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Deepening the European Single Market
June 19, 2025
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER:
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Thank you, Paschal, for inviting me back to speak on the topic of Europe’s single market.
We have been urging all of our members that now is the time to get your own house in order given the global trade and other tensions and the uncertainty. Reforms delayed? Delay no more.
And our advice has been resonating. Across the globe, countries and regions are on the move, pushing to higher competitiveness, more dynamism, and faster technological transformation. For Europe it is very simple: either Europe acts, or Europe risks getting sidelined. Relative decline would not happen in a flash, it would creep in, but that would not make it less real.
There is no time for delay.
Here at the Eurogroup, I have two positive messages that I want to deliver upfront:
I know it can be done because Europe has done it before. I think back, for instance, to the EU enlargement of 2004, which opened up many new avenues for households and firms. Today, GDP per capita in the new member states is 30 percent higher than it would have been without EU accession—30 percent! Even for the “old” member states, we estimate that GDP per capita today is some 10 percent higher, on average, thanks to the enlargement.
Our assessment is thus clear and grounded in hard data: the single market delivers.
And yet we know that internal trade barriers remain high. According to the European Commission, 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. In contrast, for the United States, for every 100 dollars of value added produced, 45 dollars of goods are crossing state borders.
This shows how various factors are holding Europe back. What are they? Regrettably, the list is long: fragmented regulation, obstacles to financial integration, labor market rigidities, gaps in the energy market, parochial interests—all coming together to constrain growth.
Too many European firms remain too small. One in five EU workers works at a company with fewer than ten employees—twice the share we see in the United States. Fragmentation and regulatory differences across member states make it hard for firms to compete, expand, and thrive. Productivity has fallen behind.
So what can be done to inject new vibrancy? Our advice is: pick a few key priorities, make sure they are the right ones, and push hard.
Let me start with the first piece of our three-point agenda—the single market. In this first piece, we see four top priorities.
Priority one: create a predictable regulatory environment to help firms grow.
Reducing regulatory fragmentation is critical: firms need clarity. Harmonizing company law and insolvency law would be the first best, but this is difficult. That is why we at the Fund put our full support behind the so-called “28th regime”—a voluntary EU-wide corporate charter. It offers a pragmatic way to slash legal complexity and compliance costs for cross-border firms: one system, applicable everywhere in the EU, for firms that opt in.
We know that our colleagues at the European Commission are working on a proposal. I say: please write up a simple set of rules covering key phases of the corporate life cycle from entry to exit, and everything in between. Create the possibility of the European Firm, enjoying legal certainty so it can focus on innovation and growth rather than navigating a maze of 27 national systems.
The goal need not be uniformity in all things, but rather, uniformity where uniformity matters most. Sensible national variations can—and must—coexist.
And to those who say corporate law is so deeply rooted in national legal tradition that a 28th regime is impossible, let me repeat what I said here two years ago: you have already done it. I am referring to the Bank Recovery and Resolution Directive, which is nothing other than an EU-level carveout from national frameworks for selected banks. Please now create an alternative regime for European companies.
Priority two on our list is longstanding: putting European savings to work.
This point too I raised here two years ago: Europe has the money—many trillions in private savings—but it is lazy money. Savings work harder elsewhere. Europe’s bank-centric financial system is failing to support the kind of innovative, high-growth firms that will drive the next wave of productivity and innovation.
That’s why the capital markets union needs to move—now. Europe needs deeper, more integrated capital markets to channel savings to high-risk, high-reward investments. Europe needs more venture capital. Creating a 28th regime will be key, but let it be paired with better investor access to corporate information on all firms—so market discipline can work.
And importantly, energizing finance requires positive steps in banking too. Bank dominance in Europe will persist, and there is room for more bank credit. Let banks be nudged to embrace more risk taking—prudently—to support economic growth. Done right, this can strengthen internal capital generation, strengthen risk buffers, and boost bank soundness.
