The EU Single Market remains fragmented by complex and heterogeneous rules at the EU and national levels affecting trade, capital, including foreign direct investment, and labour mobility. Further development of the Single Market and removing barriers to external trade would bring substantial growth and employment gains by enhancing resource allocation in Europe, by generating economies of scale and by strengthening competition and hence incentives to innovate. Reforming regulation and other implicit barriers can also yield a double dividend: it would stimulate cross-border activities and support the necessary reallocation process within countries. Such reallocation can cause hardships, especially for the less-skilled workers who may not be able to compete. To deal with such problems, it is important to enhance active labour market policies and training. The Single Market would also benefit from better networks between countries that can be supported by a well-targeted infrastructure policy. New digital networks can be promoted by an appropriate regulatory framework to strengthen confidence and to promote fair competition. Regarding external trade, the first-best solution is clearly multilateral trade negotiations, but short of that external trade and investment barriers can be reduced with Free Trade Agreement negotiations with the United States and other partners. This Working Paper relates to the 2014 OECD Economic Survey of the European Union (www.oecd.org/eco/surveys/economic-survey-european-union.htm).
