed at enhancing competitivenessamount to 0.34% of GDP in France 0.43% in Germany, 0.35% in Japan and0.24% in the US. Even in the area of R&D&I, public support level are verysimilar among Europe, Japan and the US. In any case, the vast majority ofsupport for R&D&I provided by the US, Japan, China and South Korea wouldhave been allowed under the current R&D&I framework. The argument thatstate aid control makes Europe a less attractive location for foreign capital isshort on facts. The EU has been one of the largest recipient FDI flows for mostof the past two decades. Both the stock of FDI as a share of GDP and thenumber of foreign projects submitted to Commission state aid pre-scrutiny underthe multi-sectoral framework and regional aid guidelines show an upward trend.Finally, investment subsidies have the potential to affect localisation decisionswithin the EU, but hardly between the EU and other jurisdictions, such as theUS, Japan China and South Korea. The differential in input prices is such thatrelaxing state aid rules would not affect localisation decisions. It would ratherimply opportunity costs.87

Moving forward in the definition of a new industrial policyEurope should thus remain confident that its single market is its first and bestindustrial policy. Yet, as all the policy documents since the 2002Communication on Industrial policy remind, the dynamism of a EU-widemarket is best used when it is accompanied by an industrial policy which looksat the long term. There are both the rationale and the scope for shaping up anactive, judicious and effective action in support of business andentrepreneurship. This should exploit all synergies between competition andindustrial policies and use flexibly all regulatory and policy tools. Europe 2020describes the broad contours of such a modern industrial policy, which combineshorizontal features and support for the competitiveness of sectors, whether theyfeel the pinch of globalisation or face the transition to green and digitaleconomy. There is also a consensus that an EU action should have some verticalelements, helping national policies to focus on selected highly promisingsectors, such as energy, innovative industries and clean vehicles, withoutforgetting the needs of manufacturing industries. The EU should move ahead toformulate its new conception of an active industrial policy to complement therelaunch of the single market.Key recommendations:⇒Review merger regulation abolishing the so called "two-thirds rule";⇒Develop a new approach to industrial policy which builds on a mutuallyreinforcing relation with single market and competition rules.

Openness to global trade and investment is key for Europe's long termprosperity. The European economy is the world largest "exporter" of foreigndirect investments (FDIs), with 36% of world FDIs in 2006, and the worldlargest exporter of goods, with a 16.2% share of global exports. The emergenceof global value chains and the geographical fragmentation of productionsprocesses mean that EU economies are increasingly interdependent with the restof the world, and in particular with emerging economies. 65% of goodsimported by the EU are inputs for the production of other EU products.Yet, Europe has an ambivalent feeling about the external dimension of its SingleMarket. Member States and EU industries are well aware of the huge advantagesan EU-wide Single Market brings to the global scene: it makes the EU a highlyattractive location for foreign investments and gives valuable leverage innegotiations with trading partners on market access. It creates a competitiveenvironment that enables EU business to expand abroad.At the same time, there is a widespread perception that European businesses aresubject to a strict state aid regime whereas competitors in the rest of the worldmay benefit from various forms of government's support with less control.European companies in sectors such as shipbuilding, aerospace andsemiconductor often complain that the restrictions they face at home put them ata competitive disadvantage in the global race with less constrained competitors.Unfair competition adds to a perceived discrimination suffered by businesswhen operating in foreign markets. Grants of subsidies are less transparent andpublic procurement more geared to keeping public purchases within the homemarket than in Europe. Intellectual property rights are also considered aproblematic area. The rise of state sponsored investments is also fuellingconcerns about an excessive exposure of EU assets to foreign grab in sectorsthat have been liberalised.To reconcile its ambivalent feelings about the impact of the Single Market onthe EU's global position, Europe needs to better match actions to expand thecompetitiveness space for its firms and efforts to level the global regulatoryplaying field. The common commercial policy gives the EU the power and theright tools to act effectively on the global stage. Europe should use these tools todefend and promote its interests in an active, determined way vis-à-vis itstrading partners, to ensure trade access and to foster regulatory convergence.

