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Single Market: Europe’s problem with services

10.02.2017 - 11:30
Polish plumber

Imagine there is an architect in Slovenia who would like to work on a house located in Spain. However, Spain does not recognise the professional qualifications of architects in Slovenia. An architect from Slovenia therefore has to contact a local intermediary in Spain or obtain the relevant local qualifications. If the architect from Slovenia wants to set up an office in Spain, the company potentially has to prove through a difficult administrative process that it will not do harm to its local competition. It is possible various other bureaucratic procedures need to be followed because Slovenian and Spanish administrations do not entirely trust one another.

It is true this is just an example, but it shows how complicated European bureaucracy can be for those who want to take their businesses across borders. Why?

Europe needs a Single Market for services

While the European Union has made serious progress on its way towards completing what we call the internal European market - removing the barriers to free movement of goods, money, services, and people - huge bricks still remain in the wall standing in the way of completing that same market.

The service sector has remained largely protected from international competition

The service sector, more specifically, has remained largely protected from international competition.

Service industries represent more than two-thirds of all economic activity in Europe; they have accounted on average for more than 75% of the growth rate of the last decade. However, taking into consideration the same time span, data shows European economies have grown more slowly for instance than in the United States.

Liberalisation of cross-border trade in services clearly has the potential to increase European growth

Liberalisation of cross-border trade in services therefore clearly has the potential to increase European growth, but the various controversies over the directive regulating services have already considerably narrowed its ambitions.

Do you remember the Polish plumber?

The first attempt at regulating services goes back to 2004, when the Services Directive was first presented. With this directive legislators tried to, brick by brick, take down walls within the Single Market. The logic behind it was rather simple: less restrictions on market = an increase in competition. And we all know why competition is good.

The same directive has ever since been perceived as putting at risk the ‘European social model’ by allowing service providers to cross borders without abiding by local labour and social regulations. Many of the wealthier Member States saw in the document an open door to service providers from new Member States where wages are lower and social protection systems less developed.

The same directive has ever since been perceived as putting at risk the ‘European social model’ by allowing service providers to cross borders without abiding by local labour and social regulations

A famous example of this issue with the Services Directive, known by many European citizens, is the example of the Polish plumber. The phrase was first used as a symbol of cheap labour coming from Central Europe in the period when the EU Constitution referendum took place in France in 2005. Ever since, it has remained as an illustration of the fears Europeans associate with the regulated Single Market.

If properly implemented, the Services Directive was estimated to stimulate the European economy by creating about 600,000 new jobs.

Studies have shown an implemented directive could boost intra-EU trade by 30-60%

According to some estimations, the directive could increase GDP by 0.8% and create about six hundred thousand new jobs. Studies have shown an implemented directive could boost intra-EU trade by 30-60%. But has it?

The potential impact of the Services Directive is difficult to evaluate.

A fresh boost to the services sector

At the beginning of January, the European Council presented a package of measures that will make it easier for companies and professionals to provide services to a potential customer base of 500 million people in the EU. Amongst others, the Commission has presented the following two specific legislative initiatives:

  1. A new European Services e-Card which will make it easier for providers of business services (e.g. engineering firms, IT consultants, organisers of trade shows) and construction services to complete the administrative formalities required to provide services abroad.
  2. A proportionality assessment of national rules on professional services which will help professions which need specific qualifications or use specific protected titles, e.g. pharmacists or architects, to get rid of the burdensome and outdated rules.

A new European Services e-Card will make it easier for providers of services to complete the administrative formalities required to provide services abroad

Even though there is still room for further liberalisation of the service sector in the EU, the Commission’s proposal can be seen as a breath of fresh air in a Europe that has lately experienced episodes of protectionism along with doubts about Member-State governments’ commitment to complete the single European market we all want so badly.

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