30 years of the European single market: a comparison with the United States

This paper illustrates the macro-economic dynamics of the European single market since its inception, assesses its competitiveness with that of the United States, discusses the barriers that still exist to make it more efficient and effective and highlights its relevance for the achievement of the European goals related to the green climate targets.

Read the key messages of the study and download the paper for more insights:

• Thirty years after its establishment, the European single market has stalled in terms of achieving full benefits from the four fundamental freedoms of movement for goods, services, capital and people and tax harmonisation across all member states.
• As shown by the weaker productivity levels in recent decades, Europe's lack of economic and fiscal integration results in a structural limitation of its development potential compared to an area of comparable size such as the United States.
• Trade volumes in goods have largely increased since lifting trade barriers in the single market which also contributed to the creation and evolution supply chains across the continent. However, integration is still limited, with intra-EU trade accounting for 26% of GDP, compared to 60% in the US.
• The freedom of establishment and freedom to provide services provision in the European market, suffers from obstacles and constraints from different regulations between member states and legal barriers that limit cross-border activity. This creates, particularly in the utility sector, a fragmented landscape for many companies operating on a national scale and smaller than those operating in the US.
• Labour mobility in Europe is still hindered by language barriers, lack of qualifications’ recognition and different pension systems, in fact, only 3% of Europeans live in an EU state other than their country of birth compared to 25% of Americans.
• European capital markets are still far from being fully integrated, in fact they are highly fragmented and suffering from the absence of an integrated banking union. It is less developed than in the US, particularly in innovative segments, penalising company's growth as well as the go-to-market, growth and scale-up of start-ups.
• The absence of tax harmonisation also undermines the single market. The EU has 27 tax systems with corporate tax rates ranging from 9% to 35%, disparities that led to 170 billion euro in profit shifting in 2019 alone. In addition to the above differences in tax systems, public subsidies, and State Aids in particular, may cause distortions and inefficiencies.
• Europe's ambition to be a world leader in the green climate targets cannot be achieved without strengthening the European single market. It is implausible to think that without a full integration of capital markets, Europe will be able to meet its estimated requirement of 620 billion euro per year (as of 2030) to be climate-neutral by 2050.
• And without mutually agreed financial efforts between Member States, the rush for public and private investments needed to meet the green climate targets, risks the macro-economic divergence within the EU widening further.