Written by Wolfgang Hiller,
This paper embodies work-in-progress on a long-term project being undertaken by the European Parliament’s European Added Value Unit, in conjunction with the office of the Secretary-General, to try to identify and analyse the ‘cost of non-Europe’ in certain policy fields. It is intended as a contribution to discussions about the European Union’s policy priorities during the current five-year institutional cycle, running from 2014 to 2019. The study was first published in March 2014, has been updated twice to incorporate new material (in July 2014 and April 20015), and is now being updated once again to take account of further research undertaken over the past two years.
The concept of the cost of non-Europe dates back to the 1980s, when the Albert-Ball and Cecchini Reports of 1983 and 1988 – which respectively identified and then sought to quantify the significant potential economic benefits of the completion of a single market in Europe – first brought the idea into mainstream political use. The central notion is that the absence of common action at European level may mean that, in a specific sector, there is an efficiency loss to the overall economy and/or that a collective public good that might otherwise exist is not being realised. The concept is closely related to that of ‘European added value’, in that the latter attempts to identify the economic benefit of undertaking – and the former, the collective economic cost of not undertaking – policy action at European level in a particular field.
The potential economic benefits of action may be measured in terms of additional gross domestic product (GDP) generated or savings in public or other expenditure, through more efficient allocation of resources in the economy as a whole. An example of additional GDP generated would be the potential multiplier effect over time of widening and deepening the digital single market on a continental scale, or indeed of further completing the existing single market in goods and services. An example of greater efficiency in public expenditure would be more systematic coordination in the field of defence policy, including joint defence procurement, where there are considerable duplications or disfunctionalities at present. An example of potential future costs avoided would be the benefit of effective action ensuring the resilience of the Banking Union to forestall any future banking or sovereign debt crises (although the benefit here would be of a one-off, rather than recurring, character), or increased cooperation in fighting tax evasion and avoidance.
The analysis in this paper builds in large part on a series of more detailed pieces of work undertaken for individual European parliamentary committees by the European Added Value Unit (within the European Parliamentary Research Service, EPRS) over the last five years, in the form of European Added Value Assessments – on legislative initiatives proposed by the European Parliament – and Cost of Non-Europe Reports in specific policy sectors. The choice of research areas is thus closely related to specific work of or requests by parliamentary committees. It also draws on other research, undertaken independently by outside think tanks and academic bodies, which relates to other major requests made by the Parliament in its various legislative and own-initiative reports in recent years.
The ‘cost of non-Europe map’ featured on the cover of this paper and on page 11 constitutes an attempt to provide a graphic representation of potential efficiency gains and benefits in various policy areas. The chart on pages 92-93 gives more detailed insight into the benefits that could result from the various requests made by the European Parliament to date, or other policies in the pipeline as a result of parliamentary requests, if they were put fully into effect. Obviously, neither the map nor the detailed analysis behind it purport to make exact predictions – as all predictions depend on assumptions that must be subject to continual refinement – but they can and do illustrate the potential order of magnitude of possible efficiency gains from common action in these fields that could be realised over time.
The potential gains mentioned in this paper represent the total increase in annual EU GDP after the full phasing-in of proposed reforms over several years. In other words, they represent a permanent shift in EU GDP to a higher level. Our conclusion is that if the policies analysed in this paper were to be pursued effectively, the economic benefit would build up annually to a point where, on present calculations, almost €1.75 trillion – or about 12 % of EU-28 GDP (2016) – might eventually be added to the size of the European economy.
Mapping the Cost of Non-Europe, 2014-19 seeks to provide a reliable estimate of the magnitude of potentially measurable gains to the EU economy from the various policy initiatives listed. It is based on work from a variety of sources, which are referenced in footnotes, often with hyperlinks. When an underlying study offers a range of potential gains, the low-range value is usually selected – unless otherwise specified. The paper thus errs on the side of caution in estimating potential gains – there is substantial upside potential to this estimate over the medium to long term, from dynamic effects that cannot easily be quantified.
Different macro-economic models have been used in the underlying studies cited. Most estimates are continuous, in that they relate to on-going benefits that recur. However, it should be noted that certain scenarios are non-continuous – specifically, the estimates for the potential benefits of a fully fledged Banking Union, of improved fiscal coordination, and of a common deposit guarantee scheme, are calculations of one-off losses that could be avoided in a future crisis scenario, in a particular year, by putting appropriate arrangements in place now.
It is worth noting that the analysis in this paper dovetails with wider research being undertaken in the academic and think-tank community, both in respect of particular EU policies and the wider benefits of EU membership itself. For example, a study produced in 2014 by Campos, Coricelli and Moretti, which attracted a good deal of public attention, sought to quantify the economic benefits of EU membership for the 19 Member States that acceded to the Union in the successive enlargements from 1973 to 2004. Although the size and nature of the economic gain might vary by Member State, and derive predominantly from different factors in each case – whether intra-EU trade liberalisation (for the 10 Member States joining in 2004), the single market (for the United Kingdom), the single currency (for Ireland) or labour productivity (for Finland, Sweden and Austria) – the overall conclusion was that national incomes are now on average 12 % higher in those countries than they would otherwise be, as a result of membership and its associated economic integration. Their study also found that such gains are generally permanent and increase over time.
Read this study on ‘Mapping the Cost of Non-Europe, 2014-19 – Fourth edition‘ on the Think Tank pages of the European Parliament.