Instead of undermining the single market, the EU must now complete it –

Instead of undermining the single market, the EU must now complete it –

The EU’s four freedoms – goods, capital, services and people – have never been fully implemented; With economic globalization under threat, the only thing the EU must avoid is undermining its crown jewel – the single market, writes Pieter Cleppe.

Pieter Cleppe is a researcher at the Property Rights Alliance.

In early February, European Commission President Ursula von der Leyen presented the EU proposal answer to the US Inflation Reduction Act, a piece of legislation through which the Biden administration aims to give businesses generous tax credits and rebates to spur green investment.

European governments and industry are deeply concerned about this, given that US support is reserved for products that are primarily made in North America.

With its response, the European Commission aims to stimulate a local green industry in the European Union, dubbing a “Green Deal industrial plan”.

The approach to achieving this is unfortunately primarily protectionist, whereby the Commission essentially fights fire with fire – never a good idea, as the 1930s proved, with its tit-for-tat protectionism culminating in global economic misery .

State aid overhaul threatens the single market

In practice, the Brussels plans would change EU state aid rules, allowing EU governments to match State aid offered by the United States or any other non-EU state. To be fair, this state aid would be subject to conditions, but the idea is very controversial, even within the European Commission.

In presenting these proposals, Margrethe Vestager, Vice-President of the Commission also responsible for State aid, warned that this “far-reaching” change which “entails a significant risk for the integrity of the single market and for our cohesion”, stressing that the amendments are meant to be “temporary”. The question is whether anyone in the Commission remembers Nobel Prize-winning economist Milton Friedman’s warning that “nothing is as permanent as a temporary government program.”

Other changes to EU state aid rules include raising the ceilings below which member states can award grants without informing the Commission and widening the scope of exemptions. previous to the rules on state aid to “all possible renewable energy sources”.

Since March 2022, around 80% of the €672 billion in state aid approved by the Commission has been spent by Germany and France, proving that this kind of undermining of the single market mainly benefits well-off companies. connected in the EU’s two largest economies.

It is therefore not surprising that these plans have attracted many oppositionfrom Benelux and Scandinavia to the Czech Republic, Slovakia, Estonia, Ireland, Austria and Italy.

Brussels in search of elusive compromises

To soften the opposition, the European Commission wants to create a new “European Sovereignty Fund”, which means that European citizens would not only suffer from less competition, but would also have to pay higher taxes to pay for this new fund.

At least the Commission favorite to reallocate unused cash from other EU funds, unlike EU Council President Charles Michel, who is to propose to finance this with another round of joint loans from the EU – in other words: more debt, paid for by the grandchildren. The Fund has generated significant controversy, with Robert De Groot, the Dutch permanent representative to the EU, going as far as criticize The idea of ​​Michel as “Karl Marx on steroids”.

Fortunately, in its proposals, the European Commission has also wanna to ease the regulatory burden of innovation, a welcome return to the ‘better regulation’ agenda. In addition to streamlining authorization processes, for example by introducing a ‘one-stop shop’ in member states, the EU should also consider again opening up the bloc’s capital markets, which ultimately serve to provide the funding to stimulate innovation.

Unblocking EU capital markets

The ongoing review of EU policy Solvency II The directive – which imposes a minimum capital threshold on insurers to ensure financial viability and policyholder protection – presents a major opportunity to remove a pervasive barrier to strategic investment by the insurance industry, Europe’s largest institutional investor.

In short, the Capital Requirements Regulation (CRR)”Danish compromisehas created an uneven regulatory environment between banks and insurers, as it provides banks with advantageous capital buffer rules for their insurance assets.

As a result, insurers are at a disadvantage, an imbalance that German MEP and Solvency II rapporteur Markus Ferber should bring to the attention of the European Parliament – where the review is currently taking place – to correct, freeing up the long-term investment potential of the insurance sector and create the conditions for further consolidation of the financial sector.

Furthermore, the project to create a “Capital Markets Union», a genuine single market for capital between the Member States Who should unlock finance to stimulate growth and open up investment opportunities, has long stalled.

This situation puts European investors and innovators at a serious disadvantage compared to the United States, where deep capital markets exist, helping startups and scale-ups to become global players. In Europe, small businesses find their access to capital hampered by cumbersome and costly regulatory processes and fragmented capital markets.

Another measure that could do some good is the EU proposal “Listing Law”, which aims to simplify the currently burdensome requirements for public listing, through which companies become able to raise funds in the capital markets.

It’s a priority for the Swedish Presidency of the Council of the EU, as this would help European companies to mobilize more equity investments, thus becoming less dependent on banks, again with the American investment environment as an example.

A better way forward

These regulatory changes should be the focus of Brussels’ attention, rather than abandoning already imperfectly enforced EU state aid rules.

If EU member states and the European Parliament finally agree to the Commission’s state aid proposals, the EU single market will essentially be subject to a regime of soft aid rules of state for almost six years, from the beginning of 2020 to the end of 2025.

Even Spain’s leftist government – which is hardly a strong supporter of the free market economy – has warned that the EU must “avoid distorting the European rules of the game due to the varying budgetary capacities of one Member State to another”.

The EU’s four freedoms – goods, capital, services and people – have never been fully implemented. With economic globalization under threat, the only thing the EU must avoid is undermining its crown jewel – the EU single market.

Now more than ever is the time to complete the single market, both to boost green and other investment and to keep pace with global competitors.