Europe’s single market: The EU’s strategic anchor in an era of fragmentation
Wednesday, 11 June 2025
With Donald Trump back in the headlines and global fragmentation accelerating, the European Union faces mounting external pressures — from rising protectionism to weaponized trade and geopolitical instability. In this volatile environment, Europe’s single market emerges as a fundamental strategic asset — critical to the EU’s economic resilience, competitiveness, and even geopolitical autonomy.
Yet how robust is the single market today? Where is its potential still untapped? And how can it be strengthened for the future?
To explore these questions, the latest episode of Future is Blue gathered two leading experts: Lionel Fontagné, Chair Professor at the Paris School of Economics and Director of the Institute for Macroeconomic and International Policies, and Miguel Ángel González-Simón, Economist at Funcas.
[You can listen to the podcast here].A legacy of integration — But new challenges loom
The foundations of today’s single market go back to the 1980s, when the European Commission proposed over 300 measures to deepen economic integration — from eliminating internal borders to harmonizing regulations. This ambitious agenda culminated in the Single European Act and the 1992 objective of creating an integrated market.
“The goal was to reduce internal frictions to the movement of goods, services, people, and capital — to create a large market that could drive economies of scale, productivity, and growth,” Fontagné explained.
But today’s global economy presents new complexities. “The predominance of global value chains is a game-changer,” he said. The interconnected nature of supply chains makes Europe vulnerable to cascading shocks — from Fukushima and the Covid-19 pandemic to the war in Ukraine and disruptions in the Red Sea.
“We’re living in an era where a small shock can trigger large macroeconomic consequences. Public intervention is now needed to correct externalities and build resilience,” Fontagné argued.
At the same time, industrial policy is undergoing a renaissance. “We are seeing a renewal of targeted industrial policies in China, the US, and Europe — focusing not just on correcting market failures across all sectors, but on strategically supporting key technologies and industries,” he said. In this context, a stronger single market is vital to ensure Europe’s competitiveness.
The European Commission’s recent communication, “The Single Market or European Home Market in an Uncertain World”, is a key sign of renewed political focus. “As the Commission put it: ‘Europeans are each other’s first partners.’ This highlights the need to leverage the internal market as a shield against external uncertainties.”
Measuring the gains — And the untapped potential
Using sophisticated gravity models of trade and counterfactual simulations, Fontagné’s work estimates that the single market has increased intra-EU trade by 63% on average across sectors and countries. “This translates into both higher revenues for exporters and lower costs for importers — making Europeans richer even without producing more,” he explained.
At the national level, smaller countries benefit disproportionately. “For Luxembourg, membership in the single market represents a gain equivalent to 9% of GDP — an enormous figure,” he noted. For larger economies like France and Spain, the estimated gains are around 3% of GDP. At the other end of the spectrum, Greece — whose geographic and industrial profile made integration more challenging — shows benefits of approximately 2% of GDP.
Even these impressive figures would leave significant untapped potential. “If each member state and each sector were to reach just 75% of the performance of the current best performers, the gains from the single market would effectively double,” he said. “This is the low-hanging fruit that we should be pursuing.”
Persistent barriers and fragmentation
González-Simón highlighted that while the single market is a remarkable achievement, important barriers persist.
“In services, we see repeated concerns from the European Commission about persistent barriers and lack of competition in certain sectors,” he said, citing the example of how Italy manages certain public concessions.
Turning to goods, he pointed to the problem of ‘gold plating’ — when member states add extra national or regional regulations on top of EU rules. “In Spain, for example, companies not only face different EU-wide standards, but also varying regulations from regional authorities, making the market even more fragmented,” he explained.
He also noted that the free movement of workers and people had come under strain during the Covid-19 pandemic and in the current geopolitical climate, with national security concerns influencing member state attitudes.
Finally, on capital markets, González-Simón argued that Europe remains notably behind the US in terms of integration and depth. “There are also sovereignty sensitivities that hamper progress,” he said, noting the failed merger attempt between Italy’s UniCredit and Germany’s Commerzbank as one example.
A Strategic Agenda for the Future
Looking ahead, both experts emphasized the strategic importance of deepening the single market.
“We are living in a fragmenting world,” Fontagné warned. “Rather than getting caught up in reactive trade disputes, EU leaders should focus political capital on pushing the integration agenda. But we must adapt — this is not the 1980s. New industrial policies for energy, green transition, strategic industries, and defense must be part of the mix.”
González-Simón echoed this view. “Deepening the single market is key to Europe’s future. But we should be pragmatic — go European where there is consensus, as we did with coal and steel in the 1950s. Today, defense could be such a sector. Above all, we need to show commitment and realism.”
He also offered a final reminder: “Let’s not forget about competition policy — it is a crucial ingredient for the single market’s success and for ensuring a level playing field.”
As global uncertainty grows, building a stronger, more integrated single market is not just an economic priority — it is a strategic imperative for the European Union.
[You can listen to the podcast here].Carlos Carnicero Urabayen