European single market

Based on Wikipedia: European single market

The Grandest Economic Experiment in Human History

Imagine walking into any store in Paris, picking up a product made in Poland, transported through Germany, designed in Italy, and buying it without ever thinking about tariffs, customs forms, or border inspections. Now imagine that same seamless experience repeated hundreds of millions of times every day, across 27 countries, involving half a billion people.

This is the European single market. It's not just a trade agreement. It's arguably the most ambitious attempt in human history to merge separate national economies into one functioning whole—and by most measures, it has worked remarkably well.

The numbers tell part of the story. According to estimates from 2019, the member countries' economies are on average nine percent larger than they would be without the single market. That's not nine percent growth over time. That's nine percent larger, permanently, because goods, money, workers, and businesses can flow to wherever they're most productive.

But the single market isn't just about economics. It represents a profound political choice: that European nations would surrender some of their sovereignty over trade, regulation, and borders in exchange for shared prosperity. Understanding how this came to be—and the ongoing tensions it creates—reveals much about the possibilities and limits of international cooperation.

What the Single Market Actually Does

At its core, the European single market guarantees what officials call the "four freedoms." These aren't philosophical abstractions. They're concrete legal rights that any citizen or business in a member country can invoke.

The first is the free movement of goods. Products manufactured anywhere in the market can be sold anywhere else without facing customs duties or import restrictions. A German car company can ship vehicles to Spain as easily as shipping them from Munich to Hamburg.

The second is the free movement of capital. Money flows across borders without restriction. A French investor can buy shares in a Finnish company, or a Greek entrepreneur can open a bank account in the Netherlands, without special permissions or currency controls.

The third is the freedom to establish and provide services. An architect licensed in Portugal can design buildings in Belgium. A consulting firm based in Ireland can serve clients across the continent. This freedom proved surprisingly difficult to implement and remains less complete than the others.

The fourth is the free movement of people. Citizens can live, work, study, and retire in any member country. A young professional from Romania can take a job in Denmark without applying for a work permit. A retired couple from Sweden can settle in Portugal and receive their pension there.

These freedoms don't just happen automatically. They require what lawyers call "harmonization"—making sure that each country's rules are compatible enough that the freedoms actually work in practice.

The Cassis de Dijon Revolution

The intellectual breakthrough that made the single market possible came from an unlikely source: a French blackcurrant liqueur.

In 1979, a German company wanted to import Cassis de Dijon, a traditional French digestif, to sell in Germany. German authorities blocked the import. The reason? German law required fruit liqueurs to contain at least 25 percent alcohol. Cassis de Dijon contained only 15 to 20 percent.

The case reached the European Court of Justice, which issued a ruling that would reshape European integration. The court held that if a product was legally made and sold in one member state, other member states had to allow it to be sold in their territories too. Germany couldn't ban French liqueur just because it didn't meet German standards for what liqueur should be.

This principle—called "mutual recognition"—was revolutionary. Before Cassis de Dijon, creating a single market seemed to require the impossible task of writing identical regulations for every product across every member state. How could you harmonize thousands of different product standards for everything from toys to tractors?

Mutual recognition offered an elegant shortcut. Instead of trying to create one set of rules, each country would simply recognize that other countries' rules were good enough. Products legal in Spain would be legal in Germany. Services approved in France could be offered in Italy.

There was an important exception. Countries could still block imports if they had "mandatory requirements" protecting legitimate interests like public health, consumer protection, or environmental safety. But they couldn't block products just because their domestic industry preferred to keep out competition.

The Man Who Made It Happen

By the early 1980s, the European Economic Community—the single market's predecessor—was stuck. Despite ambitious founding documents promising economic integration, member states had accumulated a tangle of incompatible regulations, hidden trade barriers, and protectionist policies. Economists called it "Eurosclerosis." Growth lagged behind the United States and Japan.

British Prime Minister Margaret Thatcher, known for her free-market convictions, saw an opportunity. She sent Arthur Cockfield, a former businessman and tax expert, to join the European Commission with a mandate to revive the common market vision.

Cockfield threw himself into the task with unexpected zeal. In 1985, he published a White Paper identifying exactly 300 measures needed to complete the single market. Not 299 or 301—exactly 300 specific barriers to be eliminated, from technical standards for machinery to professional licensing requirements for accountants.

The document was exhaustively detailed and politically astute. By spelling out precisely what needed to change, Cockfield made it harder for individual countries to derail the project. He also set a deadline: December 31, 1992. The tactic worked. Countries that might have indefinitely delayed action now faced a concrete target.

