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Europe, globalisation and the Single Market: Lessons and comparisons

Single market / COMMENTARY
Fabian Zuleeg

Date: 11/03/2008
Fears of the consequences of globalisation regularly capture media headlines in Europe, with some governments calling for stronger measures to protect EU citizens from its impact. The recently announced closure of a Nokia plant in Germany in favour of investment in Romania has, for example, fuelled the debate over how best to protect citizens against job losses associated with global trade and investment flows.
Yet most economists agree that in the longer term, closer international economic integration delivers economic benefits. This was highlighted in a recent CESifo study, which also suggested that the overall impact of globalisation on European jobs may well be positive. The European Commission also estimates that between 1992 and 2006, the Internal Market added 2.25% to the EU-25’s GDP and created 2.75 million jobs.
Yet many EU citizens are fearful of globalisation: a recent Financial Times/Harris poll in France, Germany, Italy, Spain and the UK suggested that significantly more people think it is having a negative impact on their country than regard it as positive. In contrast, even though the four Single Market ‘freedoms’ go well beyond those implicit in globalisation, a 2006 Eurobarometer poll suggested that more than 70% of EU citizens are positive about two of them at least – the free movement of products and workers.
So why the difference in attitudes, given that the socio-economic impacts of the Single Market and of globalisation are somewhat comparable? While both deliver economic benefits, they also create winners and losers, involve adjustment costs and can hamper the job prospects of certain groups such as low-skilled workers in countries which have not reformed their labour markets.
First and foremost, the Single Market was a deliberate step in European economic integration. It was based on a consensus and commitment (even former UK Prime Minister Margaret Thatcher supported it) and its implementation had clear political ownership – the Commission. The aim was, and is, to create a level playing field in Europe, with commonly agreed rules and standards upheld by common supranational bodies. Furthermore, EU Member States’ social systems aim to support those who lose out and have policies for retraining the low-skilled.
But while the Single Market has a social component, embodying a shared European objective, globalisation does not. That helps explain why the latter is viewed by many with a sense of helplessness; as a global tide which individuals and even governments can do little to reverse. Globalisation is taking place much faster than European economic integration, and the recent rise of large economies with low labour costs such as China seems to directly threaten employment in many sectors.
The Single Market’s benefits are also generally more visible than those from globalisation – being able to study abroad or paying lower roaming charges have a direct impact on many EU citizens and are regularly trumpeted by policy-makers.
Furthermore, the Single Market experience suggests that as such benefits become more apparent over time, fears about economic integration diminish. It is also clear that competitive pressures in the Single Market have delivered more choice, lower prices, and better-quality goods and services, which may explain why more than two-thirds of Europeans questioned in the 2006 Eurobarometer poll are positive about increasing competition in the internal market.
So is there scope for a more positive interaction with globalisation?
Ideally, global governance and standards could be improved, including a stronger emphasis on global competition policy. Unfortunately, global standards remain a significant challenge – the focus of most countries internationally appears to be on short-term gains, with little interest in long-term cooperation. Progress might only be possible in a limited number of areas, such as accounting standards, and is insufficient to dispel existing fears.
Leadership and communication were crucial components in creating the Single Market and have so far been absent from the globalisation debate. Politicians must take the lead in promoting a more positive vision of globalisation to help citizens understand what is at stake if international economic integration falters.
The current lack of positive leadership could increasingly lead to friction or even attempts to reverse the process. It might leave the door open to short-term ‘solutions’, resulting in more barriers and a loss of the benefits from global economic integration, and hence lower European growth and fewer jobs. Closely linked to this is the need for further reforms to enable countries to benefit from globalisation. Without these, its negative impacts will continue to dominate the public debate.
Europe is the world leader in regional economic integration, and has shown that it can create real benefits for its citizens and businesses. But is it ready to become a world leader in championing a more positive approach to globalisation?
Opposing globalisation is both ineffective and counterproductive. It is ineffective because no country can close its borders to globalisation without incurring significant costs, and counter-productive because a ‘Fortress Europe’ approach would isolate the EU from crucial trade and investment flows, making European businesses uncompetitive and its social models unsustainable sooner rather than later.
It might also have a knock-on effect on the Single Market. Some EU governments have already begun questioning the Single Market’s underlying objectives, such as free and undistorted competition, in part because this is seen as a ‘Trojan horse’ for globalisation. Ironically, fears of globalisation might thus lead to attempts to dismantle elements of the Single Market which have delivered so many benefits to Europe’s citizens.
But ‘selling’ globalisation must go hand-in-hand with a more decisive and consistent effort to create a more balanced and controlled economic integration process. The Single Market can act as an example to the world of how economic integration can be made to work for ordinary people – if globalisation is supported by adequate governance structures worldwide, communication of its benefits and incisive domestic reforms. But it will require visionary leadership for this message to be accepted more widely.
Fabian Zuleeg is a Senior Policy Analyst at the European Policy Centre.

The issues raised in this commentary are discussed and analysed in the EPC’s Economic Policy Forum. A new EPC Task Force on the future Single Market will also be launched in April 2008.

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