Moving without removing: The blind spot in the European single market

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Sweden's decision to discriminate between consumers in the same country in order to avoid discriminating between consumers in two different EU member states raises several concerns about the single market, argue Joakim Nergelius and Gustav Lorentz.

Joakim Nergelius is professor of Law at University of Örebro in Sweden and Gustav Lorentz is chief analyst at the Chamber of Commerce and Industry of Southern Sweden.

"A single market for goods and services is a core value of the European cooperation. However, a recent turn of events with Swedish electricity prices illustrates a blind spot in the EU’s aspiration towards that single market, which may lead us to question how it works.

This behaviour from Swedish authorities may be described as moving barriers to trade without actually removing them.

The background is that Sweden introduced price discrimination among Swedish consumers in order to avoid discrimination between Swedes and Danes. In the middle of the ongoing eurozone crisis, Europe could certainly benefit from strengthening trade between member states.

Yet, if transnational barriers are replaced by national market fragmentation, little if anything is gained in terms of a single market.

The advancement of the single market project reveals a friction between the national and the European policy scopes within the EU. Policymakers are implicitly assuming that promoting European competition laws between member states will create and sustain a joint market for goods and services.

However, as national governments implement EU policies and harmonise legal frameworks, alarmingly little attention is paid to the effects that this has on their own domestic markets. Recent development in Swedish electricity prices portrays a critical issue of balancing competitiveness and discrimination between and within member states.

In November 2011, Sweden’s national public electricity grid was split into different pricing zones in order to avoid breaching the European Union’s competition regulation.

Prior to this, the Nordic energy markets have been increasingly integrated, which made low-price Swedish electricity high in demand in other countries, not least in Denmark.

Sweden originally restricted the export of energy to Denmark, but according to a preliminary assessment from the European Commission, this violated the EU’s competition regulation by favouring Swedish consumers at the expense of the Danes.

This ultimately threatened to either leave the Swedes with a power deficit or increase the price of Swedish electricity.

The Swedish decision to split the electricity grid into pricing zones was aimed at preventing price discrimination between Danish and Swedish consumers. Instead of removing the discrimination, the split has merely internalised it.

The price discrimination now occurs between the different zones, primarily between southern Sweden and the rest of the country. In addition, the lack of discrimination has done little to meet the Danish demand for electricity.

It has been pushed down due to the increased energy prices in southern Sweden, not because demand has been met by supply.

Sweden is by no means the only country that has several pricing zones for electricity, so this is not the issue here. However, the Swedish decision to discriminate between consumers in the same country in order to avoid discriminating between consumers in two different EU member states raises several concerns about the single market. 

South Swedish industries and households in Malmö pay the same energy taxes that finance the same national electricity grid as those in Gothenburg or Stockholm, but because of the pricing zones, the former are forced to pay extra to access the grid.

Danish and Swedish consumers on the other hand, have access to their energy infrastructure on different terms due to their respective government’s taxes and policies. In short, the desire to abolish differences between countries leads to in increased discrimination and decreased competitiveness within one of these countries. 

It is in no way evident that discrimination within one member state is preferable to discrimination between two different member states. As long as each state governs its own legal system and sets its own taxes, there will be differences in business climate and competitiveness between countries.

In addition, when the EU’s competition regulation is used as an excuse to introduce and motivate discrimination on the domestic market, it will likely stir voters’ discontent.

People are given the impression that the EU – which is admittedly democratically distant to most of them – has greater influence on their daily lives, for instance their electricity bills, than their own government does.

A single market requires that inequalities between countries are kept to a minimum, but this cannot be achieved by adding or increasing inequalities within member states. If EU regulation is implemented in a way that forces national governments to fragment their domestic markets, then the original policies have indeed done little to promote their original cause.

What was intended as a harmonisation of markets might very well turn out to be a shift of fragmentation that does little for the dreams of a single market. And what has then been won?"

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