Report

Why cities must drive growth in the EU’s single market

Think tank: Centre for European Reform

Author(s): John Springford; Sander Tordoir; Lucas Resende Carvalho

June 20, 2024

This report from UK think tank the Centre for European Reform argues that the EU should promote single market integration in capital markets, banking and other services.

A new policy brief from the Centre for European Reform and the Bertelsmann Stiftung argues that the EU should promote single market integration in capital markets, banking and other services, while doing more to confront the regional inequality that services trade promotes. ‘Why cities must drive growth in the EU’s single market’ is the first comprehensive analysis of the winning and losing regions from trade within the EU, and identifies four key facts policy-makers should consider when pursuing more single market integration: Slowed integration of goods markets: Intra-EU trade in goods has grown at the same pace as global trade since 2012. Goods trade as a ‘convergence engine’: Poorer, less populous EU regions have been increasingly important locations for manufacturing due to lower labour and land costs.

However, as Central and Eastern Europe’s costs converge with the EU average, further big wins are unlikely. Growth of services trade: Services trade within the EU has grown rapidly, now making up half the value of goods exports in 2022, up from a third in 2012. Services trade as ‘centripetal’: Services trade tend to cluster in large, affluent cities with a large share of ‘knowledge workers’, often deepening the divide between dynamic urban centres and their hinterlands.

This process has strengthened over time. But EU cohesion policy is yet to catch up to these realities. To spread the economic benefits of agglomeration beyond the major metropolises, the authors recommend that the EU should identify ‘growth city regions’ in each member-state.

These should be non-capital cities which have the potential to become bigger centres of tradable services, with investments in transport infrastructure, higher urban density and enhanced energy efficiency.