The White Paper led directly to the Single European Act of 1986, which reformed decision-making procedures to make progress possible. Previously, most decisions required unanimous agreement from all member states, meaning any single country could block reform. The new treaty allowed more decisions to pass by "qualified majority voting," where a sufficient majority of countries and population could overrule objectors.

The single market officially launched on January 1, 1993, roughly on schedule. Not everything was finished—about 90 percent of Cockfield's 300 measures had been implemented by the deadline—but the transformation was real.

Two Kinds of Integration

Building the single market required two different approaches, which scholars call "negative integration" and "positive integration."

Negative integration means removing barriers. It's "negative" in the grammatical sense: it tells countries what they cannot do. They cannot impose tariffs on imports from other member states. They cannot discriminate against foreign companies. They cannot require goods to meet arbitrary standards designed to exclude competition.

This kind of integration is relatively straightforward, at least conceptually. Courts can identify illegal barriers and order them removed. The logic is subtractive: take away the obstacles and the market will function.

Positive integration is harder. It means creating new, shared rules to replace the national ones being eliminated. If you abolish different countries' safety standards for children's toys, you need to replace them with a common standard. Otherwise, consumers lose protection.

The framers of the single market learned to use both approaches strategically. They would harmonize rules only when necessary—usually to establish minimum safety or environmental standards—and rely on mutual recognition for everything else. This "minimum harmonization" approach prevented a race to the bottom while avoiding the impossible task of writing detailed rules for every product and service in every industry.

The legal basis for this harmonization is found in Article 114 of the Treaty on the Functioning of the European Union, which allows the European Parliament and Council to adopt measures "for the approximation" of national laws that affect the single market. This article has become one of the most important and contested provisions in European law.

Beyond Goods: Services and People

The free movement of goods was the easiest freedom to achieve, partly because it built on the customs union that had existed since the 1960s. The other freedoms proved more challenging.

Services present unique difficulties. When you buy a toaster, you can inspect it, test it, and return it if it doesn't work. When you hire an architect or consult a lawyer, you're buying expertise that's harder to evaluate and where poor quality might not become apparent until much later. Countries have historically regulated services heavily, requiring professional licenses, educational credentials, and ongoing oversight.

The service economy also involves workers crossing borders, which raises sensitive questions about wages and working conditions. If a Portuguese construction company sends workers to Germany on a temporary project, which country's labor laws apply? The Portuguese workers might accept lower wages than German workers. Is this fair competition or social dumping?

These questions weren't resolved until the Posting of Workers Directive in 1996 and the Services Directive in 2006. Even today, the service sector remains less integrated than the goods market. A company selling physical products across Europe faces fewer obstacles than one offering professional services.

The free movement of people became intertwined with another project: the Schengen Area. Named for a small town in Luxembourg where the agreement was signed, Schengen abolished passport controls at borders between participating countries. Today, you can drive from Portugal to Poland without once showing your passport.

Schengen technically operates separately from the European Union—some EU members like Ireland stay out, while non-EU countries like Switzerland participate—but the Treaty of Amsterdam in 1997 brought it into the EU framework. The combination of free movement rights and abolished border controls created something close to a unified European space for the first time since the Roman Empire.

Who's In and Who's Out

The single market's geography is more complex than it might appear. The core consists of the 27 EU member states, but the boundaries extend further through a web of agreements with non-members.

Iceland, Liechtenstein, and Norway participate fully through the European Economic Area, or EEA, agreement. They accept essentially all single market rules and contribute to the EU budget, but have no vote in making those rules. For these small, wealthy countries, the trade-off is acceptable: market access matters more than formal influence over regulations they would likely adopt anyway.

Switzerland chose a different path. After Swiss voters rejected EEA membership in a 1992 referendum, the country negotiated over 100 bilateral agreements giving it partial access to the single market in specific sectors. This patchwork approach requires constant updates and causes periodic friction, but it lets Switzerland maintain its tradition of direct democracy and independence from multilateral institutions.

Turkey participates in a customs union covering industrial goods, meaning no tariffs on those products but also no free movement of services, capital, or people. Georgia, Moldova, and Ukraine have association agreements providing limited market access in certain areas, seen as stepping stones toward potential future membership.

The most dramatic recent change came from Britain's exit. On December 31, 2020, the United Kingdom left the single market after more than four decades of membership. The departure illustrated just how integrated economies had become: suddenly British exporters faced customs paperwork, food shipments required veterinary certificates, and professionals lost automatic recognition of their qualifications across the Channel.

