Subsidiarity and Proportionality in the Single Market - An EU fit for inclusive growth
A relaunched strategy for subsidiarity
Together with Bertelsmann Stiftung, Copenhagen Economics have conducted a study on the economic effects of EU internal market regulation. We analyse the economic growth or lack of the same across EU since 2000, address the current and future challenges, while focussing on the EU legislation and the use of the principles of subsidiarity and proportionality.
In terms of economic trends since 2000, we have identified three key trends:
- Declining contribution from catch-up process linked to 2004 enlargement: The Central and Eastern European member states that joined the EU in 2004 were catching up with the other EU countries in the pre-accession period and in the early years of EU enlargement.
- Increased dispersion within the “old” group of member states since 2008: Until 2008, countries such as Greece, Italy, Spain and Portugal were growing at a faster pace than the remainder of the EU15. Since the onset of the economic crisis, richer countries in the northern part of the EU have experienced much higher growth rates than those in the south.
- Rural-to-urban income gaps are arguably increasing: Across the EU, regions with a high population density have systematically higher GDP per capita. The income gap has not significantly widened but there has been a massive migration towards urban areas, particularly towards million-plus cities, since 2008. Therefore, we are witnessing a significant agglomeration effect, measured in an increase in the total GDP share of urban areas.
The report also offers a fresh perspective on the principles of subsidiarity and proportionality in the European Union, particularly in the light of the digital transformation that will drive economic growth the coming years:
- First, digitalisation allows firms, employees and consumers to interact increasingly over long distances at still lower costs and higher quality. An infrastructure policy emphasizing the role that digital solutions can deliver in providing connectivity is central to foster growth across all regions.
- Second, we recommend a stronger focus on proportionality in regulation of products and markets with a focus on the spatial and geographical dimensions of growth.
- Third, we suggest that EU policy-making should allow some targeted use of regulatory sandboxes to test alternative regulation models at the national and sub-national levels. So far, these have been applied mainly in the area of FinTech solutions. It may be favourable to allow capital market solutions – i.e. crowdfunding and risk capital funding.
The study is commissioned by Bertelsmann Stiftung. Download