Prague ‘summit’ puts spotlight on Single Market shortcomings

Photo: European Commission

The European Single Market is one of the achievements of the political and economic partnership that is the EU. But many companies and some governments now feel short changed over the delivery of its full benefits and are calling for urgent reform as a new digital revolution looms on the horizon.

Photo: European Commission
It’s now around 30 years since the Single European Act was passed aimed at creating free trade within the then European Community. The principle was simple: goods accepted in one country could be freely sold in all.

But the fruits of the European single market in both goods and services in what is now the European Union have not fully delivered. In too many cases, companies and individuals complain that they are faced with the need to hurdle different sets of legislation, value added tax rules, and registration demands in separate 28 countries. The European Commission attempts to deal with some barriers by launching infringement procedures. But it says it is understaffed and the procedures are lengthy.

There are estimates that so-called Non-tariff barriers to trade in Europe could be putting a brake on the continent’s economy to the tune of 5-9 percent of its potential total annual wealth creation.

And that is seen as one of the major factors eroding Europe’s chances of competing with some of the leading economies in the world such as the US and highly efficient Asian economies such as Hong Kong and Singapore.

The European competitiveness challenge was put in stark terms at one session of the Prague European Summit being held in the Czech capital this week to examine the problems, challenges, and opportunities facing the EU. Kristian Hedberg is the deputy head of the cabinet of the Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs, Elzbieta Bienkowska.

“We established that there is a real challenge for the European Union in terms of real economic competitiveness. There are two key components, investment and disappointing productivity developments. On investments, of all the major economies in the world the European Union is the only one which is still at pre-crisis levels of investment.

""Productivity in the EU is maybe at less than 66-65 percent of the American levels."

“We don’t need to have a room full of PhDs in economics to know that if we don’t keep on investing – and some of the findings are dramatic, we have entire sectors of the European economy where operators tell us that there has been zero, zero investment in the past seven or eight years – if we don’t keep on renewing the capital stock, if we don’t at least invest the equivalent of depreciation, then you know that the moment when output levels go down will come.”

And on productivity, a close relative of investment, the analysis does not appear to be that encouraging either. Kristian Hedberg again:

“You may well all well know the famous quote of the American economist Paul Krugman that productivity is not everything, but in the long term it is almost everything. Productivity determines the standards of living and ultimately the influence of an entity or an economy in global affairs. Now, in terms of productivity, the EU is falling behind American levels and the rest of the competition is catching up with the EU levels. So if we as a community want to retain the sort of living standards that we have got used to, this is a problem that we have got to fix very quickly. Productivity in the EU is maybe at less than 66-65 percent of the American levels. In the field of services, we are even below 60 percent of the American levels, so something needs to be done.”

Mr Hedberg says that the main productivity gap between the EU and US is not at the level of the biggest companies or the mid-sized companies. It’s rather in the small companies where the real difference emerges. He adds that while in Europe the reaction to struggling companies is often to try and help them and prolong their life, the reaction in the more free marked US is to let them go to the wall and let the resources, such as workers or capital, be distributed in new directions.

Kristian Hedberg,  photo: European Commission
For Czechs, one of the more poignant flaws in the current European set up is the so-called Services Directive, pushed through by the Czech EU Presidency in 2009. It was supposed to start allowing individuals and companies the freedom to offer their goods anywhere. That hope is, however, marred by a lot of national red tape which makes that dream impossible or very difficult in practice.

Tomáš Prouza is the Czech State Secretary for European Affairs and was one of the speakers at the summit. He was asked to mark the performance of the Services Directive out of 10.

“I think generally on services we are somewhere, let’s say, at seven out of 10. Now if it’s looking at specific niches, notaries for example, that different. In some countries, if you want to be a dentist you have to an exam in the local language. And there are a lot of these small regulations which make it actually a lot harder to deliver health services and other kinds of services across borders. Still, I think there are a lot of details. On average it [the directive] works well but on a lot of these special niches, that each government likes, I think we need to open these as well.”

Around 70 percent of Europe’s economy is based on providing services, so the benefits from getting improvements here would have a significant knock-on effect. A substantial part of this session was devoted to the digital dimension, the use of digital skills by workers and companies and the challenges faced by Europe in giving many of its non-digital savvy population the skills they will probably need for the workplace.

It’s estimated that around half of Europe’s current population do not have the sort of basic digital skills they will probably need for future jobs. The mismatch in skills required and potential workers available is already being felt in the Czech Republic and much of the rest of Europe.

"We are not using all the advantages that digital offers, unlike the US, unlike a lot of the Asian countries."

Most experts agree that Europe already missed out on the first digital economic boom from which emerged the Internet giants such as Google and Amazon, overwhelmingly US-based companies. On the second digital revolution now in the pipeline, based on companies and workers making more use of skills and the treatment of so called ‘big data’ and digital applications, many warn that Europe cannot afford to come up short again. With its high proportion of manufacturing industry, the Czech economy has a lot more to gain but also a lot more to lose in this transformation than most.

Tomáš Prouza, who was recently given the extra title of Digital Agenda Coordinator in the Czech government, says Europe has been slow to latch on to the possibilities offered by the new digital challenges.

“We all know the statistics, how much the digital single market could bring each year. But I think that the key issue is if we take the digital agenda seriously then we can start to catch up. With all the innovation, with all the modernisation of the European Union, we are not using all the advantages that digital offers, unlike the US, unlike a lot of the Asian countries, and the train is – I am not sure, slowly, or quickly, departing the station. I think that we have a very short time to jump on that train.”

The Czech Republic is attempting to revamp its education system with a view to the digital challenge, though the state secretary warns that a large swathe of the population, people in their 40s and 50s, risk being stranded in the future with the wrong skills sets for the rapidly evolving jobs market.

Some companies as well have taken it into their own hands to try and train those in and out of work for the digital market. US-based Internet giant Google doubled its initial pledge to train one million Europeans to two million by the end of 2016. Among the tools it’s using are a collection of videos on the Internet aimed at imparting basic skills. And they have been rolled out in Czech for local educational purposes this year.

Tomáš Prouza,  photo: archive of Czech Government
The Czech Republic as well as its close partners in the Visegrad regional bloc, Poland, Slovakia, and Hungary, are together with the Baltic States among some of the biggest backers of improvements to the Single Market and action on the digital market in the European Union. They are joined on both counts, by Britain. The elephant in the room at the Prague European Summit on Tuesday was very much whether Britain will still be around to provide that impetus for the rest of the EU in the near future.