Single Market Act Update
by Shane Fitzgerald
Though the bulk of recent European policy commentary has been understandably focused on the need to grips with what remains an existential crisis of the euro, it is important to also reflect on those medium and longer term EU policies which will play an important role in shaping the European economies in the years ahead.
Prime among these is the Single Market Act, which we covered in some detail upon its launch earlier this year. The Act comprises twelve levers designed to boost growth and strengthen confidence in the EU’s common market, which are being launched over the course of the next year or so by the European Commission with the support of the European Parliament and national governments.
The first initiatives launched related to an overhaul of the European patent regime and to the taxation of energy products. Since we looked at those policies, progress on another group has been made and one more has been formally launched.
The Commission has been also been conducting stakeholder consultations and preparing impact assessments in a number of the other areas. These will feed into formal proposals to be published in the coming months.
Four Single Market Act consultations are either ongoing or have been recently completed. They are in the following areas:
- Venture Capital
- Professional Qualifications
- Public Procurement
- Social Business
Over the summer, the Commission conducted a consultation on new European rules for venture capital funds. Venture capital is financial capital provided to early stage, high potential, high risk, startup companies and as such is an important source of support for innovative SMEs.
By providing finance to companies with promising but untested business models, venture capital drives innovation, economic growth and job creation. But, as the Commission’sgreen paper notes, the annual amount invested by European venture capital funds in SMEs was €6-7 billion before the financial crisis but the latest figures for 2009 and 2010 show a drop to about €3-4 billion. This rapid reduction in the availability of venture capital, combined with the obliteration of traditional lines of credit and funding during the financial crisis, has severely impaired the viability of many startups.
The document argues that “Venture capital funds face problems reaching the critical mass they need to spread their portfolio risk and cover their costs” because “they do not benefit from a real internal market and in certain cases claim to face problems of double taxation.”
It goes on to outline what could be the broad contours of a European “passport” for venture capital funds that would allow them to raise and invest capital freely throughout the EU. Once the passport has been obtained, the fund manager could then operate throughout the EU without having to register in each Member State where it wanted to raise capital, as is often the case today. (This recalls the recent agreement to grant non-EU hedge fund managers pan-European marketing rights, provided they reach certain compliance conditions.) The proposal does not directly address the issue of double taxation, but urges Member States to proceed with the recommendations of an Expert Group which examined the issue in 2007-2009.
The consultation process for interested parties closed on 10 August. The results of this consultation, together with the impact assessment, will now serve as a basis for a legislative initiative, which is due for publication by the end of 2011.
A cornerstone of the Single Market is the free mobility of workers. Severe unemployment in many member states combined with widespread skills shortages mean that mobile workers will become more and more important to the European economy. However, many professionals still face obstacles in trying to relocate to different parts of the EU.
The EU therefore now seeks to modernise the existing Professional Qualifications Directive, so as to improve and simplify the mutual recognition of qualifications from different member states.
The Commission’s green paper floats the idea of a ‘European Professional Card’ that would enable fast-track recognition for the cardholder. Stakeholders are invited to respond to the consultation by 20 September 2011. The Commission will then host a high level and public conference in November, with a legislative proposal foreseen for December.
Reform of public procurement legislation is also one of the 12 priority actions outlined in the Single Market Act. A Commission green paper on modernisation of EU public procurement legislation received submissions from over 620 respondents. These were synthesised, and the priorities for legislative reform were then debated at a high level conference at the end of June (summary). These submissions and debates will now feed into the Commission’s legislative proposals, which are due to be published before the end of the year.
At the ‘Modernising Public Procurement’ conference, Michel Barnier, the Commissioner for Internal Markets and Service, presented the four main reform priorities, which were to: simplify procedures; facilitate the access of SMEs to public contracts; promote green, social, and innovative procurement; and professionalise and foster good governance of procurement at all levels.
The Single Market Act outlined the importance of what it termed ‘social businesses’, namely organisations that combine a social, ethical or environmental mission with a business perspective.
A Social Business Communication is planned for the autumn. The goal is to improve the support offered to such businesses by the EU.
In July, the Commission launched a narrower consultation on possible European measures to support social businesses through private investment funds. The green paper notes that investors are increasingly seeking to achieve social goals through their investments, yet can find it difficult to identify suitable investments. It seeks the views of investors, fund managers, social businesses and other on whether the existing European investment fund rules are appropriate or whether a more tailored framework is required.
The consultation closes on 14 September. The results will be used to identify possible EU-led policy changes, so that proposals can be made by the Commission as part of its broader Communication on the sector.