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SPEECH/00/46
Mr Frits Bolkestein,
European Commissioner in charge of Internal Market and Taxation
The Internal Market in an enlarged
Europe
Centre of European Policy Studies
Brussels, 21 February 2000
I welcome the opportunity to speak about the Internal Market on the eve of an
enlarged Europe. I am particularly honoured to address the Centre of European
Policy Studies which is well known for its long standing reputation as a Centre of
reflection and research in the process of integrating this continent.
In the next few years we shall have to face decisions that will affect generations to
come. If we take the right decisions, future generations of Europeans will benefit
greatly. If we fail, they will suffer the consequences.
What are the main challenges ahead?
First, we shall have to broaden and deepen European integration in a way that is
both manageable and sustainable. Decision-makers must make sure that the
European Union works, not only today but also over the next twenty years.
I am of course speaking of enlargement of the European Union. I want to make
sure that the achievements of integration made so far will remain intact and be if
possible strengthened in a Union of twenty-five Member States or more.
Enlargement is a political imperative and part of our European vocation. Just ten
years ago, the Berlin Wall came down and Communist regimes collapsed shortly
after. The division of Europe has always been artificial. For centuries there was no
such division. Contacts existed in every field. Even Russia was in those days
regarded as part of Europe and "Central Europe'' was an undivided notion in
culture, art and literature. The failure of the liberal revolutions in the nineteenth
century, the late industrial development, the protectionism of West European
countries and the Communist regimes created two separate Europe's, which we
now must join.
The European Union thus has the historical mission to integrate the countries of
Central and Eastern Europe which can and want to participate in our common
achievements: the Internal Market and the Economic and Monetary Union. Those
are the two wings European integration needs to fly.
The Internal Market would be permanently undermined without the EMU and the
common currency would be in constant danger if not underpinned by an Internal
Market.
After years of Euro-pessimism in the nineteen eighties, the concept of the Internal
Market became the driving force of European integration because it is fairly simple.
It aims to provide for the free movement of goods, services, persons and capital
throughout the Union. The Internal Market turned into one of the pillars of European
integration because it created a vast and level playingfield, necessary in order to
have the advantages of scale which are essential for a competitive, dynamic and
forward-looking economy. The Internal Market is a major instrument to enhance the
economic performance of its participants and therefore the key to global
competitiveness.
The Internal Market lies at the heart of European integration because it is a set of
legally binding rules which creates a vast common market enshrining the four
fundamental freedoms, gradual steps to deregulation and consequently free
competition.
Both the integrity of the Internal Market and the strict compliance with the criteria of
the Economic and Monetary Union have been essential in getting Europe's
fundamentals right. We remember the years of massive unemployment, budget
deficits, rising inflation and social unrest all too well. In fact, it wasn't a long time
ago. In terms of history it was almost yesterday.
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Now we are witnessing a robust performance of quite a few economies and
prospects appear to be favourable. Economic growth has strengthened over the last
few years. In the last quarter of 1999 it rose to 2,75 percent in the Union.
As we now enjoy reasonably sound economic fundamentals, an appropriate
credible policy mix and a brightening external environment, real GDP growth in the
Union should accelerate to 3 percent this year and next.
Some Northern Member States, like The Netherlands, will - for the first time in 25
years - begin enjoying a budget surplus. I am used to working in a climate of budget
deficits and subsequent budget cuts ever since I entered politics in 1977. A vast
surplus seems a luxury problem which makes the life of politicians much easier.
Slowly but steadily unemployment should fall from its high level of over 9 percent
within the European Union to around 8 percent in 2001. In some Member States the
biggest problem now is shortages on the labour market, which create bottlenecks
for production. And inflation is expected to be around 1,5 percent this year and next.
A crucial denominator of this success story is the Internal Market. Or, to put it more
precisely: the integrity of the Internal Market.
In the light of this road to success it is logical that the European Council in the
course of the previous decade decided that the Internal Market was the key area in
which to prepare the countries of Central and Eastern Europe for membership of
the Union. In particular the Essen summit of December 1994 pledged the active
support of the Union in helping those countries to implement the Internal Market
framework. The European Council of Luxembourg in December 1997 reaffirmed the
crucial role of the Internal Market in preparing candidate countries for accession.
