Europe’s Not-Quite-Single Market

Hello! Today is 6 October 2025, and here is the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on LinkedIn.

Thomas Harbor is a Brussels-based lawyer, specializing in EU competition law and FDI control. He is an adjunct lecturer in economic policy at Sciences Po in Paris and the co-founder of What’s up EU.*

Thirty years after its creation and despite Mario Draghi’s call for a new impetus a year ago, Europe is still struggling to complete its internal market.

In mid-September, Mario Draghi called out Europe’s complacency: “Too often, excuses are made for this slowness. We say it is simply how the EU is built. That a complex process with many actors must be respected. Sometimes inertia is even presented as respect for the rule of law. That is complacency.”

Non-Tariff Barriers in Europe

Although tariff barriers have been abolished within the EU and dropped significantly with many third countries, the internal market remains fragmented by red tape — or non-tariff barriers — such as quotas, permits, diverging technical standards, and country-specific labelling requirements.

The 2024 reports by Mario Draghi and Enrico Letta, together with Draghi’s repeated calls for action, have brought urgency and visibility to the need for reforms.

According to the IMF, non-tariff barriers in the EU act as a hidden tax, amounting to 44% on goods and up to 110% on services — three times higher than what businesses face between U.S. states.

In 2024, the European Round Table for Industry, a leading industry forum, catalogued nearly one hundred specific barriers to the Single Market in a 268-page compendium — spanning obstacles from inconsistent telecom frequency allocation to divergent tax systems and construction standards.

Divergent national requirements for environmental labelling force manufacturers to adapt packaging in each Member State, increasing complexity, costs, and sometimes resulting in contradictory information.

The absence of harmonized waste classification criteria prevents the free movement of waste and hinders the development of a circular economy on a European scale, sometimes even resulting in exportation to third countries.

Different interpretations of the Posting of Workers Directive make it difficult to send staff from one Member State to another. Issues related to the mutual recognition of professional qualifications within the EU also continue to exist.

This persistent fragmentation not only undermines economic growth, but also weakens Europe’s sovereignty — a point Mario Draghi has repeatedly highlighted.

The Transatlantic Productivity Divide

Non-tariff barriers generate friction across EU borders, curb competition and slow the spread of innovation, with direct consequences for productivity and competitiveness. The resulting macroeconomic costs are substantial.

U.S. GDP per capita is now 30% higher than that of the EU — a gap that has steadily widened over the past twenty-five years.

Over 70% of this gap can be explained by lower productivity, partly due to the incomplete Single Market, particularly in services and other strategic activities.

In other words, reducing non-tariff barriers represents an enormous growth lever for the EU. A European Parliament study estimates the potential gains from effectively removing these obstacles at nearly €713 billion per year. The IMF estimates that aligning EU non-tariff barriers with the U.S. level would boost productivity by nearly 7%.

Root Causes of Inertia

The persistence of non-tariff barriers stems from two main institutional factors.

First, the European Commission has drifted from its core mission as guardian of the internal market. Between 2019 and 2023, infringement proceedings against Member States fell by 60%.

This reluctance to engage in direct confrontation over Member States’ breaches of internal market rules may stem from the expansion of the Commission’s external competences, which have consumed considerable political capital.

Second, national governments remain reluctant to harmonize sensitive areas such as taxation, social law, and qualification recognition. The trend toward over-implementation of EU rules — sometimes even regulations — further adds to the proliferation of rules and regulators.

Uneven Progress on the Draghi Report

The Draghi report makes 383 recommendations to restore Europe’s competitiveness. So far, only 11% have been implemented, according to a report by the European Policy Innovation Council. The report notes progress in transport and critical materials, but major delays in energy and the digital sector.

Ursula von der Leyen acknowledged that: “Our Single Market is far from complete. (…) It should not be easier to find fortune across an ocean, than across European borders. We have started to address these barriers — the so-called terrible ten — with our Single Market Strategy. Now it must deliver as a matter of urgency.”

What Now?

The coming decade leaves little room for the status quo. The risk is a permanently fragmented Europe, less capable of defending its economic and social interests.