Promoting regulatory convergence and transparency of subsidy policies atglobal levelThe 2006 "Global Europe" Communication sets out clearly that rejection ofprotectionism within the single market, must be paralleled by an active agendato open up markets and ensure a level playing field for trade exchanges.Achievement on this did not match ambitions. Europe should devote moreresources and more political capital to press for the removal of behind-the-border obstacles, from technical standards to intellectual property rights,prioritising the issue of subsidies. More has to be done to promote increasedtransparency and strengthen international rules on subsidies, both at multilaterallevel and in bilateral and regional agreements. The EU cannot give its businessthe impression that it will remain the only area in the world where competitionand state aid rules are applied strictly. The global debate on the exit from thecrisis provides a window of opportunity that should not be missed.The French Presidency of the G20 in 2011 provides a chance to put the issue onthe agenda and kick off a global debate. Europe should also press for greateraction at WTO level, where the EU trade partners' level of compliance withnotification and transparency obligations is not yet optimal. It should also leadthe debate on subsidies within the OECD, pushing for the development of codeof conducts and shared guidelines. The full potential of the TransatlanticEconomic Forum should be exploited to foster convergence with US andCanada.In parallel, Europe should step up its effort to bring subsidies and regulatoryissues to the table of bilateral negotiations. Provisions on subsidies exist in allfree trade agreements (FTAs), but they lack punch and are rarely implementedin practice. The FTA recently concluded with Korea marks a change ofapproach. It contains WTO-plus provisions on subsidies which will ensuregreater safeguards against unfair subsidies based on exchange of informationand regular dialogue to address possible conflicts. The EU should ask for similarprovisions to be included in a certain number of FTAs currently beingnegotiated, starting with India, Asean, Central America, Canada and Ukraine.The EU should also press for greater opening of trading partners' markets inpublic procurement, ensuring that commitment taken at international level arefully followed up. Taking into account the comparatively greater openness ofEU public procurement markets, ways to improve the EU leverage ininternational negotiations on government procurement should be explored.To fight unfair tax competition, the EU should also follow up to the G20 workon good governance in the tax area seeking on a more consistent basis to include

provision on the three principles of good governance in taxation in internationalagreements.Setting the terms of global competition through anticipatory regulation andstandard-settingEurope should also pay greater attention to factor in the international dimensionwhen preparing new regulation, so that convergence at global level is easier andbusiness finds fewer barriers to entry into foreign markets. Where relevant,reference to the regulatory solutions adopted in the legal systems of our maintrading partners should be made in the impact assessment analysis underpinningnew legislative proposals.Finally, Europe should be on the offensive in setting EU-wide standards forinnovative products and technologies, such as in the area of low carbon and ICTservices and technologies. While it may be difficult to export EU-standards,having them in place enhance Europe's leverage in shaping developments atinternational level.Shaping a new foreign direct investment policy at EU levelInvestments are a growing share of global trade. They have taken a prominentplace in the bilateral agreements concluded by Member States. With the LisbonTreaty, foreign direct investment becomes a part of the commercial policy,which is an exclusive policy of the EU. The EU should act fast and develop anew comprehensive policy on investments, which serves the interest of businessand investors equally.Key recommendations:⇒Promote a pro-active market access agenda in the G20 and othermultilateral fora, with a specific focus on subsidies;⇒Press for the introduction in bilateral Foreign Trade Agreements ofprovisions on subsidies;⇒Press for greater opening of public procurement markets, in particular inthe BRICs.