This approach is sound, both for the Union and for the new Member States. The
Internal Market consists of a major part of the Union’s legislation. Candidate
Member States can, by aligning domestic legislation on the Union’s Internal Market
legislation, provide a solid basis for accession of which the pivotal issue is a
competitive market economy. It is not only enlargement that urges these countries,
formerly dominated by communist regimes, to reform. The structural reform process
had to start anyway. But now it is promoted with an extra incentive: accession.
This process requires an effort by the Union and by the candidate Member States,
but it nevertheless serves the interests of both. It stands for an enlarged market for
the benefit of companies in the current Member States while giving companies of
new Member States access to the presently booming markets of the Union.
Politics works well - just as business does - if a certain degree of self-interest is
respected. Whether we like it or not, most human beings are not benign individuals
who will promote the general welfare in the absence of conditions that encourage
them to do so. The most reliable driving force of a company or of countries is an
acceptable degree of self-interest. This has been true throughout history.
As Adam Smith explained in the "Wealth of Nations'': "It is not from the benevolence
of the butcher, the brewer, or the baker that we expect our dinner, but from their
regard to their own interest.''
Only the integrity of the Internal Market can ensure the mutual benefits of
enlargement. For many candidate Member States adopting the "acquis
communautaire'' in the field of the Internal Market may appear to be a hard nut to
crack.
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But a partial integration would not only put at risk the integrity of the system
between the fifteen on the one hand and the new Member States on the other, but
also between the current fifteen themselves. From the applicant countries’ point of
view, the legislation on which the Internal Market rests includes all the key
legislation which is vital for the reform of their economic systems and helps to
reinforce the competitiveness of their economies.
We must therefore beware of creating illusions. The European Union and its current
economic state of affairs are the result of hard work and effort. The European Union
is not a Garden of Eden but a playing field for competitive companies. Enlargement
risks being a "bumpy road'', a hard process of adjustment and structural change.
Enlargement must be based on real economic parameters if it is to be sound. It is
both a political and an economic process. The two go hand in hand.
Some new Member States may ask for transitional periods in some fields, including
sectors of the Internal Market. I understand that all too well. Nobody can impose the
impossible on new Member States after forty years of disastrous rule. We must be
understanding. But if transitional periods are necessary they should be limited in
scope and time, with as few exceptions as possible.
Pressure for timely limited arrangements may not only come from the candidate
Member States. Within the current European Union various Member States and
interest groups want to resort to transitional periods as far as the labour market is
concerned. Many people are worried about the arrival of workers from Eastern
European countries. Free movement of persons is a central pillar of the Internal
Market. One might certainly imagine a certain transitional period, but it should be as
short as possible. In a healthy economy it is better to prepare for competition than
to draw up new barriers.
Enlargement should not disturb the coherence of the Internal Market. The Union
aims at integration: not fragmentation. We cannot have the Internal Market turned
into a patchwork quilt.
Meanwhile in the current Union of fifteen Member States the Internal Market is not a
car in a stationary position but rather an ongoing process.
The year 1992, being an important milestone for the Internal Market, was not the
end of this process but rather the beginning. The Internal Market is not "finished'',
just as a company is never finished. A manager who says "my company is finished’’
and then sits back will face soon bankruptcy.
There is no reason for complacency, which by its very nature is the most dangerous
attitude in a competitive environment.
In order to ensure full benefit of the Internal Market three elements require constant
attention:
The full expansion of the Internal Market to all sectors of economic
activity.
Especially in the financial sector the implementation of the Financial Services Action
Plan which was endorsed by the Cologne European Council in June 1999 needs an
intensified effort.
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In the field of public procurement the Internal Market rules must be strengthened.
Public procurement accounts for over ten percent of the Union’s GDP. Markets in
this sector are becoming more transparent and the number of public tender
invitations has steadily risen since the late 1980. The challenge now is to ensure
that the sector is genuinely liberalised. The Commission is about to deliver a
package of legislative and non-legislative measures aimed at simplifying, clarifying
and improving the functioning of the EU public procurement regime.