The Irish border posed a particular problem. The Good Friday Agreement, which ended decades of sectarian violence in Northern Ireland, depended on an open border between Northern Ireland and the Republic of Ireland. But if Britain left the single market and Ireland remained, that border would become an external EU frontier requiring customs controls.

The compromise—the so-called Northern Ireland Protocol and its successor, the Windsor Framework—keeps Northern Ireland aligned with single market rules for goods, effectively placing the customs boundary in the Irish Sea rather than across Ireland. It's an awkward solution that satisfies no one entirely, but it illustrates the gravitational pull of single market integration and the costs of leaving.

The Limits of Freedom

The four freedoms are not absolute. The treaties include explicit exceptions, and courts have developed additional ones through case law.

Article 36 of the Treaty on the Functioning of the European Union allows countries to restrict trade for reasons of "public morality, public policy or public security," to protect human, animal, or plant health, to safeguard national treasures of artistic or archaeological value, or to protect intellectual property. These exceptions are interpreted strictly—countries cannot use them as pretexts for economic protectionism—but they recognize that some values may legitimately override free trade.

A famous example involved the importation of pornographic materials. Different European countries have different attitudes toward sexually explicit content, and the court recognized that countries could restrict imports that violated their own public morality standards, even if those materials were legal elsewhere.

Courts have also recognized "mandatory requirements" beyond those listed in the treaty. Environmental protection, consumer protection, and media plurality have all been accepted as grounds for limiting market freedoms in specific circumstances. The test is whether the restriction is proportionate—no more restrictive than necessary to achieve its legitimate aim.

Perhaps most controversially, the free movement of people can be restricted on grounds of public policy, public security, or public health. Countries can refuse entry to criminals or expel citizens of other member states who pose genuine threats. But these powers are limited. Expulsion requires individual assessment; countries cannot deport entire categories of people. And long-term residents acquire stronger protections over time, approaching the near-inviolable status of citizens.

The Definition of a Good

Surprisingly fundamental questions can arise in single market law. What counts as a "good" entitled to free movement?

The answer is broader than you might expect. Any item with economic value—meaning it can be valued in money and traded commercially—qualifies as a good. This includes works of art. It includes coins that are no longer legal currency. It includes water.

But not everything tradeable is a good. In a 1999 ruling, the European Court of Justice considered whether fishing rights—permits allowing boats to catch certain quantities of fish—counted as goods. The court said no. While fishing permits have economic value and can be bought and sold, they represent a right to perform a service (fishing) rather than a physical product. The fish themselves are goods; the right to catch them is not.

This distinction matters because different freedoms have different rules and exceptions. Goods generally enjoy stronger protections than services, partly because they've been integrated longer and partly because physical products are easier to regulate than intangible services.

Fighting Hidden Protectionism

The obvious barriers to trade—tariffs and quotas—are easy to identify and prohibit. The harder challenge involves "measures having equivalent effect," the countless ways countries can impede imports without explicit discrimination.

The landmark case establishing the broad reach of single market law involved Belgian whisky. Belgian authorities required imported Scotch whisky to carry certificates of origin from British customs. Mr. Dassonville, an importer who had legally purchased Scotch in France, couldn't produce such certificates because French authorities didn't issue them for goods they hadn't imported directly.

The European Court of Justice held that any "trading rule" enacted by member states that could hinder trade "directly or indirectly, actually or potentially" fell within the treaty prohibition. This sweeping test—known as the Dassonville formula—catches not just explicit discrimination but any measure that makes cross-border trade more difficult than domestic commerce.

Countries can be liable not just for their own actions but for failing to prevent private obstruction. French farmers, angry about competition from Spanish produce, repeatedly blocked highways and attacked trucks carrying Spanish strawberries and Belgian tomatoes. France argued it couldn't be held responsible for vigilante actions. The court disagreed. By "manifestly and persistently" failing to prevent the sabotage, French authorities had violated their treaty obligations.

The lesson is that free movement isn't just about removing government barriers. It requires active protection of market access against interference from any source.

Tax Without Discrimination

Customs duties aren't the only way to disadvantage imports. Countries can achieve similar effects through discriminatory taxation. If imported products face higher taxes than domestic equivalents, the tariff-free border becomes meaningless.

Article 110 of the Treaty on the Functioning of the European Union addresses this directly. It prohibits member states from imposing internal taxes on products from other member states that exceed taxes on similar domestic products. It also prohibits taxation designed to protect domestic production indirectly.

A revealing case involved rum. A country imposed higher taxes on imported rum than on domestic spirits. The court explained that Article 110's purpose is "to ensure the free movement of goods between the member states under normal conditions of competition, by eliminating all forms of protection which might result from the application of discriminatory internal taxation."

