The European Single Market and International Competitiveness

Translated by Andrea Solazzo

The cornerstone of the European single market is competition policy, which provides for strict and tough rules against monopolies, state aid and private takeovers that undermine the free market within the Union's borders.

Competition rules, included in the Maastricht Treaty of 1992 and reaffirmed also in the Lisbon Treaty of 2007, enable the proper functioning of the EU's internal market, ensuring that economic operators and companies can carry out their activities in a fair manner and without special advantages or favouritism, promoting the free movement of the so-called “four freedoms” (goods, services, people and capital) throughout the EU territory.

The main objective of the policy is indeed to stimulate companies to innovate and invest in order to succeed in the market, while ensuring equal conditions for all European industries. However, recent global trends are challenging European competition policies, strictly crystallised in Articles 101-109 of the 2007 Treaty on the Functioning of the European Union. Internationally, in fact, European industries face rivalries from large exporters, such as the US or China, which allow public subsidies or do not fight mergers or monopolies, thus posing substantial challenges to European fair competition policies.

Especially in an era driven by the digital economy and technology, where the last one has changed the way companies do business in all sectors, EU competition policy needs profound reform for the European economy to keep up with international competition. This is indeed putting a strain on European companies, as they now comprise only five of the world's top 100 companies (with the top one ranked 56th) and are late in several key areas identified by the Commission as vital for future economic growth.

Precisely on this topic, two reports have been prepared on the measures to be taken to make the European economy and Single Market more innovative and competitive on a global scale. The first report, presented to the European Council of 17-18 April 2024 by Enrico Letta, identified a “fifth freedom” of the Single Market related to research, innovation and education, to enhance its innovation capacity in the new global landscape.

On Monday, 9 September, the second report on the European market and competitiveness by another Italian, economist Mario Draghi, was presented. Draghi's analysis, a 65-page work entitled “The Future of European Competitiveness”, presents three main issues that focus on innovation and new growth engines, the process of decarbonisation and the rise of the circular economy, and geopolitical adaptation in a world where external dependencies make countries vulnerable.

Key words that resonate clearly in the former ECB President's speech are “urgency” and “concreteness”. Some 170 proposals are presented that can be implemented immediately for a radical change in Europe. The investments to be devoted to these strategies are significant, so much so that estimates envisage a commitment of double the amount of the old post-war Marshall Plan, with around 800 billion extra per year (5% of the EU's GDP).

Regarding the first point, on innovation, the report proposes reforming EU funding for research and development and accelerating the uptake of AI and other advanced technologies, addressing skills shortages through education and training reforms.

In relation to the decarbonisation plan, Draghi proposes to reform electricity markets, favouring industries specialised in the production of clean technologies, in order to lower electricity costs.

Finally, in order to reduce external dependencies, it is emphasised that it is essential to implement strategies that guarantee the supply of essential raw materials, as well as to develop internal capacities in key technologies such as semiconductors.

It is essential to close the innovation gap that Europe has with its major competitors, China and the US, especially in the areas of technology and industrial production.

In the words of the former President of the ECB, “A radical, urgent and concrete change is needed. The existence of the EU depends on it”. Indeed, as he further emphasises, “The EU exists to ensure that Europeans can always benefit from these fundamental rights. If it is no longer able to guarantee them to its citizens, it will have lost its raison d'être”. Urgent change is therefore needed, an effective and innovative change of course in order to reform the European economy to make it competitive, guaranteeing well-being for the citizens of the Union.

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