Today, theacquis communautairecomprises 1521 directives and 976regulations related to the various single market policy areas. An action to deepenthe single market is therefore unlikely to require a new wave of regulations anddirectives, as it was the case with the 1985 White Paper. Furthermore, the EUBetter regulation agenda sets out strict requirements on how new legislationshould be designed. However, this does not exempt from addressing the issue ofwhat modes of regulation and policy making methods are the most appropriateto regulate the single market.Currently, 80% of the single market rules are set out through directives. Thesehave the advantage of allowing for an adjustment of rules to local preferencesand situations. The downsides are the time-lag between adoption at EU level andimplementation on the ground and the risks of non implementation or gold-plating at national level. The recent debate on regulation in the financial servicesarea has shown the merits of having a single European rule book. There is thus agrowing case for choosing regulations rather than directives as the preferredlegal technique for regulating the single market. Regulation brings theadvantages of clarity, predictability and effectiveness. It establishes a levelplaying field for citizens and business and carries a greater potential for privateenforcement. However, the use of regulation is not a panacea. Regulations areappropriate instruments only when determined legal and substantial pre-conditions are satisfied. They may not even result in greater efficiency, if thediscussion that would have taken place at national level at the time oftransposition is shifted to the European level at the time of adoption by theCouncil and Parliament.Harmonisation through regulations can be most appropriate when regulatingnew sectors from scratch and easier when the areas concerned allow for limitedinteraction between EU rules and national systems. In other instances, whereupfront harmonisation is not the solution, it is worthwhile exploring the idea of a28th regime, a EU framework alternative to but not replacing national rules -.The advantage of the 28th regime is to expand options for business and citizensoperating in the single market: if the single market is their main horizon, theycan opt for a standard and single legal framework valid across Member States; ifthey move in a predominantly national setting, they will remain under thenational regime. An additional benefit of this model is that it provides areference point and an incentive for the convergence of national regimes. So far,the 28th regime model received little attention except for the EuropeanCompany Statute. It should be examined further for expatriate workers or in the13

area of commercial contracts where a reference framework for commercialcontracts could remove obstacles to cross-border transactions.For a smart regulation, policy making methods are equally important as legaltechniques. Smart regulation means regulation informed by an accurateknowledge of the factors at play and by a sharp awareness of its potentialimpacts on the economy, the social context and the environment. Thecommitment to better regulation should continue. Impact assessment andstakeholders' consultation have proven their advantages in terms of quality ofregulation, transparency and accountability. They are key features for reformingeffectively the single market. The social dimension should receive greaterattention by delivering on the commitment to real "social impact assessments'based on the development of more sophisticated methodologies and upgradedstatistical information. A wide and equal access of all categories of stakeholdersis a crucial element to ensure a real democratic and legitimate law makingprocess. One of the positive features of the EU system is that it remains moreresistant to regulatory capture than many national political systems. Thisadvantage should be safeguarded. The register for lobbies is a step forward.Furthermore, the Commission should ensure that all organisations of interestshave access to its working groups and committees, notably those representingdiffuse interests, such as environmental NGOs or consumer organisations. Allcommittees and working groups should be registered in an openly accessibleroaster. If necessary, the Commission should place a check on their number.Committee proliferation hinders policy consistency and may works against thefull participation of civil society organisations when they have small staff andlimited resources.Effective single market regulation can benefit from a shift of focus fromindividual policy interventions to whole policy sectors and from ex antemeasurement of impacts to ex post assessment of what works and what does notwork in a given field. Since the Single Market Review of 2007 there has been agreater attention to using Market Monitoring as a tool to identify regulatoryneeds based on a comprehensive analysis of the functioning of marketsthroughout the whole supply chain. The experience with the first applications ofthis method shows that it is fit for purpose, but it poses its own challenges.Market monitoring requires substantial investment in time and resources, precisefocus and well defined scope. It should be used as a targeted tool to examine afew selected sectors prioritised for further action. These could include not onlymature sectors where bottlenecks and malfunctioning can be identified, but alsonew or emerging market sectors, to examine how EU action can help themdeliver their full growth potential. The consumer dimension and the assessmentof the state of implementation of EU rules should be integral parts of the marketmonitoring exercise94

