Single market dilemmas on Europe

New 5 euro banknote Image copyright AFP

For decades, many British politicians who could not agree on anything, when it came to Europe, could at least agree that the single market was a good thing. Not any more.

That is partly a reflection of how UKIP - and the eurozone crisis - have changed the terms of the European debate.

But arguably, the tensions have been there at the heart of the single market project right from the start.

For some, like the Deputy Prime Minister Nick Clegg, membership of the single market is a key economic argument for keeping Britain in the EU.

For others, like Lord Lawson, the regulatory burdens associated with the single market are a big reason why being in Europe is now doing us more harm than good.

As I pointed out last week, there is a middle way, in theory. We could be like Norway, which is part of the European Economic Area and enjoys access to the single market without being in the EU.

But, funnily enough, both sides seem to hate that idea, because we'd lose any power to shape the rules of the single market but still have to abide by them.

So, the politics of the single market right now seem rather black and white, even if the legal reality is not.

When it comes to the single market it's in or out. And for all the sound and fury, a majority of Britain's senior politicians - Labour, Liberal Democrat and Conservative - still seem to think that the economic benefits of being in the world's biggest single trading bloc outweigh the costs.

But - and this is a big but - the more thoughtful supporters of Britain's EU membership, including at least one cabinet member I've spoken to, also recognise that support for the single market is not nearly as easy as it used to be. And that is not just because of the eurozone crisis.

Four pillars

Why? Because if you believe - as Britain has always said it does - in the economic benefits of the single market, you have also to want to develop it further.

From where we are now, that is quite likely to mean more of the aspects of European integration that voters say they don't like.

Jo Johnson MP, the prime minister's new Number 10 strategist, said last year that the single market was one of Europe's greatest achievements, and completing it was "one of Europe's best hopes for economic growth".

He cited evidence that this would make the average European household 4,200 euros (£3,570) better off each year.

How, exactly, would we get those benefits? Well, here are the four pillars of the single market. You tell me which, if any, the average UK voter would like to see a lot more of:

  • Free movement of goods, persons, services and capital between member states
  • The approximation of relevant laws, regulations and administrative provisions between member states
  • EU-wide competition policy, administered by the European Commission
  • A system of common tariffs for trade outside the EU

Most of the single market's success so far has been in the free movement of goods and persons (rather too many persons, UKIP supporters would say).

Where it has made least progress is in services. Services now account for around 70% of national output in the EU but more than 90% are purchased from home-country providers.

Plumbers and management consultants

Fans say the potential gains to opening up European services would be significant - and the UK, with its more efficient and less regulated services sector, would gain more than most from opening this up to European competition.

But, to put it crudely, UK accountants and others are only going to get those benefits if we also make it easier for not just plumbers but Polish management consultants and accountants to ply their trade here in the UK.

That is indeed a crude summary. But you get the idea. Even the most Europhile ministers, looking at what would actually be involved in deepening the single market for services, wonder whether now is really the right time to push ahead.

Many would say the same applies to the second pillar - harmonisation or mutual recognition of EU laws and regulations.

This is one of the most often mentioned benefits of the project for UK companies - that they only need to comply with one set of standards or regulations in producing and selling their products, rather than 27.

In the past the UK has preferred to do this through mutual recognition of other members' standards, rather than hammering out one harmonised approach.

But in practice, the single market involves both. So here, too, extending the single market is likely to produce more examples of "Brussels meddling" for Eurosceptics to pounce on - even if it also produces benefits for UK consumers and companies.

Or, there's the especially thorny issue of creating a single market in financial services, another British strong suit which has been greatly complicated by the eurozone crisis. Not to mention promoting the "free flow of capital".

It has been a while since the UK government felt able to push for these things in Brussels with any real enthusiasm.

Arguably, when it comes to banking regulation, the UK has become more nationalistic, in the wake of the financial crisis, not less.

Does all of this mean that Nick Clegg is wrong and Lord Lawson is right - that the single market is now more trouble than it's worth? Not necessarily. It does suggest that supporting the single market is no longer the soft option.

For decades, members of the UK establishment who didn't want a United States of Europe could agree that they did want a single European market - including, famously, Margaret Thatcher, who signed the Single European Act into law all those years ago.

Many in Whitehall and the broader business community would say the same today. But promoting the single market today is far from being the path of least resistance on Europe - and perhaps it never was.