Europeans remember ‘single market’ treaty 20 years on

IT was a daring move. By signing the European Single Act in Luxembourg in Feb 1986, leaders of the 12-member European Economic Community (or the EEC as it was then known) committed themselves to dismantling national borders and creating a frontier-free Europe where goods, labour, services and capital could move unhindered.

The treaty started what many in today’s European Union describe as a peaceful, free-market revolution. Leaders agreed that boosting economic growth in Europe - and playing catch up with the United States and Japan - would require replacing national protectionism with sweeping moves to liberalise Europe’s key economic sectors.

What followed was an exciting six years. A raft of bold laws went into effect, national barriers were broken down, monopolies dismantled and steps taken to introduce the single European currency. Promises of free trade made by the founding fathers were finally followed through.

By 1992, the dream of a borderless European ‘single market’ was turned into reality.

Almost. As the EU marks 20 years of the ‘Single Act’ this week, many agree that the now 25-nation bloc has come a long way in fostering a free-market culture. Slowly but surely, protected sectors have been exposed to the harsh winds of free competition.

The revolutions in air transport and telecommunications are just two examples of how Europe has enthusiastically embraced liberalisation over the last two decades.

But the free-market drive also appears to be running out of steam. And celebrations of the 1986 treaty have been marred by growing evidence that protectionism - in various guises - is still alive and kicking in many parts of the bloc.

Proof that national barriers and vested interests are still forces to be reckoned with came last week after the European Parliament voted in favour of a much-watered down legislation originally designed to rip up national red tape and make it much easier for services - from plumbers to hairdressers, from management consultants to energy suppliers - to operate in EU countries other than their own.

The diluted - some would say neutered - ‘services directive’ approved by the EU assembly excludes areas such as health, media, postal services, electricity, water and gas from its ambit. The reason for the backlash: fears that companies in eastern Europe, capable of providing cheaper services, would flood western Europe with low-cost ‘Polish plumbers’ who would steal local jobs and bring down wages.

In fact, anger over the drive to liberalise services was cited as one reason that French voters rejected the draft EU constitution last summer.

In another sign of growing EU frustration over lack of progress in breaking down national barriers, Neelie Kroes, the competition commissioner, recently issued a stern rebuke to the region’s dominant energy companies over continuing protectionism and failure to liberalise.

She warned that Brussels was about to launch a string of Anti-trust investigations to open up the sector to free competition. Significantly, the free movement of capital is also under threat.

Mittal Steel’s bid for Arcelor, the Luxembourg-based steelmaker, has illustrated the protectionist - not to mention xenophobic - tendencies in France and Luxembourg. Much to the consternation of EU anti-trust officials, Paris has also said it will protect some national industries from foreign takeovers.

Among the new EU states, Poland is fighting hard against an EU-approved cross-border bank takeover. Signalling a lingering east-west divide at the heart of the EU, several ‘old’ west European member states are resisting calls for the opening up of borders to workers from the east.

A European Commission study published recently insisted that countries like Britain, Ireland and Sweden which did not slap restrictions on eastern European workers in May 2004, have actually benefited by keeping their labour markets open.

The commission argued that not only are the curbs unfair since the freedom of movement is a fundamental right of all EU citizens but that fears of a massive influx of eastern labourers are exaggerated.

In most EU states, workers from the new members make up less than one per cent of the work force. And instead of stealing jobs from locals, most have taken on jobs that locals do not want.

The arguments are unlikely to win over sceptics in Germany and Austria, however, where public opinion remains convinced that competition from the east remains a major economic threat.

Countries in EU have remained committed over the last two decades to keeping their borders open to goods produced and exported by their neighbours. But many of the EU’s foreign trading partners are worried about the bloc’s increasingly protectionist attitude to products made outside Europe, prompting concerns of a re-emergence of ‘Fortress Europe’.

While the EU remains committed to global free trade, its stance on protecting domestic farm markets remains a key obstacle to the successful completion of the current World Trade Organisation (WTO) talks. Equally worryingly, after the EU clampdown on Chinese textile exports, many EU governments are stepping up calls for similar quotas on Chinese and Indian exports of footwear.

While current European Commission chief Jose Manuel Barroso is often derided for not having any political vision for Europe, he has made clear that he will not stop the commission’s long-standing economic liberalisation crusade.

Expect therefore the combat between protectionists and free-marketers for the soul of Europe to intensify over the coming years.