20 years after Cecchini What have policy makers

1
20 years after Cecchini What have policy makers
business learned about European Integration
from Economic Analysis

• Department for Business, Enterprise Regulatory
  Reform

2
Several Questions

• What have policy makers learnt about European
  integration from Econ analysis
• What have business learnt about European
  integration from Econ analysis
• What have they learnt from other sources ?

3
Reminder What Cecchini said

• Uncontroversial Removal of border barriers
• Scale economies
• Frontier delays
• Public procurement
• Supply side effects ,changes to corporate
  behaviour in more competitive markets
• Liberalise integrate financial mkts

4
Underlying economics is simple, assessing the
prize isnt

• Fundamental economic concept behind Single market
  always well known
• Size of barriers and therefore benefits of
  getting rid of them was not in some cases still
  isnt.
• Assumptions that lie behind benefit calculations

5
Whats it worth ?

• 4.25-6.5 of EU GDP a massive prize
• Was that right or not?
• How much actually captured

6
Large potential gains from EU reform
Long run effects of more competition-friendly
policies in the Euro area (percentage deviations
from baseline)
source IMF Labour market Product markets Total
GDP 5.6 4.3 10.0
Consumption 5.5 3.4 9.1
Investment 5.7 12.1 18.4
Unemployment gt -3.5 gt -3.0 gt -6.5
7
Microeconomic indicators Entrepreneurial culture
8
Extent of intervention in product and labour
markets, 1985 and 2003 (synthetic indicators).
9
The EU Directive on Services in the Internal
Market

• Response to 2002 report The State of the
  Internal Market for Services
• Aims to increase trade by reducing the regulatory
  burden on service providers
• Copenhagen Economics (2005) suggests significant
  economic benefits to be made

10
the 2005 study

• Impact of EU15 market opening 1990-2000
• Welfare 1.9, 98bn jobs 500,000
• Main gains in telecoms and electricity
• Methodology
• Quantified measure of market opening
• Model to link MO, productivity and prices
• CGE simulation for sector impacts

11
Further market opening potential
12
the Market Opening Index

• 5 - 12 Market Opening Milestones per sector
• Score weight for Index sector/year/country
• 2003 telecom 0.7, postal 0.35 (scale 0 1)
• OECDs REGREF fewer inds, similar results
• New research updated MOI to 2006, and modelled
  the benefits of EU15 full opening (i.e. scores of
  1)

13
methodology CGE model etc

• parameters from 2005 study to see how full market
  opening affects sector productivity and price for
  2 scenarios
• apply price and productivity scenarios to CGE
  model for give economy wide impacts
• multi-regional CGE model representing EU-25
• gt275,000 firms in 19 Member States from Amadeus
  database

14
Linear vs pessimistic assumptions
15
What govts have learnt (1of 2)

• Big benefits
• Hard to remove barriers
• Consumers dont value benefits as much as firms
  value losses
• Legislation is not enough
• Need to battle using regulators

16
What governments have learnt (2 of 2).Removing
tariffs is a tiny part of the reform process

• Lisbon Agenda
• Services Directive
• EU Energy policy

17
UK view

• continue leading role for competition
• outward facing to maximise benefits
• future EU action based on specific policy points,
  not Directives

18
What Cecchini didnt cover

• Enlargement
• Globalisation
• Dis-aggregation of production

19
What business has learnt

• Single market links to other issues
• Euro
• Accession
• Disaggregation of production

20
Why most business consumers arent engaged
enough

• Slow
• Cumbersome and legalistic
• Dont need to be
• Fixes continue