Opinion

Hugo Dixon

EU ripe for single-market push

Hugo Dixon
Jul 29, 2013 09:25 UTC

The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the EU’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the EU – killing two birds with one stone.

It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the EU all the way back in 1957? Did the EU not complete the single market in 1992? And wasn’t a directive pledging free trade in services passed in 2006?

Well, yes and no. Free trade is not just about lifting intra-EU tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.

That is why the job of freeing up the EU’s internal market is still far from complete. Even the services directive covered only sectors that account for a bit more than 40 percent of gross domestic product. Areas like energy, transport and telecoms were left out. The legislation was also diluted so that even companies operating in the areas supposedly covered often have to go through lots of hoops to provide services in other countries. What’s more, the rules are often not enforced.

Services account for 70 percent of EU GDP, but only 22 percent to 23 percent of intra-EU trade. The EU is also notoriously inefficient in their provision. This is a big reason the region is poorer than the United States.

How to legitimise EU: decentralise

Hugo Dixon
Jul 22, 2013 08:41 UTC

The European Union is facing a crisis of legitimacy. This is evidenced in a decline in support for the EU among citizens in pretty much every member country. The most extreme manifestation is in the UK, where pressure is mounting to quit the EU.

There are two main schools of thought about how to restore trust in Brussels. One is to increase the direct say citizens have over what the European Commission does – say by giving yet more power to the European Parliament or by having a directly elected European Commission president. The other is to stop Brussels interfering in things best left to nation states.

The former school of thought is based on a misconception. The EU does not have a demos: few Europeans feel European rather than Italian, German, French or whatever. Witness the low turnout for European Parliament elections. Trying to construct a democracy without a demos is artificial and so won’t solve the legitimacy problem.

City should fight Brexit

Hugo Dixon
Jul 15, 2013 09:24 UTC

It is becoming increasingly likely that the UK will have a referendum on whether to stay in the European Union. It’s not just that David Cameron, the prime minister, has promised to hold such a vote by 2017 assuming he is re-elected. The drumbeats from the opposition Labour Party that it too would hold a plebiscite are becoming louder. Opinion polls show that Britons would currently vote to quit.

Of the many industries that would be hurt by such a “Brexit”, the City of London is the most prominent. The damage would range from moderate to severe, depending on the extent of the amputation.

The City is not just the UK’s financial capital. It is also Europe’s financial capital and vies with New York to be the world’s financial capital. The UK accounts for 74 percent of the EU’s foreign-exchange trading and 40 percent of global trading in euros; 85 percent of the EU’s hedge-fund assets; 42 percent of its private-equity funds; and half of pension assets and international insurance premiums, according to a recent report by TheCityUK, which represents the UK’s financial services industry.

How the euro zone can muddle through

Hugo Dixon
Jul 8, 2013 09:27 UTC

Three years on, debate still rages over what is to blame for the euro crisis and what to do about it. Meanwhile, large parts of the zone are in a deep recession and the talents of a generation of young people are being wasted.

In looking at what went wrong, some point to the profligacy of borrowers while others stress the design flaws in the system. Yet others pin the blame on how the crisis has been managed. There are still others who think that the euro zone is a victim of a credit crunch that began in the United States.

There is some truth in all these explanations. While the credit crunch did trigger the crisis, it exposed a host of problems that had been masked by a decade of easy growth. Peripheral countries had grown uncompetitive as a result of rising wages. Often there was corruption and excessive debt, while anti-competitive practices that suited vested interests kept productivity low. Almost everywhere, governments ran unsustainably generous welfare states.

Financial reform must carry on

Hugo Dixon
Jul 1, 2013 08:20 UTC

After six years of crisis, much progress has been made in fixing the financial system. There was, for example, a landmark European Union deal last week to make creditors rather than taxpayers foot the bill for bust banks. But there’s a huge job still to do.

In the years running up to the crisis, the financial system ran amok on both sides of the Atlantic. Among the long litany of problems was a clutch of distorted incentives, which encouraged banks to take excessive risks by rewarding success but not punishing failure. These heads-I-win-tails-you-lose incentives skewed the behaviour of individuals, banks and the entire system.

A crackdown on bankers’ pay is starting to deal with individual risk-taking. Compensation can be clawed back from financiers whose bets ultimately turn sour. There are also plans, mainly in Europe, to pay a chunk of bankers’ compensation in “bail-in bonds” – which will get wiped out or turned into lowly valued shares if a bank fails. That should get bankers to pay more attention to risk.