The modernisation of the Internal Market framework.
A competitive economy develops all the time and creates new fields of activity, such
as e-commerce or distance selling. E-commerce can create Union-wide markets in
previously non-traded sectors and for firms previously tied to much more localised
markets.
The Commission has to put in place, review and modernise the regulatory and
supervisory framework for e-commerce as quickly as possible. I favour "regulationlite" solutions such as extensive reliance on the mutual recognition principle or soft
law measures, such as codes of conduct.
Monitoring the Internal Market.
The Commission has to make sure that Member States and companies comply with
Union legislation. Therefore the Commission monitors the Internal Market, both with
legal instruments such as infringement proceedings and moral incentives such as
the "Scoreboard'' which is an efficient means of peer pressure through the policy of
"naming and shaming". Although "naming and shaming" sounds inconvenient in
diplomatic circles, it works amazingly well.
Member States’ transposition record has greatly improved in recent years bringing
the percentage of Directives not yet implemented by all Member States down from
26.7 percent in November 1997 to 12,6 percent in November of last year.
The Scoreboard can only work efficiently in co-operation with the 'Dialogue with
Citizens and Businesses'. This dialogue enables citizen and companies to produce
complaints and other input to the Commission on non-compliance with Internal
Market-rules. I will vigorously continue the Scoreboard, as initiated by my
predecessor Mario Monti.
In order to bring these main elements together I launched a "Strategy for the
Internal Market'' in October of last year, right at the beginning of my mandate. The
Internal Market can no longer be viewed as a project on its own, isolated from other
policy areas, but must be regarded in close relation to other policies. The Strategy,
as adopted by the Commission on November 24 last year, sets out the objectives,
which remain valid for the duration of the Commissions mandate.
The longer-term objectives will be sustained by short-term target actions because
credibility is only served if words are followed by action.
For example the strategic objective "improving the quality of life of citizens'' is
sustained by concrete actions such as amending the Directives on door to door
sales and recognition of professional qualifications. Proper legislation is urgently
needed because e-commerce will have easy access to the homes of citizens.
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Another strategic objective is enhancing the "Efficiency of Union Product and
Capital Markets''. This relates to the implementation of the Financial Services Action
Plan, as agreed in May of last year, and in particular the adoption of a Directive on
the prudential supervision of Pension funds.
Pension funds are of major importance if we intend to tackle the economic impact of
the demographic development. For the citizen an assured income after retirement is
not a far away story but of immediate interest.
With regard to the different state pension schemes and the possible lack of budget
and health resources when the moment of retirement arrives, many citizens would
rather be safe than sorry and save money in additional pension funds and life
insurance companies.
These funds and companies should benefit fully from the Internal Market in order to
be able to pay the required amounts to the retired and receive affordable
contributions from savers who plan their retirement.
Another strategic objective is to improve the climate for business by urging Member
States to reduce bureaucracy. Starting a new firm is still hard in many Member
States, which foster complex administrative regulation, inadequate financing
possibilities and limited information. The impact is reflected in the overall rate of
start-ups, which is significantly lower than in the US
The Commission’s SLIM-initiative aims to simplify and improve the quality of
existing legislation. The Internal Market should also be accessible for smaller and
medium sized companies, which are the backbone of employment.
So the Strategy for the Internal Market is not a new instrument but brings together
existing policy instruments such as the Cardiff-report, the Scoreboard and the
Dialogue with Citizens and Businesses in order to carry out a continuous updating.
In this way we can focus on the integrity of the Internal Market.
Why should the Internal Market be permanently fit?
The answer is simple: because of competitiveness.
In the framework of the Economic and Monetary Union Member States have no
traditional macro-economic instruments any longer at their disposal. The EMU sets
out macro-economic criteria that have to be strictly complied with. Budget deficits as also the general level of Member State debt - have to be reduced. The EMU
created the common currency, which is being watchdogged by the European
Central Bank. Devaluation is impossible. Inflation has to be fairly low and the
interest rates are set in Frankfurt.