Functioning markets require rules, but rules that work and provide the rightincentives to economic activity. Smart regulation is thus quality regulation, butalso regulation that does not burden business and citizens with unnecessaryadministrative obligations and do not impose excess compliance costs. Pursuingthe simplification agenda and the reduction of administrative burden withdetermination is significant contribution to improve the chances of SMEs andentrepreneurs to fight the economic crisis. Ultimately, it is also key to dispel thenegative perception that the Single Market is synonymous with over-detailedand useless regulations. The Commission should make all efforts to achieve theobjective of reaching a cut by 25% in administrative costs by 2012. MemberStates should equally be committed not to reintroduce administrative chargesthrough gold plating of EU rules.Key recommendations:⇒Use regulations rather than directives when possible;⇒Use the 28thregime as an ad hoc solution where appropriate.4.2. Reinforcing enforcementThe single market is a construct based on law. Thus, it is crucial that MemberStates take seriously their obligation to timely transpose and correctly apply therules they agreed to.The latest Commission Internal Market Scoreboard shows that with an averageof 0.7%, the transposition deficit is the lowest ever recorded within the EU,falling even below the 1% target set by Heads of State and Government. Yet,closer analysis points to a compliance deficit which is as persistent as alarming.The single market remains highly fragmented. At the end of 2009, 74 singlemarket directives had not yet produced their full effects in the EU due to lack ofnational transposition measures in one or more Member States. In other words,the single market is an engine that works at around 95% of its potential. MemberStates also have quite a relaxed attitude towards transposition deadlines. Onaverage, they grant themselves an extra 9 months to adopt the implementinglegislation after the deadline expires. Some are even more generous and in thecase of 16 directives granted themselves more than two years. Overall, 55% ofEU directives are not implemented by the deadline. Even when single marketrules are transposed on time and correctly, this does not exclude unevenimplementation. If we add up non transposition to incorrect transposition, theEU average compliance deficit ranges between 1.5% and 1.8% in recent years.The picture is no rosier when it comes to infringements. At the end of 2009,95

there were 1206 cases open. If the number of infringements remained prettystable over the years, the time to solve these cases has not. It has increased. It isnow 28 months for EU 15 and 16 for EU 12. 1 out of five cases takes more thanthree years before being resolved or brought before the Court. Even whenregulations are concerned, administrative implementation can be problematic.The law on the ground often turns out to be very different from the law in theSingle rule-book. This "regulatory patchwork" is a serious threat to thecredibility and reputation of the single market.Paradoxically, the 12 worst offenders in terms of transposition delays are theMember States belonging to the Euro-area. Likewise, Euro-area membersfeature prominently in the ranking for number of overdue or incorrectlytransposed directives. That the majority of required national transpositionmeasures are late is not just a problem for the legal coherence and transparencyof the system. Late transposition is damaging for the effectiveness of regulation.On average, Euro-area members score once again much worst than non EuroArea members also in terms of infringement procedures.If the EU wants to re-launch the single market, there are good reasons to takeenforcement very seriously. The tricky feature of the enforcement questiontoday is that it presents a mixed picture of successes and failures, innovation andold problems. The Commission has prioritised correct application of EU lawwithin the framework of its better regulation agenda. Preventive action has beenstepped up in partnership with Member States. The infringement procedure hasbeen used in a more effective and targeted way. Guarantees of transparencyhave been introduced in response to the European Parliament and Ombudsmanpressure, through for instance the CHAP - complaints handling- system. Newtools have been introduced to facilitate informal resolution of problems throughvery successful mechanisms, such as SOLVIT and with the pioneer EU-pilotproject. Nevertheless, the way the enforcement system operates has not changedmuch compared to the past. To many it works in a less than satisfactory manner.The hard truth is that the decentralised system in which Member States areresponsible for the implementation of EU law and the Commission monitorstheir action presents many advantages but cannot ensure total and homogeneouscompliance. Private enforcement is a complementary tool, but it has limitationsas well. At the same time, it is neither possible nor desirable to police the singlemarket only from Brussels. To get out of this sub-optimal compliance trap, it isnecessary to strengthen central enforcement through the infringement procedureand grass-root private enforcement. At the same time, it is crucial to explorewith determination how to apply a new approach based on network-basedgovernance and partnership. This new approach would best be applied toalternative dispute resolution and to cooperation between the Commission and96

