The European Single Market is the main pillar of the European Union – one of the world’s largest and most successful organisations. In 2019, the Single Market contributed more than 15% of global GDP.¹ It also provides millions of jobs and investment opportunities for individuals and businesses in the UK. In today’s article, learn more about the European Single Market and its benefits for the regional economy.
European Single Market Definition
The European Union is the political and economic union of 27 countries in Europe. The central pillar of the European Union is the European Single Market, which allows its members to trade with each other without restrictions or tariffs.
The European Single Market is the union that eliminates trade barriers between the 27 European member states.
The European Single Market was officially established on 1 January 1993. It is also referred to as the Single Market or Common Market.The Single Market is based on four central freedoms, which you can see in the figure below.
Figure 1. Four Freedoms of the European Single Market
Among the EU member states, there are:
No tariffs and quotas on traded goods and services.
No visa restrictions for EU citizens who wish to live and work in another EU country.
Free transfer of capital for companies and individuals.
Countries in the European Single Market
The end of World War II marked a new beginning in Europe. To promote economic growth in the region, six countries of the European Coal and Steel Community (France, Italy, the Netherlands, West Germany, Belgium, and Luxembourg) signed the Treaty of Rome establishing the European Economic Community (EEC) in March 1957.
The EEC was later renamed the European Community (EC) to represent a broader scope than just economic cooperation.
The number of members grew steadily over the years. The United Kingdom, Ireland, and Greece were the first countries to join the EU that were not founding members. All three countries joined in the 1970s. Portugal and Spain joined around 1986. The EU proliferated between 2000 and 2009, with 12 more countries joining. Croatia became the EU’s 28th member in 2013 before the United Kingdom voted to leave in 2016, bringing the membership down to 27.
While the EU promotes internal trade in Europe, only a few countries, such as Switzerland, Iceland, Liechtenstein and Norway, have some access to the single market.
The EU has three main bodies: the Parliament, the Council of the EU, and the European Council. The European Parliament is the main legislative body of the EU, which is responsible for discussing and passing laws. The Council of EU is the platform for leaders of EU members to enact laws and approve budgets for policy implementation. The European Council is to be distinguished from the Council of the EU. The European Council is the institution in which EU leaders discuss the political priorities of the EU.
European Single Market success and important milestones
The European Single Market is a great economic success story.The countries of the EU are among the richest in the world, with total GDP representing 15.4% of global GDP (2019). GDP per capita ranges from 10,776 euros to 110,261 euros.1
As a result of the ‘Four Freedoms’, intra-trade accounts for a large share of trade activity within Europe. In most member states, between 50% and 75% of goods are exported to other EU countries.2
The vibrant economic scene of the Single Market also creates numerous jobs and sources of income for EU residents. Today, millions of working-age people live and work in an EU country other than their own.Here are some important milestones that contribute to the EU’s success:
Figure 2. Important milestones of EU, StudySmarter
European Single Market: Treaty of Rome 1957
The Treaty of Rome is the agreement that established the European Economic Community to promote economic growth in Europe after World War II. It was founded by 6 European countries, namely France, Italy, the Netherlands, West Germany, Belgium and Luxembourg. In addition to the Treaty of Rome, the Euratom Treaty promoted European nuclear energy research and ensured security of supply.
European Single Market: Single European Act 1986
The Single European Act was the first revision of the Treaty of Rome since 1957, aiming to remove all trade barriers within the EU by introducing four freedoms: freedom of goods, services, capital and labour. The Single Market is one of the most important pillars of the EU and contributes enormously to its success on a regional and global level.
European Single Market: The Maastricht Treaty 1992
The Maastricht Treaty was concluded in the Netherlands in 1992. It expanded the scope of the EU to include more than just economic cooperation. Thus, in addition to economic policy, issues such as consumer protection and social development are brought into EU discussions. The treaty also established the European Central Bank with a common monetary policy and set the goal of introducing the euro as the official EU currency within ten years.
European Single Market: Euro
The euro (€) became the official trading currency between EU countries in January 1999 and was in public use three years later. However, only 19 of the 27 EU member states have adopted the euro as their primary currency.
Benefits of the European Single Market
The European Single Market brings many benefits to businesses and consumers within the EU.
Among the benefits for businesses are:
Access to a large and affluent customer base: businesses can sell goods and services to over 450 million customers who reside in EU countries and earn an average of $32,997.35 per capita (2019).3
Lower production costs: companies in the single market benefit from economies of scale, as large-scale production allows them to manufacture products at lower unit costs.
More hiring opportunities: employers in the EU have access not only to their country’s talent pool but also to that of the other 26 countries in the single market. Thanks to the free movement of workers, they can also avoid complicated visa procedures when recruiting new employees.
More investments: the EU is home to many of the world’s wealthiest banks, financial institutions and investment pools. As a result, companies in the EU have a greater chance of raising capital for their financial needs.
More competitive products and services: without tariffs and quotas, goods in the EU trade at a much lower price, making them more competitive than imported goods from outside the EU.
As a result, consumers have the following benefits:
Lower prices: with eliminating tariffs and trade barriers, customers in the EU enjoy cheaper goods and products from other EU countries.
A wider choice of products: as the EU emphasises economic cooperation between member states, EU citizens within the single market enjoy cheaper and a wider choice of goods and services.
Professional flexibility: since there are no visa restrictions, EU citizens can work whenever they want.
Challenges of the European Single Market
Despite its size and influence, the European Single Market faces constant environmental challenges. Among the biggest challenges in recent years are Brexit, the shift to digitalization, and the Covid-19 pandemic:
- Brexit is the United Kingdom’s exit from the European Union on 31 January 2020, with many short- and long-term implications for the regional economy and business landscape. An upcoming challenge for the EU is to mitigate the negative impacts of Brexit while reaching an agreement with the United Kingdom to continue its long-term trading relationship.
- Digitalisation is playing an increasingly important role in business. Therefore, another critical challenge for the EU is to create a favourable environment for companies operating in the digital age. While some strategies have been developed to achieve this goal, much remains to be done to ensure a smooth digital transformation in the region.
- The Covid-19 pandemic that began in 2019 took a toll on the global economy. As countries were forced to close their borders, international trade came to a standstill. Business activity declined, and many companies went bankrupt due to falling sales. The European Union will have to make great efforts to help its members recover from the pandemic in the coming years.
European Single Market - Key takeaways
References:
1. Aaron O’Neill, European Union: Share in global gross domestic product based on purchasing-power-parity from 2016 to 2026, statista.com, 2021.
2. Eurostat, Intra-EU trade in goods – main features, ec.europa.eu, 2021.
3. EU20, Europe’s Single Market, eu2020.de, 2020.
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