Member Article

The EU published a report on 18 April 2024, ‘Much More than a Market’.¹  The reasons behind the call for the report are the EU’s concerns that just over 30 years after its creation there are important aspects of the Single Market that are not complete, and that the world is very different to what it was 30 years ago. This difference, for example, the rise in economic power of China and India, raises the question of whether policies behind the Single Market and/or its implementation should be changed.

The report’s author, Enrico Letta, a former Italian prime minister, at the press conference on the release of the report², said he will use the report to argue the EU should pursue integration of national markets for financial services, energy and telecoms. He added that he would call for the EU merger rules to be changed to allow for more market consolidation. A key element in the report is the call for a new freedom in addition to the current four freedoms of movement of people, capital, goods and services. This 5th freedom would seek to liberalise research, innovation, data, competences, knowledge and education.

Complete the Single Market

As regards the report’s proposal to fully integrate national markets for financial services, energy and telecoms, there will be much debate and resistance to the proposed changes, from the traditional reluctance, for example, of countries to give-up ‘their’ stock exchanges (there are 130 in the EU compared to seven in the USA), and others concerned that allowing for the creation of EU global champions could also mean EU citizens facing higher prices and lower quality products/services.

For the UK, post-Brexit, the EU’s actions could raise challenges. What is the future prognosis of the relative importance of London’s global financial sector if the EU does move forward and begin to create a globally significant liquid capital resource in say Paris?

From a competition policy perspective, the UK may have to go down a similar route, relaxing its merger control rules to allow the creation of national champions that are able to compete on the global market with the existing players and the newly created EU giants that could emerge in sectors such as defence and financial services.

Arguably the UK will need to respond more quickly than its policy and legislative machinery is currently moving. The UK, for example, still has not adopted legislation intended to amend competition law to allow the regulator to address the particularities of competition regulation of the Big Tech sector³. In comparison, the EU has several major pieces of legislation addressing the subject and the US competition regulator has commenced significant litigation against some of the Big Tech players. In the UK, a parliamentary (legislative) election is foreseen within the next ten months, and pollsters predict the result will be a Labour party government. The Labour party appears to recognise UK economic health will be better through a closer relationship with the EU.

For businesses, there seems to be two possible strategies. For the larger market players, pushing the idea that bigger is better plays to their current advantage and future survival. Growth through M&A activity would be the action to undertake. For smaller players, assuming the winds of change are inevitable, changes that would help them could include a beefing-up of small-B 2 big-B protections, such as greater obligation for larger business customers to pay invoices on time, and perhaps exceptions or exemptions from the competition rules that would apply to the larger players.

The new 5th freedom

There are several goals that would result from the 5th freedom, including a European Knowledge Commons, harmonisation of cross-border data flow mechanisms, and development of European data spaces in key sectors.

The report identifies the 5th freedom should be incorporated into the Treaty on the Functioning of the European Union, specifically the part addressing Research and Technological Development and Space (Title XIX). Making treaty changes is notoriously difficult, so if the EU is to move forward with the report’s recommendations, it likely will start through soft implementation using an existing legal basis.

Assuming the EU moves forward with a 5th freedom, this will impact the UK. How the UK government of the day will respond to the 5th freedom will have important implications for UK businesses. It might be that the 5th freedom is a bridge that a Labour government uses to seek closer relations with the EU, as it would not have the historical baggage and might not have the negative tones that some in the UK attach to aspects of the Single Market.

 

¹ much-more-than-a-market-report-by-enrico-letta.pdf (europa.eu)
² Press conference by President Charles Michel and Enrico Letta on the report on the future of the single market. - Consilium (europa.eu)
³ The UK’s Digital Markets, Competition and Consumers Bill is expected to be enacted in the second half of 2024.

 

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