national administrations. The ultimate objective would be to design a coherentenforcement system in which infringement procedures, informal problemsolving mechanisms and private enforcement through national courts form aseamless web of remedies against breaches of EU law. What is needed is aconcerted press towards compliance, with appropriate passageways andcoordination procedures between the different elements of the system.Proactive enforcementThe infringement procedure is the central and vital mechanism tool to ensureeffective single market enforcement. The Commission has correctly givenpriority to infringement policy in the context of a more diverse and enlargedEurope. Based on the Strategy launched in 2007, there has been significantprogress on many fronts. The Commission should use infringement withincreased determination, including when it comes to cases which exposeMember States most directly to the risk of binding measures, namely actions fornon compliance with earlier Court judgements and Commission decisionsprohibiting state aid and ordering the recovery of amounts paid. ConfrontingMember States may raise tensions and carry a political cost, but objectiveenforcement is in the long term interest of all Member States. The enforcementaction of the Commission should not be influenced by political considerationsand its "distance" from political guidance should be ensured through appropriateprocedures and responsibilities.Processing of infringement cases, notably for non transposition, should beaccelerated. The Commission should take a political commitment to limit to 6months the maximum duration of cases concerning the non-notification ofimplementing measures (the current average is 14 months) and of 12 months forall other cases under Art. 260 TFUE (down from 26 months). After thatdeadline, the Commission should be able to decide whether to go to Court or toclose the case. Internal periodic review exercises should ensure the respect ofthese benchmarks. The criteria for priority selection of cases should be furtherrefined and appropriate reporting on the application of these criteria should bemade in the Annual Report on monitoring the application of EU law. Adetermined action should be taken to close older, long lasting cases.In the longer term, there might be reasons to explore whether the Commissionpowers under the infringement procedures should not be aligned with those ithas under competition policy. Ideally, once the Commission has established thatthere is an infringement, the decision should create an immediate obligation forthe Member State in question to comply. This should of course be withoutprejudice of its right to appeal the decision before the European Court of Justice.

Increased enforcement power should be matched by appropriate administrativeguarantees for Member States and individuals.In the interest of preserving a level playing field in the single market, theCommission toolbox to investigate Member State respect of State aid rulesshould be modernised and strengthened. The level of maturity of current stateaid rules lags behind those existing in the field of mergers and antitrust. Anamendment of the current Procedural Regulation could reform and modernisethe investigative tools in the area of State aid.Key recommendations:⇒Set out a benchmark for the maximum average duration ofinfringement procedures, limiting to 6 months procedures for nonnotification and 12 months all other infringement procedures;⇒Explore how to align the Commission infringement powers to those ithas under competition policy;⇒Amend the Procedural Regulation on State aid to modernise theprocedure and strengthen the investigative powers of the Commission,bringing them in line with those in the fields of mergers and antitrust.Managing Member States compliance: preventive action, monitoring ofimplementation and mutual evaluationTo be effective, enforcement must be a concern at all stages of the policy cycle.The quality of the regulation produced by EU institutions matter when it comesto implementing them. Enforcement-friendliness should be an integral part ofthe design of new policies and regulations. Clarity of drafting, simplicity ofprovisions and adequate transposition deadlines greatly facilitate follow up workfrom Member States. Early awareness of implementation issues should befostered through the preparation of implementation plans alongside theformulation of new important legislative initiatives. The Council and Parliamentshould also play their part to the full, accepting to include in the new legislationthe obligation for Member States to prepare correlation tables when adoptingimplementing acts. Technical assistance through expert groups meetings,guidelines and administrative cooperation should be deployed by theCommission services to prepare the ground for correct application of newregulations.Preventive actions should be matched by a parallel attention to monitoringcorrect national implementation and to evaluating the actual effects ofregulation. Transparency, peer pressure and administrative cooperation are the98

