Thank you, Paschal, for inviting me back to speak on the topic of Europe’s single market.
We have been urging all of our members that now is the time to get your own house in order given the global trade and other tensions and the uncertainty. Reforms delayed? Delay no more.
And our advice has been resonating. Across the globe, countries and regions are on the move, pushing to higher competitiveness, more dynamism, and faster technological transformation. For Europe it is very simple: either Europe acts, or Europe risks getting sidelined. Relative decline would not happen in a flash; it would creep in, but that would not make it less real.
There is no time for delay.
Here at the Eurogroup, I have two positive messages that I want to deliver upfront:
I know it can be done because Europe has done it before. I think back, for instance, to the EU enlargement of 2004, which opened up many new avenues for households and firms. Today, GDP per capita in the new member states is 30 percent higher than it would have been without EU accession—30 percent! Even for the “old” member states, we estimate that GDP per capita today is some 10 percent higher on average thanks to the enlargement.
Our assessment is thus clear and grounded in hard data: the single market delivers.
And yet we know that internal trade barriers remain high. According to the European Commission, for every 100 euros of value added produced in EU countries, only around 20 euros of goods are flowing back and forth between EU countries. In contrast, for the United States, for every 100 dollars of value added produced, 45 dollars of goods are crossing state borders.
This shows how various factors are holding Europe back. What are they? Regrettably, the list is long: fragmented regulation, obstacles to financial integration, labor market rigidities, gaps in the energy market—parochial interests—all coming together to constrain growth.
Too many European firms remain too small. One in five EU workers works at a company with fewer than ten employees—twice the share we see in the United States. Fragmentation and regulatory differences across member states make it hard for firms to compete expand and thrive. Productivity has fallen behind.
So what can be done to inject new vibrancy? Our advice is: pick a few key priorities; make sure they are the right ones; push hard.
Let me start with the first piece of our three-point agenda—the single market. In this first piece we see four top priorities.
Priority one: create a predictable regulatory environment to help firms grow.
Reducing regulatory fragmentation is critical: firms need clarity. Harmonizing company law and insolvency law would be best but difficult. That is why we at Fund put our full support behind so-called “28th regime”—a voluntary EU-wide corporate charter. It offers a pragmatic way to slash legal complexity and compliance costs for cross-border firms: one system applicable everywhere in EU for firms that opt-in.
We know that our colleagues at European Commission are working on proposal I say please write up simple set rules covering key phases corporate life cycle from entry exit everything between Create possibility European Firm enjoying legal certainty so can focus innovation growth rather than navigating maze national systems
The goal need not be uniformity all things but rather uniformity where matters most Sensible national variations can—and must—coexist
And those who say corporate law deeply rooted national legal tradition 28th regime impossible let repeat what said here years ago you already done referring Bank Recovery Resolution Directive nothing other than an carveout from frameworks selected banks Please now create alternative regime companies
Priority two longstanding putting savings work
This point too raised here years ago money trillions private lazy Savings work harder elsewhere bank-centric financial system failing support kind innovative high-growth drive next wave productivity innovation
That’s why capital markets union needs move—now deeper integrated channel savings high-risk high-reward investments more venture Creating key paired better investor access information all discipline work
Importantly energizing finance requires positive steps banking dominance persist room credit Let nudged embrace risk taking prudently support economic Done right strengthen internal generation buffers boost soundness
Recognize large especially serve players including managing investment accounts clients serve efficiently pan-European shed reluctance accommodate cross-border mergers acquisitions Blocking mergers non-economic grounds dropping ball broadly deliver century finance
Priority three briefly improving mobility access talent
Told take months worker relocating within become legally employable another country surely optimal Speeding authorizations streamlining recognition professional qualifications ease skills mismatches enable hire appropriate Critical allowing grow
Fourth priority building interconnected affordable energy
Energy chokepoint Just look dispersion prices electricity hubs some times higher presents profitable arbitrage opportunity majors should grabbing
What help happen For start emphasizing blueprint pulls together parts One part certainly better interconnectors grids High volatile inhibit investment expansion Conversely improving reliable spurs growth
Across four areas overload finance mobility affordable laid ten specific policy actions paper last week simulations suggest even implementing dividends substantial uplift overall activity order about ten years question winners losers every stands win
Next second piece reforms national level
EU-level essential effective paired many vital layers pull direction
Three examples Wherever looks vital complementary element
Finally third piece making budget
This raising ambition support investments shared importantly coordination efforts priorities If borrowing agreed help frontload spread costs increase supply safe assets
Bottom line recommend doubling expenditures public electricity grids digitalization defense R&D gross income least close gaps Not only such accelerate deepening offer material cost analysis shows infrastructure achieve savings relative duplicative With long-term pressures piling great deals like seized expanded role performance-linked disbursements Know time managing right schemes play important incentivizing necessary aligning maximizing positive externalities Famous case point Recovery Resilience Facility formidable economic payoffs conclude colleagues consideration strategic objectives underestimate difficulty delivering political hurdles vested interests encountered along way But alternative doing deliver Key view push Success require leaders explain exert sustained pressure technical Regulators defend missions always tasked consider connections Like football coach need make players play team colleagues Commission hold legislative pen advice prioritize speed perfect enemy good let mindset dominate mindset rationale objectives developments crucial saying lifestyle superpower world Every return home feel sense admiration please hear this way life sustained must become productivity superpower needs potential come releasing entrepreneurial happen needs now ever told Working Group respected colleague described treasure hand unwrapped agree stakes high potential rewards large—in tensions uncertainty—moment surely Thank much
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