Let’s recognize also that large banks, especially, serve as key players in the capital markets, including by managing investment accounts for their clients. For them to serve most efficiently and in a pan-European way, Europe must shed its reluctance to accommodate cross-border bank mergers and acquisitions. Blocking mergers on non-economic grounds—and dropping the ball on banking union more broadly—will not deliver 21st century finance.
Priority three, very briefly: improving labor mobility and access to talent.
I am told it can take up to six months for a worker relocating within the EU to become legally employable in another member country—surely not optimal. Speeding up work authorizations and streamlining the cross-border recognition of professional qualifications will help ease skills mismatches and enable firms to hire appropriate talent. This is critical to allowing firms to grow.
Fourth priority: building an interconnected and affordable energy market.
Energy is a chokepoint. Just look at the dispersion of prices across European electricity hubs—it is some three times higher than in the United States and, yes, it presents a profitable arbitrage opportunity for European energy majors that they should be grabbing.
What can be done to help this happen? For a start, as we have been emphasizing in our work, Europe needs an energy blueprint that pulls together all the parts. One part, certainly, needs to be better interconnectors between national electricity grids. High and volatile energy costs inhibit corporate investment and expansion. Conversely, improving access to reliable, affordable energy spurs growth.
Across the four areas—regulatory overload, access to finance, labor mobility, and affordable energy—we have laid out ten specific policy actions in a new paper last week. And our simulations suggest that, even by implementing a few, the dividends could be substantial—an uplift to overall EU activity on the order of about 3 percent over ten years. And there would be no question of winners and losers—every country stands to win.
Next, the second piece of our three-point agenda: reforms at the national level.
EU-level reforms are essential, but to be effective they must be paired with national reforms in many areas—and it is vital that these two layers of reform pull in the same direction.
Three examples:
Wherever one looks, there is a vital and complementary national element.
Finally, the third piece of the three-point agenda: making more of the EU budget.
This is about raising the level of ambition: more support from the EU budget for investments in shared priorities—European public goods—and, importantly, better coordination of national efforts around these priorities. And, if new EU borrowing could be agreed, it would help frontload investments, spread costs over time, and increase the supply of safe assets.
Bottom line: we recommend a doubling of 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, to help close investment gaps.
Not only would such investments accelerate single market deepening, they would also offer material cost savings. Our analysis shows that EU-level investments in energy infrastructure, for instance, can achieve savings of up to 7 percent relative to duplicative national efforts. With long-term spending pressures piling up, great deals like this one should be seized.
We also propose an expanded role for performance-linked disbursements to member states. I know from my time managing the EU budget that, done right, such schemes can play an important role in incentivizing necessary national reforms and investments, aligning them with shared EU priorities, and maximizing positive cross-border externalities. Famous case in point: the Recovery and Resilience Facility, with its formidable economic payoffs.
Let me conclude. My colleagues and I have put forward for your consideration a strategic agenda with three clear objectives:
We do not underestimate the difficulty of delivering on this agenda and the political hurdles and vested interests to be encountered along the way. But the alternative of doing nothing will deliver nothing. Key, in our view, is to push hard.
Success will require you, the policy leaders, to explain reforms to the public and exert sustained pressure at the technical level. Regulators defend their missions but are not always tasked to consider connections and externalities. Like a football coach, you will need to make all the players play as a team.
And to our colleagues at the Commission who hold the legislative pen, our advice would be, first, to prioritize speed and not let the perfect be the enemy of the good and, second, to not let the legal mindset dominate the economic mindset. Economic rationale and economic objectives must drive Europe’s developments at this crucial time.
There is a saying that Europe is the “lifestyle superpower of the world.” Every time I return here—to my European home—I feel a sense of admiration. But please also hear this: for the European way of life to be sustained, Europe must also become a “productivity superpower.” Europe needs the growth potential that can come only from releasing its entrepreneurial energy.
And for that to happen, Europe needs its single market now more than ever. I’m told that at the Eurogroup Working Group last week one respected colleague described the internal market as “a treasure in the EU’s own hand, which now needs to be unwrapped.” I agree.
The stakes are high, the potential rewards are large, and—in this time of global tensions and uncertainty—the moment is surely now.
Thank you very much.
