30 Years of Single European Market

    Guarantee for prosperity and strong industry

    The Single European Market is one of the largest unified markets in the industrialized world. In an interview, VDA expert Mitja Schulz explains to what extent the European automotive industry and economy will benefit and what needs to happen for the model to have a future.

    The Single European Market is one of the largest unified markets in the industrialized world. In an interview, VDA expert Mitja Schulz explains to what extent the European automotive industry and economy will benefit and what needs to happen for the model to have a future.

    This year we are celebrating 30 years of the European Single Market. The fact that we can celebrate the strength and unity of Europe today is also due to its success story. Today it is considered one of the most important achievements of the European Union. Members are the 27 EU countries plus Iceland, Norway and Liechtenstein, which together with the EU form the European Economic Area.

    The importance of the European Single Market is immense for Germany. The economy has a simplified and standardized access to important sales markets and trading partners, products from other EU countries become significantly more affordable for consumers, it secures jobs and prosperity.

    But it is also a fact that the effects of the pandemic, the Russian war against Ukraine and the energy crisis have clearly revealed the weaknesses of Europe as a business location. They make it clear that Europe's locational conditions must be made more competitive again in an international comparison.

    In an interview, Mitja Schulz, head of the VDA office in Brussels, talks about the achievements of the European Single Market, its importance for the (automotive) industry and what needs to happen for the model to have a future.

    What are the advantages of the European Single Market for its member states?

    The European Single Market is based on the idea that partnership and a balance of interests make the world a safer place. Central to this is the freedom of movement of people, goods, services and capital. These four pillars have made the European Union one of the world's largest single markets. More than 445 million people can enjoy benefits such as security, a diverse range of goods and the freedom to travel within EU countries.

    Furthermore, the EU is a guarantor of prosperity: According to calculations by the Kiel Institute for the World Economy, the European Single Market leads to a welfare gain of 643 billion euros per year for its member countries. This means that without it, the gross domestic product of the EU would be 643 billion euros lower. A welfare gain of 132 billion euros is attributable to Germany alone. In this way, people and companies generate extremely valuable goods and services in an international comparison. 

    How does the German automotive industry benefit from the single economic area?

    The economic integration of Europe has also set the framework for the success of the German automotive industry in Europe. To name a few impressive figures: 46% of new passenger car registrations in the EU bear the logo of a German group brand. Of the 9.6mn passenger cars produced outside of Germany in 2022, 2.7mn were manufactured in other EU countries.

    The value chains are interconnected across national borders. German manufacturers and suppliers have production sites in almost every EU member state. The suppliers alone have around 900 sites across the EU. The German OEMs alone employ almost 200,000 people in other EU countries. The recent enlargements of the EU serve as an example of the success of European integration. Attractive new sales and production locations have emerged for our manufacturers. As a result, the German automotive industry has also become a European automotive industry.

    Uniform quality standards, product safety – what other economic benefits does the European Single Market bring to our industry?

    Three examples. First: There is a uniform EU type approval instead of many national regulations. Because of the uniform European specifications, for example for emissions regulations such as Euro 7 or safety in vehicles, automobile companies need to develop and produce fewer variants in order to meet national specifications. This brings cost advantages for companies, the products are cheaper, which is particularly beneficial for consumers. And this is what makes the intensive investments in research and development possible in the first place.

    Second: The internal market has reduced or abolished intra-European customs borders and trade barriers. Instead of making customs payments or having to overcome complex bureaucratic hurdles, companies can concentrate on their main business areas - another competitive advantage.

    Third: How much the member countries benefit from free trade in goods becomes clear from the negative effects illustrated by the example of Great Britain's exit from the EU. Since the Brexit vote, the flow of trade in automotive goods from England has declined significantly. A major reason for this is the trade barriers that have been set up between Germany, the EU and Great Britain, which deter companies from doing cross-border business.

    A major goal of the German automotive industry is its transformation to climate neutrality. Is it getting enough support from the EU?

    The fight against climate change is the main task of our generation. The automotive industry is a key driver of the green transformation, for example by supplying alternative drives and promoting electromobility. However, the regulatory framework with which the transformation is to be achieved is set in Brussels. And this is where the automotive industry is asked to do a great deal: Keyword "Combustion ban" in 2035 and strict CO₂ reduction targets.

    At the same time, unfortunately, people are not working with the same determination to create the framework conditions so that such goals can be achieved. This applies above all to the conclusion of trade and investment agreements, energy and raw material partnerships or the Europe-wide expansion of the charging network - the goals agreed in the trilogue agreement at AFIR (Alternative Fuels Infrastructure Regulation) unfortunately fall far short of the necessary needs. In Germany, for example, the ratio of charging points to e-cars is declining. However, consumers will only switch to electric vehicles across Europe if they can be sure that they can charge them quickly and across the board.  