The standard isn't just formal equality. Countries can't escape the prohibition by taxing nominally different products at different rates if the practical effect is to protect domestic industry. The question is whether the tax structure affords "indirect protection" to domestic products, whatever the formal categories say.

Charges That Aren't Tariffs

Even without customs duties, countries can charge fees for various services when goods cross borders. Distinguishing legitimate charges from disguised tariffs requires careful analysis.

The court defined "charges having equivalent effect" to customs duties expansively: any pecuniary charge, however small, imposed because goods cross a frontier, constitutes a prohibited charge—"even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product."

But three categories of border charges are permitted. First, charges that form part of a general system of internal taxation applied equally to domestic and imported products. If the same fee applies whether or not goods cross a border, it's not a barrier to trade.

Second, genuine payment for services actually rendered. If customs authorities perform inspections that benefit the importer—say, quality testing that the importer would otherwise have to arrange privately—a proportionate fee is acceptable. The key is that the service must provide actual value to the economic operator, not just satisfy government requirements.

Third, charges for inspections required by European Union law itself. If EU regulations mandate certain border checks, member states can recover the costs. This exception reflects the reality that harmonized standards sometimes require verification at borders.

The Continuing Evolution

The single market isn't a finished project. Each decade brings new challenges requiring new responses.

In 2010, former Italian Prime Minister Mario Monti prepared a report for the European Commission identifying persistent barriers and proposing fresh initiatives. The resulting "Single Market Acts" addressed areas from digital commerce to social entrepreneurship.

More recently, in 2024, another former Italian Prime Minister, Enrico Letta, presented a report calling for strategic renewal of the single market. His proposal included what he called a "fifth freedom"—free movement of knowledge and innovation—to complement the original four. The idea reflects how much the economy has changed since 1993. In a world of artificial intelligence, biotechnology, and digital platforms, the free flow of ideas may matter as much as the free flow of goods.

At the same time, Mario Draghi—yet another former Italian prime minister, as well as former head of the European Central Bank—was working on a separate report about European competitiveness. The concern driving both exercises was that Europe, despite its single market, was falling behind the United States and China in key industries.

These ongoing reviews reveal both the single market's success and its limitations. It has achieved remarkable integration in traditional manufacturing and trade. But the digital economy, where American and Chinese giants dominate, seems to require something more than removing barriers and harmonizing standards.

What the Single Market Means

Step back and consider what the European single market represents. Twenty-seven countries—with different languages, legal traditions, historical enmities, and economic interests—have agreed to treat each other's products, services, capital, and citizens essentially as their own. They've surrendered ancient sovereign powers over trade and borders. They've accepted that courts in Luxembourg can overrule their national parliaments on matters of economic regulation.

Why would nations give up so much autonomy? The economic logic is straightforward: larger markets enable greater specialization, more competition, and better allocation of resources. A car factory can serve 450 million consumers rather than 80 million, justifying investment that smaller markets couldn't support. A talented professional can work wherever her skills are most valued, not just where she happened to be born.

But the single market rests on more than economic calculation. It embodies a bet that interdependence promotes peace—that countries deeply intertwined in trade and investment will resolve disputes through negotiation rather than force. The European project began, after all, with coal and steel: bind together the industries of war, and war becomes unthinkable.

That bet has largely paid off. Western Europe, scene of the deadliest conflicts in human history, has enjoyed three generations of peace. The single market didn't cause this peace—NATO and nuclear deterrence deserve significant credit—but economic integration has surely reinforced it.

The single market also illustrates the tensions inherent in any project of economic integration. Opening borders creates winners and losers. Harmonizing regulations requires compromises that satisfy no one completely. Democratic accountability becomes murkier when decisions emerge from negotiations among dozens of governments and institutions.

These tensions haven't been resolved. They probably can't be. The single market endures not because it has solved the problems of economic governance but because the alternatives—fragmentation, protectionism, economic nationalism—seem worse. Like democracy itself, the European single market is the worst system except for all the others.

For the Substack article arguing that the neoliberal era wasn't pro-market enough, the single market offers an interesting data point. Here was a project of genuine market liberalization—removing barriers, increasing competition, enabling the free flow of goods and people—pursued systematically over decades. Its estimated nine percent boost to GDP suggests that such liberalization can deliver substantial economic benefits. But it also required extensive institution-building, harmonization of standards, and ongoing political commitment. Markets don't just happen. They're constructed, maintained, and governed. The European single market shows what serious market-building looks like—and how much effort it requires.