On January 1, 1993, the European Single Market came into being. The previous October, British Prime Minister John Major had looked forward to “a single European market of 330 million people…A market for British computers. British cars. British televisions. British textiles. British services. British skills. The biggest free trade area in the world.”
By eliminating trade barriers within the European Economic Community, the Single Market would boost trade, economic growth, and, perhaps, political integration. These hopes have not been borne out.
A report from the International Monetary Fund (IMF) in October found that while intra–European Union trade in goods increased from 11 percent to 24 percent of the European Union’s Gross Domestic Product between 1993 and 2023 compared to 8 percent to 15 percent for extra–European Union trade, intra–European Union trade in services — which account for 72 percent of the EU’s GDP — had grown at exactly the same rate as extra–European Union trade. Indeed, trade between EU countries is less than half that between US states.
What accounts for this? As Luis Garicano, a former member of the European Parliament, notes in “The myth of the single market,” “The IMF puts the hidden cost of trading goods inside the EU at the equivalent of a 45 percent tariff. For services the figure climbs to 110 percent, higher than Trump’s ‘Liberation day’” tariffs on Chinese imports.”
“The Single Market we all thought we have is largely a myth,” concludes Garicano, who gives three reasons for the Single Market’s failure.
First, the principle of “mutual recognition,” which “states that whatever can be sold legally in one EU country can be sold in all others,” “fails in practice,” he writes. The principle “was never absolute,” he continues:
The EU’s treaties…do allow countries to block products for legitimate reasons like public health, security, or environmental protection. But these exceptions were supposed to be just that — exceptions, not the rule. The problem is the cost of enforcing the rule when a country claims an exception.
Among several examples:
Every product sold to French consumers must bear the national “Triman” recycling logo plus detailed sorting instructions specific to France. AkzoNobel’s paint cans fully meet EU chemicals and food-contact rules, but a single paint tin still has to carry France’s Triman recycling logo, Spain’s “Punto Verde,” and Italy’s alphanumeric material code. Space on a 1-liter tin is so tight that the firm now holds separate stocks for France, Spain, and Italy.
Second, “The EU directives do not harmonize EU legislation.”
“There are two problems,” Garicano writes:
…first, rather than replacing national regulations, EU rules pile on top of them. Second, member states often engage in ‘gold plating’ – adding extra national requirements when implementing EU directives.
The result is that even when the EU does create common rules (directives or regulations aiming to harmonize), the outcome is often not a truly single market. New EU rules often don’t replace old national ones. Instead, they create additional layers of regulation.
As an example, he offers General Data Protection Regulation:
…which (in spite of being a regulation) still means we have regulators at EU, national and regional level. In January 2022, Austria’s data-protection authority held that NetDoktor’s use of Google Analytics breached the GDPR, and ordered the site to disable the tool or face fines. A few weeks later, the French data protection authority (CNIL) issued parallel decisions against three French websites, again declaring Google Analytics unlawful and instructing each operator to switch to an EU-hosted alternative. In June 2022, Italy’s authority (Garante) imposed the same ban on Caffeina Media, threatening to suspend its data flows to the United States unless it rewired its analytics stack within ninety days. A publisher that trades across the EU must now keep separate analytics setups for Austria, France, and Italy, while the same tool remains legal elsewhere. The Draghi report notes that there are around 90 tech-focused laws and more than 270 regulators active in digital networks across all EU countries. So much for the single market!
Finally, “The EU Commission is not doing its job in enforcing the Single Market.” “[E]xplicitly charged with ensuring the application of the Treaties,” Garicano writes, in the twelve months to December 2024, “the Commission opened just 173 new cases – only a quarter of the volume handled a decade ago.”
“There’s a paradoxical evolution in the Commission’s role,” he notes, “As it has taken on additional functions in areas like housing, defense, and geopolitics (the first von der Leyen Commission termed itself a “geopolitical commission”), it has retreated from its core task of policing the single market.”
An optimist might infer that the problem here is not too much EU but too little: the Single Market hasn’t delivered on its promises because it isn’t sufficiently “single.” A pessimist might note that if this hasn’t happened in more than three decades, it is unlikely to begin anytime soon. Yet another hefty report or review is unlikely to get the needle moving.
This is bad news for John Major’s successor, Kier Starmer. With his government faltering less than a year into office, he has sought a new deal with the EU to improve Britain’s terms of access to the Single Market.
But services account for a relatively high 54 percent of British exports compared to 33 percent for the United States and just 31 percent for the EU, and this is exactly the sector in which the Single Market is most completely a fiction. This probably accounts for the British economy’s stubborn refusal to collapse in the wake of Brexit: whatever small benefit there is to being locked into a Single Market with a bunch of torpid economies is reduced still further when there are high barriers to you selling your main export to them — barriers that don’t appear to be going anywhere anytime soon.
If Starmer is hoping that his new terms of access to the “biggest free trade area in the world” will offset the economic harm done by his government’s disastrous fiscal policies, he is likely to be mistaken. It’s a myth.