Year XXX, 1998, Number 2, Page 104
THE COST OF NON EUROPE
The Cecchini Report on the advantages of a single European market recently was published by the EEC Commission.
The Report estimates the cost of non-Europe at 200billion Ecus. The construction of the single European market in 1992 will, per se, give rise to a 4.5 per cent increase in GDP, a 6 per cent fall in prices and the creation of two million new jobs. These advantages could be further increased if economic policy measures, designed to harness the development potential of the single European market to the full, were adopted. If this were the case, GDP would increase to 7 per cent and five million new jobs would be created.
These data simply confirm what we all knew only too well already. It is, however, important to have precise data, which clearly measure the cost of non-decisions since they cut out any chance of an alibi for those who continue to hold back the construction of the European Union. The non-fulfilment of the single market has cost, and continues to cost, European citizens billions and billions in superfluous expenditure and missed opportunities.
The Report does not merely quantify the high costs we currently pay in customs controls which divide the European economy into twelve national markets but also calculates the value of the immediate advantages a single domestic market would bring. These advantages are greater economic development, the creation of new jobs, the possibility for companies to improve productivity and profitability, greater mobility of productive factors, guarantees of price stability, and greater freedom of choice for the consumer. The direct cost of customs formalities and the administrative costs that derive from them, for both the public sector and the private sector, is about 1.8 per cent of the value of goods traded in the Community. To these costs must be added the costs industry has to bear as a result of other barriers such as technical measures and, in general, non-tariff barriers. These additional costs would appear to be in the order of 2 per cent of overall industrial costs. All in all, the cost of the barriers that divide up the European market is equal to about 3.5 per cent of the Community’s industrial added value.
Even more significant are the advantages arising from the unification of the European market. In particular, the companies in the service sector which are currently subjected to controls limiting their sphere of action to the national level could benefit from the greater percentage reductions in costs and prices, for example companies that operate to meet public demand, electricity-generating companies, transport companies, companies specialized in the defence sector, etc. Other examples include holding companies, which so far have had predominantly national proportions as a direct consequence of the lack of a European market for capital. This is also true for airline and air freight companies which until now have operated with heavy restrictions and a national division of the market. The creation of a single market will bring these companies cost reductions in the order of at least 10-12 percent, and in some cases much more.
The Report reveals that potential economies of scale which have not yet been exploited by the European companies are substantial. The creation of a single market will allow concentrations, productive rationalizations, greater specialization, a more advanced division of labour. The estimate given in the Report is that about a third of European companies will be able to achieve greater economies of scale and hence substantial reductions in production costs. These reductions will vary, from sector to sector, from between 1 and 7 per cent. Overall, the reduction of costs for the European economic system will be 2 per cent of domestic GDP.
To assess the impact of the creation of the single European market, we need to bear in mind that these figures merely consider the phenomena which are easiest to quantify in the short term. These figures will prove to be an underestimation of the real impact, since they exclude certain advantages that unification will produce in time, such as the diffusion of innovation, the development of competition, the development among companies of strategies for internationalization, the birth of European companies, etc. Without going into detail on the Report, some very basic features emerge very clearly.
1) Even if we limit ourselves to the immediate impact that 1992 will have on the economy, the cost of non-Europe that we are paying for now is absolutely absurd. This cost is equal to about 700 to 1400 ECU for every European citizen.
2) The benefits brought by the construction of the single market will help to contribute decisively to the solution of the greatest problems of the European economy, primarily unemployment.
3) For 1992 to produce these effects, it is indispensable to guarantee that Europe has monetary stability, i.e. the construction of a true monetary union is indispensable, with the creation of a European Central Bank.
4) The greatest advantages of 1992 are the faith that this goal has diffused among Europeans. European entrepreneurs believe in 1992, are betting on it and are thereby giving a decisive contribution to its realization.
When a goal is realistic, it is sufficient very often to create a goal and it will be achieved. The decision to pursue a goal is sufficient to create the energy required for its fulfilment. This is true for 1992. It is even truer for the creation of the European Union, on which depends the start of a new long-term cycle of development of the economy and society.
The true cost of the non-Europe is this: renouncing a long-term cycle of development, for Europe and the world. The fact is that the goal of 1992 marks a stage in the process of integration in Europe. Since the end of the Second World War we may say that this process has been characterized by a development which can be subdivided into three phases, with profoundly contrasting features: the years of European growth, the years of stagnation, the pre-federal union phase. The completion of the single domestic market in the 1992 may mark the start of the fourth phase: European Union.
The first cycle occurred in the fifties and sixties and came to an end in 1968, with the completion of the customs union. The absence of any European initiative in the seventies marked a long period of no growth condemning the economy and society to stagnation, the consequences of which we still bear.
The third phase began with the direct elections to the European Parliament and with the launching of the European Monetary System, and is still continuing. It is characterized by an attempt to transfer powers from a national to a European level and to draw up a pre-federal institutional framework which manages the economy and European society in an increasingly unitary way.
The completion of the single domestic market is destined to raise the problem of European currency and European government so strongly that it will not be possible to sweep it under the carpet. In other words it concretely raises the problem of a new phase of the process of integration, with a constituent nature.
The confines between the third and fourth phase are in part indeterminate. Their content will be defined by decisions that the Europeans will be able to take in the coming years. Even the moment marking this passage is undetermined, because the definitive decisions depend not only on the virtue of men, but also on luck. A quantum leap separates these two phases: it is on the basis of this certainty that we will be able to judge the proposals and the problems facing us today.
A transfer of powers and great advances in the process of integration are occurring. The success of the European Monetary System is before all our eyes. It has stood up to the process of industrial rationalization in the European countries, has made it possible to reconcile national economic policies and make rapid progress towards the creation of a European market for capital. The pre-federal phase that we are experiencing has so far been characterized by a series of decisions, each of which has achieved a transfer of powers to the European level; new intermediate steps in this direction are possible and desirable.
The goal of 1992 cannot be considered as the final stage in this process. The crucial decisions that need to be made — a European currency, the European Central Bank, the European government — have not yet been taken; a beginning to a constituent process based on the European Parliament’s initiative is what is required.
If we are unable to achieve even this, 1992 will mark the beginning of a long crisis, like the one which began in 1968.The cost of non-Europe is much greater than that calculated in the Cecchini Report.
Dario Velo
