To restore European competitiveness, the EU needs no new powers

By
Pieter Cleppe
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Last week’s EU summit, which was dedicated to the EU’s slipping competitiveness, witnessed high profile reports from two former Italian top politicians: Former PM Enrico Letta presented his comprehensive report on EU competitiveness, where he urged EU governments to create a “state aid contribution mechanism”, to finance “pan-European initiatives and investments”. Former ECB President Mario Draghi has not yet published his report, dedicated to reviving the European economy, but some kind of preview revealed how it was going to be yet another demand for more EU spending, debt and transfers. In February, Draghi estimated an extra €500 billion per year was needed to close the “investment gap” for the digital and green transitions alone.

At least, Draghi added that two-thirds of this should come from the private sector. Also somewhat consoling is that he acknowledges how outside of Europe, energy-intensive industries face lower energy costs and a lower regulatory burden. None of this is obvious at the top EU policy level, or among EU leaders, where greater transfers of powers to the EU level seem the only method to deal with restoring European competitiveness.

Also at last week’s EU Summit, a French proposal to open up the EU’s capital markets – a fine idea – was accompanied with calls to shift more powers to EU financial regulator ESMA, which is based in Paris. Thankfully, this was opposed by a majority of member states, who attacked it as a Brussels power grab, but it goes to show how the debate is stuck.

The obvious alternative response is to end the energy experiments undertaken at the highest European level, imposed upon all too willing EU member states and a fundamental review of the EU legislative process, which likely is going to require restoration of veto powers, to make it much harder to agree any regulatory harmonisation, and to incentivise opening of markets via mutual recognition.

Revitalising the single market

In that respect, a new report by Epicenter, a network of European free market policy think tanks, is worth reading. It is dedicated to “revitalising the single market for the next 30 years”, stressing: “Let’s put what made Europe previously successful back into focus.”

According to the report, “the Single Market needs ambitious goals, by dismantling anti-growth barriers all EU citizens can reap the rewards of sustained economic prosperity”. This because “fragmented permitting regulations are stifling market efficiency, hindering growth opportunities and innovation. (…) Harmonizing permitting processes could reduce compliance costs for businesses by up to 30%, freeing up resources for investment and expansion.”

In particular, it laments that “rising state aid, fueled by green subsidies, is a grave threat to fair competition in the Single Market.”

Its key recommendation: “Instead of spending billions of taxpayers’ money, policymakers should liberalise labour markets and services sectors to enhance competitiveness.”

In particular, the report discusses how “services trade restrictions are suffocating growth, with Central & Eastern Europe particularly impacted. (…) Exports between EU members make up between 56% and 80% of CEE countries’ exports, unlocking businesses would allow us to unlock billions in untapped trade revenue.”

Furthermore, it suggests labour market liberalisation, by scrapping occupational regulations, “as strict licensing requirements are directly correlated with increased unemployment” as well as “expensive licensing requirements”.

Importantly, it also singles out new EU obstacles to innovation, describing how “the Digital Markets Act and AI Act are two of the many EU laws turning tech companies away.”

Linking trade negotiations to an environmental agenda

Also when it comes to opening up external trade, between the EU and the rest of the world, it is a bad idea to entrust the EU with extra powers. In fact, the EU has been attempting to acquire these, by increasingly linking trade deals with all kinds of detailed policy instructions it wants its trading partners to adopt.

Other countries are increasingly questioning EU’s use of trade policy to act as a “global regulator”, according to the EU Commission’s own director general for trade, Sabine Weyand. It is indeed fair to ask eurocrats “Who made you world regulator?” as economies from Latin America to South East Asia do.

Also EU member states have woken up to the problem. Last week, Sweden and Finland urged Brussels to get on and do trade deals, instead of tying them to its environmental agenda. Both countries are frustrated by a lack of progress on trade deals. In a policy paper, digged up by Politico, they complain about the EU’s “more defensive and restrictive” trade policy, writing:

“The EU runs the risk of being seen as an economically less relevant and more defensive actor by our trading partners. (…) To reverse this trend and to maintain the EU’s position as one of the leading players in international trade and regulatory policy, we must find a new balance and level of ambition in our trade policy.”

In particular, they also urge to deepen ties with the Asia-Pacific region, including with trade blocs such the Indo-Pacific CPTPP trade bloc, which represents countries accounting for 15 per cent of global GDP, and the U.S.-led Indo-Pacific Economic Framework for Prosperity (IPEF).

Last year, the UK already secured access to CPTPP, after it accepted to recognize the deforestation standards of countries like Malaysia as equivalent, unlike the EU, something which led to a severe crisis and even a freezing of trade negotiations with Malaysia and Indonesia. The EU however remains deaf to any counterarguments.

Here, European policy makers seem to be completely guided by all kinds of disingenuous propaganda and false reporting on deforestation, something also promoted by a new French film called ‘The green promise’, which portrays the palm oil industry in Southeast Asia as criminal. The film thereby simply violates the facts. For example, it ends with the message that “deforestation is accelerating”, a  quote from the World Resources Institute. The quote however applies to global deforestation, not to the specific situation in Malaysia and Indonesia, of which the same World Resources Institute concluded last year that a sharp decline in forest loss can be observed, praising both countries in their success against deforestation. In fact, an estimated 93% of palm oil imported into Europe is sustainable and does not cause deforestation. Alternatives like soy on the contrary, require a whole lot more land, pesticides and energy.  To have the general public falls for this is one thing, but one would expect better from EU policymakers.

Conclusion

Both when it comes to revitalising the single market or no longer tying trade negotiations to a specific environmental agenda, the EU is not in need of extra powers. Yes, it is true that EU member states would still need to be convinced of this agenda, but the very first step should be for the EU institutions, primarily the European Commission, to go against its own impulses and stop asking for more power like a broken record.

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