    Which of the European framework conditions mentioned are decisive for the transformation processes in our industry?

    A whole series of legislative projects are currently underway that will have a massive impact on the future competitiveness of the automotive industry. This includes the huge "Fit for 55" package, by which the EU has presented central guidelines and regulations for reducing greenhouse gas emissions by 2030 and achieving climate targets. For the automotive sector, this means the de facto end of the combustion engine and thus also of openness to technology. In our view, it would have made more sense to set a target for net greenhouse gas emissions, but to retain the option for different technologies. This also includes the AFIR just mentioned.

    Another example: In the Green Deal Industrial Plan, the European Commission has determined how industry is to be promoted on its way to climate-neutral transformation and in its competitiveness. For example, it is about adjusting the subsidy framework to the effect that corporate investments in the production of climate protection technologies can be stimulated more strongly than before through needs-based funding - not least to avoid production relocating outside the EU. That is to be welcomed.

    Part of this plan is also the European Critical Raw Materials Act. With this legislative initiative, the EU Commission is trying to secure access to critical, strategic raw materials that are required for the transformation. A list of strategic raw materials is to be welcomed in any case, but a "one size fits all" approach to self-sufficiency assessment procedures, as proposed by the Commission, is not productive. As already mentioned, there is still a great need for action in raw materials policy.

    A weakness of the Green Deal Industrial Plan is that it does not in any way prominently emphasize technology neutrality as a central guiding principle. It also remains to be seen whether the Commission and the Member States will be able to achieve the urgently needed speed to accelerate and simplify the procedures.

    High energy prices, inflation and the Russian war in Ukraine are straining industry in Europe. What steps are now crucial to ensure that Germany remains internationally competitive and can defend the position of the German automotive industry?

    Added to these crises are recent industrial policy initiatives in other world regions, such as China's five-year plan 2021-25 and the US Inflation Reduction Act. In the global location competition, the EU is challenged like never before. In order to improve the European competitive position, reviews both internal and external are crucial.

    Internal review means: Brussels must ensure attractive location conditions so that the automotive industry and other branches of industry can continue to ensure growth, prosperity and employment. At this point, however, there is currently little progress, but a large number of still unprocessed issues. To give specific examples here: I see an urgent need for reform in the analogue and digital infrastructure, such as the provision of 5G networks or the charging infrastructure. In addition, the registration of business activities in other member countries is made more difficult, the standardization of the IT systems in the customs union is progressing slowly and there are different procedures in the administrations. As we can see, the list is long, and the EU urgently needs to do more.

    And what is to be considered concerning external review?

    I cannot emphasize it often enough: we need an ambitious and courageous trade offensive as soon as possible. International trade agreements and raw material and energy partnerships are now more important than ever before. The current geopolitical situation has shown how vulnerable international value chains are. However, resilient value chains are crucial for us, since we receive important primary products from other regions of the world.

    Like semiconductors, for example.

    Exactly. The semiconductor crisis has not yet been overcome for the automotive industry either. The demand for semiconductors in the automotive industry will triple by 2030. The reasons for this are megatrends such as electrification, networking and automation. It is therefore extremely important that politicians find solutions to create resilience in the supply chain and also to set up our own component production.

    I think it is the right strategy to diversify supply chains and build on as many pillars as possible in order to avoid dependencies in strategically important areas. Intensive trade relations worldwide are ideal. In this context, Brussels should bring stalled negotiations to a conclusion. Major issues here are the CETA agreement with Canada, the EU-Mercosur free trade agreement, the agreements with Mexico and India and new initiatives in the transatlantic area.

    The European elections will take place in spring 2024 and a newly elected EU Commission will begin its work. Which priorities will play a role then?

    The next Commission must focus strongly on the issue of competitiveness of Europe as a location: strengthening industry and value chains in Europe. It is important to remain open globally and to advocate free, fair and rule-based trade. As the automotive industry, we in particular are dependent on growth markets. We need locational conditions within Europe that unleash the powers of innovation and value creation of our industry and do not inhibit it. The common internal market is the strongest "pound" of the EU - it must be further strengthened so that it continues to be a guarantor of prosperity and freedom in the future and to give the European voice international relevance in political issues as well.

    And fundamentally, I also think: The best way to combat recession and loss of prosperity is a prosperous economy. In the best case, sustainable investments in our economy are also investments in ourselves, in our society and in climate protection. It's about participation, for example by keeping mobility affordable and possible for everyone in the future.

    Brussels office

    Mitja Schulz