Last Updated 27 Jul 2020

The Single Market: origins and development

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Beginning in the 1980s, the European Community embarked on a programme of deeper integration, to establish a single market covering goods and services and the movement of labour and capital. The aim was to go beyond a mere customs union (the elimination of internal tariffs and a common external tariff). Political aims were an important motivation, economic considerations - specifically, the desire to enhance the collective, economic performance of the member states were instrumental.

Neo-functionalism: is not a very convincing explanation of the emergence of the Internal Market Programme because it followed a long period of stagnation rather than increasing integration. The explanations seem to lie elsewhere. Neo-functionalism does, however, have an important role to play in explaining the renewed integration momentum that followed the Internal Market Programme

Pressure groups and lobbying: big business, particularly in the shape of the Round Table of European Industrialists, had become convinced that the fragmentation of EC into separate national markets was a factor behind their declining competitiveness on increasing global markets. They wanted a single market where long production could be achieved, lowering costs and spreading research and development expenditure. This was an effective lobby group because the size of businesses involved Phillips, Volkswagen, Fiat etc. , meant close connections to national governments, in addition these groups had very good links with the Commission.

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In the UK the City close to the Conservative government and Prime Minister Margaret Thatcher was convinced that a single market would allow them to sell financial services across the EC. Intergovernmentalism: national government had become convinced that the single market would be in their national interests. This was most obviously the case for the UK but also applied to other countries as a result of pressure from big business. Some governments, e. g. Helmut Kohl in Germany, believed further integration was a good thing in itself. Two other factors combined to convince governments of the desirability of the single market.

The invariably awkward partner the UK was more amenable to new EC policies as a result of the solution of its budget problem in 1984. The other factor was that the single market fitted with the prevailing conventional wisdom over economic policy. The paradigm shift in economics that began in the early 1970s had resulted in the almost complete ascendancy of monetarist theory and the desirability of free markets brought about by deregulation. From 1945-70 Keynesianism dominated with governments convinced that their intervention in the economy was enhancing economic welfare.

Monetarism suggested that governments should refrain from intervention and ensure that markets were as competitive as possible. Crucial in this respect was the conversion of the Mitterand government in France which started its term of office with a socialist interventionist programme but as a result of a series of macroeconomic crises completely changed its economic policy orientation. Economic Theory Theory of customs unions: the elimination of tariffs and quotas was largely completed in 1968, so it was non-tariff barriers that were to be eliminated by the Internal Market Programme.

This intensification of economic integration would lead to static and dynamic effects, as explained in Lecture 2. There were reasons to expect that the economic impact of this intensification of economic integration would be large. These were to do with the nature of non-tariff barriers and the effects of their elimination. Non-tariff barriers: Any non-tariff government policy measure, which intentionally or unintentionally alters the amount or the direction of trade.

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