Since 1992, increasing European integration within the EU single market has been having a positive impact on economic growth in all founding countries. This is especially true of Germany. Between 1992 and 2012, European convergence has helped the real gross domestic product (GDP) in Germany to rise by an average of EUR 37 billion per year. This translates into an annual rise in income of 450 euro per capita. Denmark was the only country to see a steeper increase over the same period. The single market’s impact on growth varies considerably from country to country. For example, depending on how well-developed trade relations are, or how well the national economy has been able to adapt to economic developments within the EU. As a general rule, the deeper the integration, the more economic benefits we see. These are the results of a recent study conducted by Prognos AG for the Bertelsmann Stiftung.
The highest rates of integration-related GDP growth out of all of the founding countries within the EU single market were in Denmark, with 500 euro per capita per annum. Germany ranks second, followed by Austria (280 euro), Finland (220 euro) and then Belgium and Sweden (both 180 euro). However, southern EU countries saw significantly lower growth. The average annual rise in income which can be attributed to deeper European integration is 80 euro per capita in Italy, 70 in both Spain and Greece, and 20 in Portugal. European convergence above all helped those countries which have very tight-knit economic ties with the other EU countries and which have therefore also experienced economic fluctuations which are in line with the average across the EU.
A single market based on free movement of goods, persons, services and capital, plays a vital role in European integration. These four fundamental freedoms remove trade barriers between the countries involved and make imports cheaper, which in turn boosts consumer purchasing power. In this way, the single market allows companies to produce for a larger market and further reduce prices thanks to mass production. Moreover, cross-border mobility of workers and capital mean that production factors can be deployed in areas where they can be of greatest value, again providing additional growth stimulus.
The main goal in creating a common market was to bring citizens greater economic prosperity. Our common market has achieved this goal. “The EU single market is the heart of European integration and boosts economic growth in all EU Member States,” says the Bertelsmann Stiftung’s Economics Expert Thieß Petersen. The positive effects of greater EU integration, which the study proves in the long term, should encourage the EU to further deepen the single market.
There are perspectives for stimulating further growth, particularly by expanding the European service and labor markets. The common market for goods already functions very well, whilst the service sector leaves much to be desired. Although services currently account for 70 percent of European GDP, they only account for 20 percent of cross-border trade between EU countries. Suitable measures to stimulate cross-border service provision within the EU would be a better standardization of services and the full implementation of the Services Directive. Furthermore, a quick and unbureaucratic recognition of home country qualifications and degrees, better cross-border information about job vacancies and an improved portability of social security benefits could increase labor mobility within the EU.
In order to quantify the European single market’s impact on growth, the study measured European integration based on its own index. This showed how close the economic ties are between different countries. The index was calculated for the period between 1992 and 2012, for 14 Member States out of the EU-15 (it has not been possible to build up a reliable index for Luxembourg due to large data gaps). Using regression analysis, this study undertook an econometric evaluation of the impact that any increases in the integration index may have had on real GDP growth rates per capita. The later stage involved calculating how the GDP per capita in the 14 countries would have developed, if European integration had not progressed since 1992.