20 years after Cecchini
What have policy makers & business learned about
European Integration from Economic Analysis
Department for Business, Enterprise & Regulatory Reform
University of Sussex
17th July 2007
Several Questions
•
What have policy makers learnt about European integration from Econ
analysis
•
What have business learnt about European integration from Econ
analysis
•
What have they learnt from other sources ?
University of Sussex
17th July 2007
Reminder What Cecchini said
–
Uncontroversial Removal of border barriers
–
Scale economies
–
Frontier delays
–
Public procurement
–
Supply side effects ,changes to corporate behaviour in more competitive
markets
–
Liberalise & integrate financial mkts
University of Sussex
17th July 2007
Underlying economics is simple, assessing the
prize isnt
•
Fundamental economic concept behind Single market always well known
Size of barriers and therefore benefits of getting rid of them was not in some cases still
isnt.
Assumptions that lie behind benefit calculations
University of Sussex
17th July 2007
Whats it worth ?
•
4.25-6.5% of EU GDP a massive prize
•
Was that right or not?
•
How much actually captured
University of Sussex
17th July 2007
Large potential gains from EU reform…
Long run effects of more competition-friendly policies in the
Euro area (percentage deviations from baseline)
[source: IMF]
Total
GDP
Labour market Product
markets
5.6
4.3
Consumption
5.5
3.4
9.1
Investment
5.7
12.1
18.4
Unemployment
=> -3.5
=> -3.0
=> -6.5
10.0
University of Sussex
17th July 2007
Microeconomic indicators: Entrepreneurial culture
University of Sussex
17th July 2007
Extent of intervention in product and labour markets, 1985
and 2003 (synthetic indicators).
University of Sussex
17th July 2007
The EU Directive on Services in the
Internal Market
•
Response to 2002 report “The State of the Internal Market for Services”
•
Aims to increase trade by reducing the regulatory burden on service
providers
•
Copenhagen Economics (2005) suggests significant economic benefits
to be made
University of Sussex
17th July 2007
the 2005 study
Impact of EU15 market opening 1990-2000:
•
Welfare: +1.9%, +€98bn; jobs: +500,000
•
Main gains in: telecoms and electricity
Methodology:
•
Quantified measure of market opening
•
Model to link MO, productivity and prices
•
CGE simulation for sector impacts
University of Sussex
17th July 2007
Further market opening potential
University of Sussex
17th July 2007
the Market Opening Index
•
5 - 12 Market Opening Milestones per sector
•
Score & weight for Index: sector/year/country
•
2003: telecom 0.7, postal 0.35 (scale: 0 – 1)
•
OECD’s REGREF: fewer inds, similar results
•
New research updated MOI to 2006, and modelled the benefits of
EU15 full opening (i.e. scores of 1)
University of Sussex
17th July 2007
methodology: CGE model etc
•
parameters from 2005 study to see how full market opening affects
sector productivity and price for 2 scenarios
•
apply price and productivity scenarios to CGE model for give economy
wide impacts
•
multi-regional CGE model representing EU-25
•
>275,000 firms in 19 Member States from Amadeus database
University of Sussex
17th July 2007
Linear vs pessimistic assumptions
University of Sussex
17th July 2007
What govts have learnt (1of 2)
•
Big benefits
•
Hard to remove barriers
•
Consumers don’t value benefits as much as firms value losses
•
Legislation is not enough
•
Need to battle using regulators
University of Sussex
17th July 2007
What governments have learnt (2 of 2).
Removing tariffs is a tiny part of the reform process
•
Lisbon Agenda
•
Services Directive
•
EU Energy policy
University of Sussex
17th July 2007
UK view
– continue leading role for competition
– outward facing to maximise benefits
– future EU action based on specific policy points, not Directives
University of Sussex
17th July 2007
What Cecchini didn’t cover
•
Enlargement
•
Globalisation
•
Dis-aggregation of production
University of Sussex
17th July 2007
What business has learnt
•
Single market links to other issues
•
Euro
•
Accession
•
Disaggregation of production
University of Sussex
17th July 2007
Why most business & consumers aren’t
engaged enough
•
Slow
•
Cumbersome and legalistic
•
Don’t need to be
•
Fixes continue