Liberalizing European Services Would Boost Growth: Study

Fully implementing the bloc’s services directive would raise European growth 2.3 percent.

View of the Piazza del Duomo in Milan, Italy, November 24, 2009
View of the Piazza del Duomo in Milan, Italy, November 24, 2009 (Bjørn Giesenbauer)

Further liberalization of service industries in the European Union could raise economic growth for the bloc 2.3 percent or nearly €300 billion per year, a British study released on Wednesday suggested.

The European Union’s services directive, enacted while the Dutchman Frits Bolkestein was internal market commissioner, has already added €100 billion in growth since its implementation. But there remains much to be done, says the Open Europe think tank in a report (PDF).

Leaders of Northern European countries, including British prime minister David Cameron and the Netherlands’ Mark Rutte, as well as Mario Monti who was then Italy’s premier, urged further services liberalization in February of last year to help Europe emerge stronger from its present financial woes.

Greece and Portugal have been forced to implement services reform according to the Bolkestein Directive as a condition for the bailouts they received from other European nations and the International Monetary Fund. “Logically, the very same reforms should happen at the EU level,” argues Open Europe’s director Mats Persson.

“Governments now have the chance to show they’re committed to ‘more Europe’,” he suggests, “in the area where it really matters — reigniting economic growth and boosting employment.”

Services account for some 70 percent of the European Union’s economy but only 20 percent is transnational. Companies should be able to provide their services in another European country under the laws of their own but many barriers remain. According to the European Commission, up to eight hundred types of business activities are “reserved for providers with specific qualifications” and therefore difficult to penetrate by foreigners.

Governments are especially reluctant to allow foreign competition in their energy and telecommunications markets. Small businesses are often discouraged by complicated permitting laws, different tax regimes and outright bureaucratic obstructionism.

The European Commission seeks to abolish national laws that conflict with the Bolkestein Directive and harmonize legislation for digital services across the body’s 27 member states. Progress has been slow, however, especially when leaders are preoccupied with the continent’s debt crises.

Short of further liberalizing services across the European Union, Open Europe recommends that the countries that called for deeper integration last year might go ahead on their own. Rutte suggested as much a year earlier when he said, “I am absolutely convinced the Scandics, the Baltics and other countries will be willing to group together to have the original services directive implemented.”

Participating countries would have to respect the “country of origin principle” by which service providers could operate freely abroad according to the laws of their home country. “Based on the principle of mutual recognition,” writes Open Europe, “this would make EU cross-border trade in services far less burdensome without requiring regulatory harmonization or the imposition of further regulatory obligations on firms that chose to supply services exclusively in their home country.”

The think tank estimates that full implementation of the services directive in the countries that support it would increase growth nearly 1.2 percent across Europe or €150 billion annually.

It would also put economic on top of political pressure on the remaining European Union states to liberalize, “as there would be greater and more open competition between different member states’ services sectors.”

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