silver bullets in this area. The Internal Market Scoreboard has proved to be avery effective tool to ensure transparency and leverage peer pressure. It shouldbe expanded. Once measures are notified, conformity analysis by theCommission is a critical task. Unfortunately, today conformity checks are anadministrative nightmare. To make just one example, the service dealing withregulated professions counts 20 people. They have to assess the conformity ofover 6000 pages of national measures in 23 official languages. In the area ofcompany law and anti-money laundering, Member States have notified around10 000 pages of national transposition measures. To deal with such a pile ofacts, risk based analysis is one alternative. Stepping up the resources devoted tomonitoring and checking correct application is an obvious second alternative. Ina longer term perspective, one idea would be to post Single Market desks in theCommission Representation within Member States. These desks could operate afirst check of national implementing measures, alerting the Commissionheadquarters services only when a specific issue arises.Regular reporting from Member States and mutual evaluation can have farreaching positive impact on conformity of implementing legislation. The mutualevaluation procedure foreseen in the Services Directive for 2010 is aninnovative way of using peer pressure to improve the quality of implementation,facilitate exchange of best practices and offer feed back to make adjustments toexisting regulation. This model could be extended to other important regulatoryinitiatives. Mutual evaluation could also be a suitable theme on the agenda ofmacro-regional cooperation schemes, as in the Baltic Sea Region or in the nearfuture in the Danubian region. Macro-regional frameworks may facilitate thedialogue between national systems without of course recreating barriers betweenclusters of member states. The evaluation of single market rules in a given areashould also be taken into account when the Commission conducts MarketMonitoring Studies to detect whether market malfunctioning may be related tothe inadequate implementation of directives.The weight and legitimacy of the European Parliament and of the NationalParliaments should also be brought to bear in this area. The Lisbon Treatyreinforces the powers of both the European Parliament and National Parliamentsin the law making process. Legislatures should equally look at the other half ofthe story, reviewing how EU rules are transposed and implemented. After all,National Parliaments are often directly involved in passing implementinglegislation. Every year the European Parliament and National Parliaments couldselect one piece of legislation or an area of single market law and conduct areview of its implementation at national level, to spot inadequateimplementation or unanticipated negative effects. The COSAC could be fullyinvolved in the process. The outcome of this screening could further feed actionat EU or national level.99

Key recommendations:⇒Strengthen preventive action by shaping enforcement-friendlyregulation based on impact assessment, introducing systematicallycorrelation tables and stepping up technical assistance to nationaladministrations;⇒Create single market desks within Representation offices with the taskof pre-screening conformity between single market legislation andnational implementing rules and to liaise with national administrationsresponsible for implementation;⇒Extend Mutual Evaluation Process to new legislative initiatives;⇒Integrate the ex post evaluation of the implementation situation in agiven sector into Market Monitoring analysis;⇒Select every year one or more EU laws for screening by the EPthrough a process involving input from National Parliaments and theCOSAC.Network-based approach and partnership: alternative dispute resolutionmechanisms and cooperation between national administrationsTo ensure enforcement effectiveness, it is crucial that citizens know about theirrights and have easy access to an informal dispute resolution mechanism.A precondition for citizens to activate their right under the Treaty and fight noncompliance is in fact that they are aware of them. There is no shortage today ofEU sponsored information sources on EU law and policies. Yet, the informationis often not easily accessible, not always relevant and often fragmented. Thenumber of centres providing basic information or legal advice on EU issues islarge: Europe Direct Network, Your Europe Portal, Citizens Signpost Service,Entreprise Europe Network, Consumer Protection Cooperation Network, tomention some of them. They target different publics, provide different services,have different purposes. Their mutual relations are often unclear. Users are oftenredirected from one centre to another or find difficult to understand why theirrequest is not accepted. Furthermore, they are not well connected with problemsolving networks, such as SOLVIT.Over the past years, the SOLVIT network has developed significantly. Yet, it isstill underused, handling just 1600 cases per year. As it covers the 30 countriesof the European Economic Area, this means that on average each national centrehandles a little more than one case per week. As it relies on centres managed bythe national administrations, it struggles with some shortcomings, such as lack