Reform of the internal market rests on three key pillars: (i) harmonizing standards and qualifications; (ii) simplifying regulation by reducing the administrative burden on EU companies; and (iii) unlocking investment by unlocking of the Capital Markets Union (which has been rebranded as the Savings & Investment Union) and a focus on cross-border infrastructure, especially in transport, energy, and digital.

*The opinions expressed in this article are those of the author alone and do not reflect the official position of any institutions or organizations with which he is affiliated.

UKRAINE • On 1 October, EU heads of states (or government) gathered in Copenhagen for an informal European Council meeting. The agenda featured two pressing issues: support for Ukraine and Europe’s defence.

Leaders failed to reach agreement on the Commission’s proposal for a €140 billion loan to Ukraine. The plan would see the loan guaranteed by frozen Russian assets held in Europe, to be repaid by Kyiv once Moscow pays reparations under a future peace deal.

According to the FT, most EU leaders backed the idea in principle but asked the Commission to spell out (i) the technical details, (ii) the legal implications and (iii) how the risks can be shared.

Belgian prime minister Bart De Wever was reportedly among the most insistent. If Russia were to challenge the measure in court, the case would likely target Belgium — home to Euroclear, where most of the frozen Russian assets are held.

At the European Central Bank, officials fear such use of frozen assets could unsettle investors and undermine financial stability.

There is also disagreement over how the funds would be used.

The issue will return to the table at the European Council on 23-24 October 2025.

Ukraine’s EU accession negociations, launched in June 2024, were also on the agenda. European Council president António Costa suggested a change in how decisions related to accession negotiations are made (i.e., by qualified majority rather than unanimity) — though the final accession decision would still require unanimous approval.

The aim is to speed up the process by sidestepping Hungary’s veto. Unsurprisingly, the proposal — which itself requires unanimity — was blocked by Hungary’s prime minister. France and the Netherlands are also said to have opposed it.

DEFENCE • The Copenhagen discussions also turned to European defence, notably the idea of a “drone wall” along the EU’s eastern flank — a proposal first floated by the Commission president in her State of the Union address in September.

The 27 once again failed to reach a common position. While the initiative has clear appeal — especially given recent Russian drone incursions into Polish and Romanian territory, and potentially Danish, Norwegian and German airspace — its political meaning and practical feasibility remain uncertain.

Berlin supports stronger European drone-defence capabilities but does not see a “drone wall” as an immediate priority. Emmanuel Macron underlined the scale of the technical and logistical challenge. Italy and Greece, meanwhile, stressed the need not to neglect the defence of Europe’s southern members.

INVESTMENT • Europeans hold more than €10 trillion in savings — much of it languishing in low-yield bank accounts and steadily eroded by inflation. Maria Luís Albuquerque, the EU’s financial services commissioner, told the FT she wants to give “citizens the incentives to actually put their savings to work”.

She suggests that Member States create simple, accessible investment accounts offering a wide range of options with tax incentives, no entry fees and no minimum deposit requirements.

The plan faces two obstacles: (i) on tax matters, the Commission can only issue recommendations, as taxation remains an exclusive competence of member states; and (ii) tax incentives would mean forgoing precious fiscal revenues — an unlikely concession in the current economic climate.

• Fredrik Erixon, of the ECIPE, argues that instead of merely pausing the EU’s AI Act, the EU should overhaul it entirely and review its broader regulatory ecosystem, as fragmented regulations impacting AI and the data-based economy hinder innovation and economic growth.
• Will Ursula von der Leyen survive the two confidence votes scheduled for Thursday in the European Parliament? Probably — Politico has the numbers. However, the centrist coalition is far from being in the bag, and this could have significant consequences for negotiations on the EU’s next long-term budget.
• In Sillicon Continent, Luis Garicano argues that the European Commission is “designed for weakness”: by avoiding strong, independent figures, the EU ends up with Commission presidents who rely on national governments for their authority. Ursula von der Leyen, he says, exemplifies this pattern — a Europe constrained by its own compromises.