The single market needs to go digital

The EU was once ahead of the US in telecommunications, but is now behind

The EU needs three things: stability, growth and competitiveness. There is a wide consensus that while European governments have to put their national finances on a sustainable footing they also need to concentrate on enhancing competitiveness and finding new sources of growth. Each member state must do its utmost, but much can be done by European-level decisions too.

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After two decades of the single market, it is justifiable to say that we have achieved a great deal. In the 1990s, the EU was ten years ahead of the United States in telecommunications because we established a common standard for the GSM network. This provided European companies with leverage to go global during the mobile-phone revolution. Today, however, the world has moved on and the drivers of the digital society are internet content, service and application eco-systems. Now the reverse has happened and the US is ten years ahead of us.

A significant reason for Europe’s failure in this innovation-driven, high value-added growth market is the fact that Europe does not currently benefit from a digital single market. Most online activity stops at national borders. There are 27 different digital markets in the EU.

The creation of a digital single market is vital to the EU’s growth and employment. It has been estimated that the potential is over 4% of EU’s gross domestic product by the year 2020. This corresponds to about €500 billion.

The potential has been acknowledged many times by European leaders and things are starting to move. However, there are still major bottlenecks where work is urgently needed. Because of these bottlenecks, cross-border trade remains low in Europe despite the rapid expansion of the digital economy at the national level.

When a European company wants to sell digital services cross-border – be they games, content or applications – it faces a mountain of red tape. It has to deal with complicated copyright and taxation rules, and structures requiring an army of lawyers and consultants. A good example is the music streaming service Spotify, which is still available only in ten EU member states four years after it started its operations in the EU. Of course, these problems are especially problematic for small and mid-sized enterprises.

We need to modernise the EU copyright regime and develop an EU-wide marketplace for cross-border licensing through pragmatic solutions that provide new means to overcome the market bottlenecks. Such efforts should include pilot projects such as setting up a European copyright exchange.

As the time is not yet ripe for an EU copyright regime, the internal market must build on alternative mechanisms. Rules on which laws are applicable and on mutual recognition could be used as tools to provide increased legal certainty. Harmonisation of copyright should be the long-term goal – taking due account of the varying nature of different content sectors.

As another example, the members states’ differing private copying levies (special charges on purchases of recordable media) are a major cause of the fragmentation of the European market for digital products and services. There is also evidence that the private copying levy systems are having an adverse effect on the evolution of the licensing market.

Current EU legislation considers device-based private copying levies as a temporary structure that was developed for an analogue world. It is time to make a serious analysis of whether the current system should be replaced – for example, by licensing solutions. We urge the European Commission to come up with proposals for EU legislation more suited to our digital world.

The European Council in March showed clearly that EU leaders want to tap the potential to be gained by creating a well-functioning digital single market by 2015. We need action now.

Alexander Stubb is Finland’s minister for European affairs and foreign trade. Íñigo Méndez de Vigo is Spain’s secretary of state for the European Union.