of adequate staff, insufficient oversight from the Commission and a wide varietyof procedures and quality standards used. Another very successful experience inthe area of informal dispute settlement is that of the EU Pilot scheme launchedby the Commission in April 2008 to correct breaches of EU law at an earlystage, without having to open an infringement procedure. This system onlycovers, however, fifteen Member States. Its exact articulation with theinfringement procedure on one hand and SOLVIT on the other hand is arecurrent question.The first measure to improve the situation is to strengthen the existingmechanisms to provide an informal solution to disputes. This would meanstrengthening SOLVIT through a clearer legal basis, minimum rules on staffingand some EU co-funding. The EU pilot scheme should be extended to all theMember States, ensuring its articulation with the infringement procedures in away that does not indirectly lengthen the duration of the latter.A more radical solution would be to establish an EU network of alternativedispute resolution centres along the lines of the model applied for thedecentralisation of competition policy with the creation in 2004 of the EuropeanCompetition Network (ECN). The idea would be to merge all the centresexisting at national level (for information, legal advice or problem solving) intoa one stop shop point for citizens covering both cases of misapplication of EUrules and cases involving small scale breaches to EU legislation. The centrewould remain within the national administration to maintain the advantages ofproximity to citizens, knowledge of local laws and respect of subsidiarity. EUlaw should define the set up, powers and procedures of the centres. Some formsof co-funding from the Community budget could also be explored. The nationalcentres would have a partner in the Commission, that would oversee theirfunctioning, supplying, where requested, legal advice or stepping in theprocedure should the complainant be unhappy with the solutions found (or notfound) for his/her case. This network of problem solving centres should becoordinated with the centralised enforcement by the Commission throughappropriate rules and procedures, and could help relieve part of the burden onthe infringement procedure.Easier and faster cross-border administrative cooperation between nationaladministrations would also make it easier for citizens to enjoy their rights withinthe Single Market. The Internal Market Information System (IMI) introducedwith the Services directive has proved to be a very successful mechanism to putnational administrations in contact and should be extended to other sectors thanServices. Furthermore, the Commission should invest in animating networkswith national administration on implementation, facilitating exchange of best

practices, training, and discussing guidance on how to apply Single Marketrules.Key recommendations:⇒Extend the EU Pilot scheme to all 27 Member States and step up theSOLVIT system ensuring EU co-funding and a clearer legal basis.⇒Step up administrative cooperation by extending the IMI system to otherareas of legislation⇒In the long term, establish an EU network of alternative dispute resolutioncentres.Private enforcementThe EU legal system empowers citizens and business to stand up for their rights,through litigation before national courts. Thus, private enforcement is a key toolto contribute towards reduction of the compliance deficit and to ensure theeffectiveness of the Single Market. There are two ways in which privateenforcement can be strengthened.Firstly, national judges play a key role in interpreting and applying EU law nextto national law. The Commission, in partnership with Member States, shouldstep up its support for training programmes and structures to ensure that nationaljudges and legal professionals have a solid knowledge of the Single Market rulesthey are most often required to apply.Secondly, the right to obtain compensation for damages following a breach ofEU law is the same for all citizens of the EU. Access to this right is not. Theremedies and procedures differ from Member State to Member State as they areenshrined in the national legal system. The result is a marked inequality betweenMember States in the level of protection of the right to damages. Experts havecalculated that the amount of unrecovered damages may range to more than 20billion per year in the EU. There is some rationale in addressing this problem inparticular when it comes to breaches of competition rules. A legislative initiativecould aim at creating in all Member States minimum guarantees that allowvictims of competition law infringements to effectively enforce their right tocompensation before national courts.

5.1. New political initiativePresident Barroso has identified the single market as a key strategic objectiveto be pursued with renewed political determination. He has also announcedthe Commission’s intention to lead this process, fully engaging the EuropeanParliament, the Council, Member States and all stakeholders.This report, commissioned by President Barroso, aims at providing inputs forthe articulation of a new strategy, that the Commission may wish to consider.Building on an extensive consultation process, the proposed strategy iscomprehensive and consists of initiatives respectively aiming at building astronger single market, building consensus on it, and delivering it. A packagedeal is suggested.All this requires investment in a fully fledged political initiative. This maycreate a new momentum, which is necessary also to make swift progress withproposals that have been on the table for a long time.For this to happen, it seems necessary not only to work on each specificinitiative, but also to refocus the way in which the single market is dealt withby the EU institutions and to redefine the place of the single market in overallEU policy making.5.2. Refocusing EU institutions on the single marketThe Commission, which has been able to defend the single market evenduring the unprecedented tensions of the recent crisis, should continue and, ifnecessary, intensify the full use of its powers of enforcement. In thelegislative process that it initiates, the Commission should be a strongadvocate of the integrity of the process, so that its proposals, whilst of coursebeing fully open to the decisive influence of Parliament and Council, wouldnot end up denatured, as sometimes has been the case. Withdrawal of aproposal may on occasions be prefrable to a deeply unsatisfactory outcome.Also, the Commission should encourage the Council to make full use ofqualified majority voting, in the many areas where that is foreseen, withoutindulging in endless processes to try to have all Member States agree, oftenat the expense of the incisiveness of the outcome.In its own internal modus operandi, which of course it is entirely for thePresident and the College to determine, it seems appropriate to adopt a morecomprehensive approach in the formulation of policies for the single market.Numerous portfolios are crucially involved.105