As the macro-economic framework is a given set of rules for all, micro-economic
factors become all the more important. This means that companies have to perform
well in the Internal Market and beyond. In short: they have to be competitive.
The state is not there anymore as the Rescuer of last resort. State companies, also
in the utility sector, are gradually being privatised and thus exposed to market
forces as has been the case in the telecommunication market and now the
electricity market. Micro-economic failure can not be compensated by macroeconomic policies. Those who fail in the market have to suffer the consequences.
The impact of the EMU and the Euro on the Internal Market is to require enhanced
competitiveness.
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The Union and the Member States have an opportunity to discuss the issue of
competitiveness in relation to the maintenance of a high level of employment and
the strengthening of social cohesion on the special meeting of the European
Council in Lisbon on March 23 and 24.
The Employment Pact, as agreed at the Cologne European Council, has already
underlined the importance of the Cardiff process of economic and structural reform.
At the June 1998 Cardiff European Council a new annual process to assess the
progress of economic reform in Member States was introduced. This process
specifically aims to improve the performance of EU product and capital markets by
identifying current weaknesses and suggesting action to overcome them. One
instrument of the Cardiff process is an annual report prepared by the Commission
on the functioning of the product and capital markets, produced near the start of the
new year. The Cardiff process sets the track for structural reform.
The currently favourable economic outlook provides a special occasion to tackle
structural reform in order to improve competitiveness on the global markets.
Inflation is low, while investment, purchasing power and employment are growing. In
many cases such a situation may lead to a passive attitude and complacency. If
everything goes well people tend to lack vision and courage. That would be utterly
wrong. The time to act is now.
This year’s Cardiff Report provides evidence that trade continues to be the dynamo
for market integration and expansion. The value of intra-EU foreign investment hit a
new record in 1998. And so did the value of cross border mergers and acquisitions
between EU firms. It is also important to note that since 1993 extra-EU trade has
grown faster than intra-EU trade. This refutes those who saw the Internal Market as
an instrument to build 'Fortress Europe'.
A recent OECD study (Trends in Market Openness) shows that the EU level of
openness to trade and investment is equal to or higher than in the US and far
higher than in Japan.
Furthermore capital market integration is accelerating while retail price convergence
is continuing. And last but not least: the poorest areas in the Union are catching up
with the rest of the EU.
This is also important for candidate Member States. The final judgement depends
on the extent to which these countries are ready for participation in a competitive
market economy. For some that will be easy because enlargement is not exclusively
confined to the East European countries of the ex-communist orbit. Cyprus and,
more recently, Malta have also been invited to negotiate EU accession. Both
countries have a long tradition of market economies.
Our recent assessment of candidate countries’ implementation of the Internal
Market acquis is that they have all made progress towards alignment. The most
advanced ones claim that they will complete their legislative alignment by 20022003. A solid legal basis of Internal Market legislation is in place in most candidate
countries but the related institutional framework still has to be finished. The
administrative capacity of these countries to enforce Internal Market rules is
essential for our assessment of their ability to comply with the acquis.
Enlargement will bring an Internal Market of over 500 million consumers and an
open, border-free area where goods and services can circulate freely. All candidate
countries have increased their trade integration with the EU. In terms of trade
integration they are already as tied in with the EU as the EU’s own Member States.
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The EU is now by far the most important trading partner of the thirteen candidate
countries. Their imports from the EU and exports to the EU range between 50
percent for countries like Bulgaria and Lithuania to more than 70 percent for Poland
and Slovenia. These countries are now our second trading partner after the US.
Direct investment by the current Member States in the candidate countries is also
growing fast. So candidate countries are already receiving the economic benefits of
integration.
But we still have to be cautious. Enlargement is a huge operation with more
candidate countries than ever before. Expectations are mounting whereas pressure
on the current Member States to reform the institutional framework of the Union is
inexorable.
In my view the operation can only be successful if enlargement is based on a sound
and valid economic foundation and if the integrity of the Internal Market System is
properly maintained. If not, the machinery that brings growth and prosperity to
Europe will break down and spread disintegration.
It is therefore important that enlargement stays a finely tuned process and that our
European ambitions are matched by our ability to fulfil them.
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