European Single Market | tutor2u Economics
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European Single Market

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB

The EU single market involves integration between nations and is built upon four key freedoms:

Revision Video: Economics of Brexit (including the Single Market)

Economics of Brexit (1) Trade Patterns, Customs Unions and the Single Market - revision video
  1. 1.Free Trade in Goods: Businesses can sell their products anywhere in the EU's member states and consumers can buy where they want with no penalty. Intra-EU trade of goods represents 75% of intra-EU trade flows. For countries such as the Czech Republic and Hungary, trade with the EU accounts for over 90% of their trade – showing how important is the single market to their economic fortunes
  2. Mobility of Labour: Citizens of EU member states can live, study and work in any other country. The aim is to improve the mobility of labour. Every year over 180 000 European students move to another Member State for the Erasmus programme or to attend a post graduate degree. But overall, Europe is an area of low mobility with only 2% of Europeans living in a Member State different from that of their nationality. This figure is three times higher in the United States. An estimated 12m European citizen live in an EU country other than their own
  3. Free Movement of Capital: Currencies and capital can flow freely between member states and EU citizens can use financial services in any member state
  4. Free Trade in Services: Professional services such as pensions, architecture, telecoms and advertising can be offered in any member state. Services account for over 70 per cent of GDP in many EU countries. But progress in expanding intra-EU trade in services has been slow. At present, only 20% of the services provided in the EU have a cross-border dimension

Analysing the impact of the EU Single Market

  • 1.Productivity:
  • a.The EU Single Market is designed to create a “positive sum game" for member states if trade and competition leads to higher productivity and brings about lower costs for producers and eventually cheaper prices for consumers.
  • b.Stronger competition encourages industrial restructuring because exposure to other markets causes businesses to re-organise their management (improving X-efficiency) to minimise costs
  • 2.Lower prices and higher real incomes: Lower prices should boost consumers' real living standards and an increase in competition will lead to improved allocative efficiency and less waste. This might mean for example lower fares for airlines, cheaper prices for mobile calls or reduced costs for car and home insurance if European markets are more contestable.
  • 3.Economies of scale: Firms selling in the Single Market have (in principle) unrestricted access to nearly 500 million consumers in the EU.The size of market allows businesses to exploit economies of scale leading to improvements in productive efficiency. For example UK retailers such as Tesco have successfully made in-roads into the retail markets of many EU countries earning profits that flow back into the UK. Foreign retailers have entered UK high streets too!
  • 4.Labour mobility: There are economic and social costs and benefits from a freer movement of labour - these are discussed in a separate section of this revision companion. Migration flows have increased significantly since ten new member states have joined the EU after 2004.
  • 5.Price convergence: Competition should lead to a process of price convergence between countries meaning that the gap between what we pay from one country to another for the same product should fall - but there will always be price variations within EU for the same products such as basic foods, new cars and products such as iPads and smart phones.
  • 6.Business alliances and joint ventures: The single market encourages cross-border technological alliances and joint ventures – boosting dynamic efficiency and competitiveness.
  • 7.Economic growth and resilience to external shocks: A stronger internal EU economy with an improving trend growth rate of potential GDP may be less vulnerable to global external shocks and better able to reduce unemployment. The global financial crisis and subsequent recession throughout Europe has allowed us to see how resilient the EU single market is.
  • 8.In short the single market is designed to accelerate the gains from specialisation and trade between participating nations.

Intra-European Trade

Key to all of this is to remember that the EU is a customs union. This means that the EU levies duties on imported goods and services. But there is free trade within the market. This causes a rise in intra-EU trade. A recent EU report found that Intra-European trade currently accounts for 17% and 28% of world trade in goods and services respectively.

Taking services as a separate case, over 30% of intra-European trade in services is in the travel industry, followed by transport (around 20%) and insurance and finance (10%). But health care remains largely within national borders. There has been some increase in the demand for and willingness to pay for “health tourism" services (especially treatments that are cheap in Eastern Europe) but little investment by multinational health care businesses in different EU countries.

Key challenges facing the European Union

  • Europe in a semi-permanent recession - with many countries suffering from persistently slow growth
  • Severe Jobs Crisis especially among the young - youth unemployment above 50% in some countries
  • Fiscal Deficit & Sovereign Debt / Solvency Crisis - very high levels of national debt, fiscal austerity in many EU countries
  • Deepening Social and Political Crisis from Austerity - political tensions and social discord threaten the Euro area

Measuring Living Standards within the European Union

Incomes per head in the European Union

  • 1.The base line measure of living standards is per capita national income.
  • 2.There are big differences in per capita income for countries in the EU – for example GDP per inhabitant in the Member States ranged from 44% to 271% of the EU27 average in 2009
  • 3.Consumption per capita in the UK us 35% higher than the EU27 average and GDP per head is 12% higher than the EU27 average in 2009
  • 4.In terms of relatively poor EU member nations, Slovenia, the Czech Republic, Portugal, Malta and Slovakia were between 10% and 30% lower than the EU27 average. Hungary, Estonia, Poland, Lithuania and Latvia were between 30% and 50% lower, while Romania and Bulgaria were between 50% and 60% below the EU27 average
Population Values Statistic
Total population of the EU 505.67m Details →
Number of live births in the EU 5.23m Details →
Population density in the EU 116.3 Details →
Economy and Economic Indicators Values Statistic
Gross domestic product of the EU €13.08tn Details →
Per capita GDP in the EU €25,500 Details →
Unemployment rate in the Euro area 12% Details →
Youth unemployment rate in the Euro area 23.9% Details →
Finances Values Statistic
General gross debt of the EU €11.01tn Details →
National debt of the EU in relation to the GDP 88.76% Details →
Greece's national debt in relation to GDP 175.1% Details →
Budget balance of the UK €-117.56bn Details →
EU Budget Values Statistic
Germany's contribution to the EU budget €22,820.2m Details →
Poland's budget expenditures €15,735.8m Details →

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