The President’s leading role is particularly crucial to bring a wholistic vision.A Group of Commissioners embracing all the competences on economicintegration, chaired by the President, or by the Commissioner for the InternalMarket and Services when the President is not available, could be theappropriate body for policy formulation. On the other hand, the responsibilityfor enforcing existing rules should stay as close as possible with thespecifically competent Commissioners, because enforcement actions shouldnot be the object of broader mediations.The European Parliament could consider ways to bring, there two, moreunitary vision to a subject area which is currently in the competence of theInternal Market and Consumer Protection Committee, but – in the approachsuggested in this report – involves heavily the comptences of several otherCommittees, like the Economic and Monetary Affairs Committe and thecommittees active in the areas of industry, social policies and others.The Council has a similar problem. Single market issues are to a large extentthe remit of the Competitiveness Council, but other key responsibilities foraspects of the single market are in the hands of the Ecofin Council, the SocialAffairs Council and others.Now that the European Council, also through the role of its permanentPresident, can afford a greater continuity in steering economic governance ofthe EU, it would be helpful to have a top-level comprehensive guidance ofthe Council’s contribution to this key pillar of European integration. Whilethe power of initiative and the enforcement – under the control of the Court -will of course have to remain firmly in the hands of the Commission, thewhole process of giving a stronger impulsion to the single market wouldbenefit if the European Council considered this to be one of its key areas ofpermanent attention, giving its President a mandate to ensure that is donewith political vision and concrete continuity, in close cooperation with thePresident of the Commission.Parliament, Council and Commission should also consider introducing a fast-track legislative procedure for those measures that would be included in astrategic initiative for the single market, as was done following the 1985White Paper.To ensure proper follow up, there could be an annual moment when the threeinstitutions, involving also the stakeholders, take stock of the „State of theUnion“, as regards economic integration.

5.3. The place of the single market in EU policy makingThroughout this report, it has emerged that the single market, althoughlacking a strong identity and visibility in terms of policy perceptions, is reallyinstrumental to several other areas of EU policy making, which do attractgreater political interest. Yet, these areas risk not delivering what they areintended to deliver, if they cannot fully stand on a robust single market.Europe2020 is a promising overarching policy initiative, which will becrucial for the future of Europe. It identifies correctly a single market pillar.It seems crucial that new political energies be triggered around this pillar, togive momentum to several related initiatives of the srategy. The relaunch ofthe single market on the basis of a new consensus and commitment, asproposed here, might perhaps provide such energy.Economic and Monetary Union, as mentioned in previous chapters, has aweakness in the insufficient degree of single market and competition at playin many Member States. They made the bold decision to share the samecurrency. That requires, at the very least, a high degree of sharing effectivelya single, integrated, flexible market, a prerequsite for an optimum currencyarea and a vector for improvements in productivity and competitiveness. TheEurogroup should make a point in calling all its participating Member Statesto achieve at least the degree of actual embracement of, and compliance with,the single market and competition that occurs in non-Eurozone MemberStates.The effort to put in place some form of Economic government, the latestexpression of the EU’s ambition to control its economic fate, should alsoconsider the single market as a key item on the agenda. This is certainly acommitment, and a policy, shared by all 27 Member States. Therefore, this isa natural candidate topic to be dealt with systematically in the upcomingbuilding block of Economic government.