EU's Internal Market: Utilizing Businesses as Tools for Policy Enforcement
The Eurozone grapples with an economic predicament
Unlike before, the EU and its member states are faced with more than just slow growth. Their overall economic performance is insufficient, and there's a concern about a lack of scale. To beef up its economic might, the EU intends to focus on its foundation stone: the "completion of the EU internal market." This initiative aims to generate economic heft and global corporations, deemed essential for the EU's status as a global powerhouse. Consequentially, a comprehensive liberalization and deregulation are on the agenda, raising the question of who stands to benefit.
The EU finds itself in a three-front transition. China, once its growth engine, has evolved into an economic competitor. Russia poses a military threat to Eastern Europe. To counter both, the EU requires US support, yet Washington is engaged in a trade war. According to US President Donald Trump, supporting Ukraine is no longer in the national interest. Instead, he seeks to draw the EU into his economic battle against China, a proposition the Europeans are hesitant to entertain, as they rely heavily on China's market for growth. The US-led global competition for power and wealth has escalated, effectively ending the joint US-European management of the globe. The EU laments this as the "return of power politics."
Global Giants and Rest of the World (RoW)
The EU's anxious state reveals its ambitious ambition: to maintain and advance its global power status. Back in 1993, the EU's economic performance eclipsed China's and equaled the US's. Since then, China has surpassed the EU, while the US has pulled further ahead. The EU's gross domestic product (GDP) has increased by 60 percent, while the European one has only augmented by 30 percent. What once was a technological leader has now turned into a "digital colony" of the US, according to a report by European technology experts, posing a risk to the "existence of the EU."
In contrast to the US and China, the EU measures itself against these powers and designates the rest of the world (RoW) as its chief target for asserting its interests. Its economic success relies on unhindered access to the world market. "The EU is the smallest and most open economy among the three major players (US, China, EU)," the Brussels think tank CEPS explains, "and it has the most to lose if there is a shift away from free trade and a rules-based system."
"It is the willingness to wage an industrial war and to endure the attrition war necessary for victory that would best deter Russia's plans," an article concludes.
The EU's Agenda: Leadership on the International Stage
According to a report by former Italian Prime Minister Enrico Letta, commissioned by the European Commission, the EU must play a leading role on the international stage to promote and protect its principles and goals worldwide. As a first measure, the European Commission has mobilized hundreds of billions of euros in loans to strengthen industries, upgrade infrastructure, and especially to finance military buildup. The hope is that the creation of large corporations will draw foreign investment, foster innovations, and project a strong image of the EU. This, in turn, will help the EU negotiate favorable trade agreements and shape international standards, facilitating its global expansion. "Liberalization is indispensable if we want to maintain and expand our international role," Letta says.
Given the relatively weak growth of the world economy and the global trend toward protecting national markets, it is becoming increasingly essential for the EU to expand its internal market in two ways: first, by expanding the internal market with new members, especially in the east, toward Russia. "Previous enlargements have enabled Europe to offset the loss of relative weight through the accession of new actors," says the Letta report. A more extensive EU is "today as yesterday the best instrument to protect European interests and prosperity." The EU Commission has presented a framework that puts Moldova, Ukraine, and the Western Balkans on the "fast track to the EU internal market."
Centralization of Power and Capital
In addition to enlargement, the second, more significant step is the "completion of the EU internal market." The EU Commissioner, Stéphane Séjourné, has presented a strategy for this endeavor. It is about abolishing national rules and laws that hamper free competition within Europe, from various national product labeling requirements to the recognition of professional qualifications, to regulations for retail, construction, transport, or postal services.
These rules and laws were created by EU member states to safeguard their markets, consumers, and businesses. Today, they are seen as "bureaucratic hurdles for businesses" that impose significant additional costs on companies. National markets, once designed to shield domestic industries, now function like a blanket hindering growth potential. As a result, European companies "suffer from a striking size difference compared to their global competitors, particularly from the United States and China." This discrepancy disadvantages Europe in numerous areas: innovation, productivity, job creation, and ultimately even the security of the EU itself.
These national barriers are to be eliminated, and the EU's internal market is to be comprehensively liberalized, enabling European companies to utilize the entire EU market as an investment and sales area at low cost, allowing them to grow and compete globally against US and Chinese rivals. "It's time for European companies to 'Europeanize' before they 'internationalize'," said EU Commissioner Séjourné. The hope is that the creation of larger corporations will attract foreign investment, foster innovations, and project a strong image of the EU. It will also help the EU negotiate favorable trade agreements and shape international standards, facilitating its global expansion. "Liberalization is indispensable if we want to maintain and expand our international role," said Letta.
The EU sees particular need for liberalization in the financial services, energy, and electronic communication sectors. Banks are to become powerful players through takeovers and mergers, providing the necessary credit for EU companies' global expansion. European telecom companies are to significantly expand their customer base, as "an average European operator serves only five million customers, compared to 107 million in the United States and 467 million in China." The persistent fragmentation hinders the size and growth of pan-European operators and limits their ability to invest and innovate.
Capital centralization is especially required in the defense industry. The problem lies in the fragmentation of demand, driven by national public orders given to largely domestic industries. To achieve economies of scale and lower unit prices, the EU plans to reform its fragmented market structure in defense production. "Capital centralization is crucial for achieving military goals," explains the Institute for World Economics (IfW), meaning: The cheaper the weapons, the greater the military boost provided by state defense budgets.
Against the "national dwarfs"
To contribute to the creation of European corporate conglomerates, the EU not only plans to demolish national rules but also weaken its guidelines for state aid. So far, EU member states are only allowed to grant aid to their national companies in exceptional situations, subject to approval, to prevent large and financially powerful EU countries from strengthening their industries at the expense of others. These concerns are now being abandoned, making it easier for EU member states to compete in the impending "subsidy race" with the USA and China. The rules for EU competition policy, which were intended to prevent the formation of overly powerful corporations, are also being weakened. "Currently, we have a competition policy that produces national dwarfs," grumbles French Finance Minister Éric Lombard.
The liberalization program thus contains political dynamite. The emergence of dominant companies in Europe could lead to disadvantages for consumers. European countries have protected their strategic sectors — energy, telecommunications, armaments, banks — because they feared being losers in a liberalized EU market and thus losing access to their strategic industries. Thus, the German government vehemently opposed the takeover of Commerzbank by the Italian Unicredit.
"One of the greatest challenges is the trust deficit between member states, for example, the concern that in times of need, equipment may not be available or a European country might refuse to deliver it," acknowledges the Letta Report, while simultaneously stating that such national claims are incompatible with the project 'Global Power EU': "Either we rely on strategic scaling and deeper integration to assert our global leadership role, or we risk being marginalized in a world shaped by competition and changing power dynamics."
- To sustain its global power status, the EU aims to strengthen its economic position by focusing on the completion of the EU internal market, eliminating national barriers, and comprehensively liberalizing the market, enabling European companies to compete globally against US and Chinese rivals.
- In line with this goal, the EU plans to centralize capital in key sectors such as finance, energy, and electronic communication, creating powerful European companies that can attract foreign investment, foster innovations, and project a strong image of the EU on the global stage.
