Deepening the European Single Market
IMF News, June 19, 2025
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- Published: June 19, 2025
Overview and central message
- IMF Managing Director Kristalina Georgieva called for bold action to deepen Europe’s single market, strengthen national reforms, and scale up EU-level investment.
- Two opening messages:
- Europe has defined a strategic agenda with single market integration at its core—summarized in a three-point approach: single market, national reforms, and the EU budget—where each piece’s strength depends on the others.
- Europe possesses the necessary assets—“the savings, the skills, and the technology”—and policymakers must mobilize them nationally and collectively to create high-value jobs, innovation, and cutting-edge products and services.
Evidence of single market benefits and current shortfalls
- Historical impact of EU enlargement: GDP per capita in the new member states is 30 percent higher than it would have been without EU accession; for the “old” member states, GDP per capita today is some 10 percent higher, on average, thanks to enlargement.
- Internal trade intensity:
- For every 100 euros of value added produced in EU countries, only around 20 euros of goods are flowing back and forth between EU countries.
- For the United States, for every 100 dollars of value added produced, 45 dollars of goods are crossing state borders.
- Firm size and labor:
- One in five EU workers works at a company with fewer than ten employees—twice the share seen in the United States.
- Administrative friction:
- It can take up to six months for a worker relocating within the EU to become legally employable in another member country.
- Energy market dispersion:
- Dispersion of prices across European electricity hubs is some three times higher than in the United States.
- Aggregate gains from reforms:
- IMF simulations suggest implementing a subset of proposed measures could uplift overall EU activity on the order of about 3 percent over ten years.
Identified constraints on growth
- Fragmented regulation and regulatory overload.
- Obstacles to financial integration and a bank-centric financial system that channels savings insufficiently to high-risk, high-reward investments.
- Labor market rigidities and slow cross-border recognition of qualifications.
- Gaps in the energy market, high and volatile energy costs.
- Parochial interests and political resistance that raise implementation challenges.
Three-point strategic agenda
- One: Remove internal barriers to deepen the single market and let firms grow.
- Two: Advance national reforms that align with and amplify EU-level initiatives.
- Three: Use the EU budget strategically to coordinate efforts and invest in European public goods.
Single market — four top priorities and policy recommendations
- Priority one: Create a predictable regulatory environment to help firms grow.
- Support for the “28th regime”—a voluntary EU-wide corporate charter—as a pragmatic means to reduce legal complexity and compliance costs for cross-border firms.
- Recommendation: design a simple set of rules covering key phases of the corporate life cycle to enable a European Firm to opt in and gain legal certainty while allowing sensible national variations.
- Reference point: the Bank Recovery and Resolution Directive as an earlier EU-level carveout from national frameworks.
- Priority two: Put European savings to work.
- Capital markets union must deepen and integrate to channel savings to innovative, high-growth firms and expand venture capital.
- Pair a 28th regime with better investor access to corporate information to enable market discipline.
- Encourage banks to embrace more prudent risk taking to support growth and internal capital generation.
- Reduce reluctance to accommodate cross-border bank mergers and accelerate banking union completion; avoid blocking mergers on non-economic grounds.
- Priority three: Improve labor mobility and access to talent.
- Speed up work authorizations and streamline cross-border recognition of professional qualifications to ease skills mismatches and allow firms to hire appropriate talent.
- Priority four: Build an interconnected and affordable energy market.
- Develop an energy blueprint that includes better interconnectors between national electricity grids.
- Lower high and volatile energy costs to spur corporate investment and expansion.
National reforms — complementarities with EU-level action
- Capital markets union benefits require streamlined national permitting processes to enable startups to scale.
- EU-wide talent mobility initiatives need complementary national labor market reforms to be effective.
- EU investment in cross-border infrastructure must be paired with actions to address national infrastructure gaps.
- National reforms are vital to unlock the full impact of EU-level initiatives.
Using the EU budget strategically
- Recommendation: double EU budget expenditures on European public goods—electricity grids, digitalization, defense, and R&D—from 0.4 percent of EU gross national income to at least 0.9 percent.
- Rationale: frontload investments, spread costs over time, increase supply of safe assets, and close investment gaps.
- Efficiency gains: EU-level investments in energy infrastructure can achieve savings of up to 7 percent relative to duplicative national efforts.
- Governance tools: expand performance-linked disbursements to member states to incentivize national reforms and investments and to align national actions with shared EU priorities (cited example: the Recovery and Resilience Facility).
Implementation challenges and political economy
- Implementation will face political hurdles and vested interests; success requires sustained political leadership, public communication of reform benefits, and technical persistence.
- Regulators should be encouraged to consider cross-border connections and externalities rather than purely national or legalistic mindsets.
- Advice to the European Commission: prioritize speed—“not let the perfect be the enemy of the good”—and let economic rationale drive legislative work.
Concluding imperative
- Europe is currently a “lifestyle superpower” but must become a “productivity superpower” by releasing entrepreneurial energy through single market deepening, aligned national reforms, and strategic EU budget use.
- Quoted characterization from a Eurogroup Working Group: the internal market is “a treasure in the EU’s own hand, which now needs to be unwrapped.”
Remarks by IMF Managing Director Kristalina Georgieva at the Eurogroup Meeting on Enhancing Competitiveness and Addressing Internal Barriers in the Single Market - Luxembourg, June 19, 2025.