Trade among European Union members, the flywheel of continental growth, slipped in 2024. Figures in a draft of the European Commission’s annual single-market report show that intra-EU trade fell from 23.5 per cent of EU GDP in 2023 to 22 per cent.
Outside the pandemic, it is the first such decline in nearly a decade. The draft report, due for publication later this month and seen by the Financial Times, laments that the time needed to craft EU-wide product standards has stretched to four years. Foreign direct investment into the bloc has sunk by 22 per cent in five years.
Officials blame volatile energy prices after Russia’s full-scale invasion of Ukraine. Business lobbies say foreign markets now look easier than the single market. Either way, the drop jars with the Commission’s pledge to deepen integration and shore up competitiveness against America and China. “The Single Market is our best asset to counter external pressure, and it is time to build on its strengths,” the report reads.
Many firms, however, see more friction than freedom. “Fragmented national legal rules continue to make it complex and costly to establish and operate companies across the EU, with no progress to date,“ the report (the word of which may yet change) warns.
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Losing traction
The numbers vindicate Christine Lagarde, President of the European Central Bank, who has warned for months that Europe’s model of prosperity is creaking. “Europe’s economic prosperity is geared towards a world that is gradually disappearing,” Ms Lagarde told the European Banking Congress in Frankfurt. She pointed to an ECB forecast, made two years ago, that euro-area exports would jump by eight per cent by mid-2025. “In reality, they have not grown at all,” she said.
Her frustration with Brussels has turned acidic. “Our internal market has stood still,” the ECB chief complained, adding that continued inertia risked turning a vulnerability into a chronic malaise. She reckoned that hidden barriers inside the Union impose costs equivalent to a 65 per cent tariff on goods and a 100 per cent tariff on services.
“Our analysis shows that if all EU countries were merely to lower their barriers to the same level as that of the Netherlands, internal barriers could fall by about 8 percentage points for goods and 9 percentage points for services,” she argued. The prize, she said, would be worth the effort. “If we only did a quarter of that, it would be sufficient to boost internal trade enough to fully offset the impact of U.S. tariffs on growth.”
Visions of gloom
Ms Lagarde’s patience is wearing thin. “Another six years of inaction—and lost growth—would not just be disappointing. It would be irresponsible,” she warned. Yet she also spies “latent strengths”, noting that a perkier domestic economy has cushioned Europe from global shocks. “Our experience this year has shown that a resilient domestic economy can shield Europe against global turbulence,” she observed.
Joachim Nagel, President of the Bundesbank, offered a milder diagnosis at the same gathering. Europe lags America on productivity, he conceded, and “could and should do better”. But, he added, “a closer look suggests that Europe’s standard of living compared to the US has developed less badly” and “may not be as dire as it is often portrayed to be”. Where Ms Lagarde sees a shrinking pie, Mr Nagel spies underused potential.
Many firms are neither small enough to be truly agile and highly innovative, nor large enough to fully benefit from economies of scale. — Joachim Nagel, Bundesbank president
The German central-banker shares Ms Lagarde’s zest for pruning red tape. “Many firms are neither small enough to be truly agile and highly innovative, nor large enough to fully benefit from economies of scale,” he said. To fix that, both bankers champion a voluntary “28th regime”, an optional pan-EU legal framework that companies could adopt in lieu of navigating 27 national rule-books. “This would make cross-border operations easier, cut compliance costs even more, and help businesses scale up faster,” Mr Nagel insisted.
Stakes and obstacles
Such ideas echo a 2023 report by Mario Draghi, another former ECB president, who pleaded for a big-bang removal of internal barriers. Politicians nodded then did little. Ms Lagarde’s remarks suggest that technocrats are growing impatient with the ritual of grand strategies followed by meagre deeds.
The economic stakes are high. BusinessEurope, the main corporate lobby, says members now find “exporting to non-EU markets more attractive than trading within the single market”. Francesca Stevens, who heads the packaging-industry group Europen, blames “complex and burdensome regulation” and a “false ideological divide between competitiveness and sustainability”. The ECB estimates that internal frictions shave at least one percentage point off annual GDP growth.
Fragmented national legal rules continue to make it complex and costly to establish and operate companies across the EU, with no progress to date. — draft Annual Single Market Report 2026 by the European Commission
Yet integration is hard. The single market must balance French calls for strategic autonomy, German angst over energy costs and Dutch pleas for open borders. National governments also fret that Brussels will erode domestic prerogatives on tax, labour and consumer protection. Hence the queue of single-market strategies, eight since 2003, and the scant follow-through.
A structural chill
Brussels plans another push. Ursula von der Leyen, the Commission’s president, unveiled a fresh roadmap last summer and promises a concrete plan before September. She wants full integration by 2028. Few insiders bet on such speed. Drafting and approving EU standards already takes four years, up from just over three in 2023. That delay crimps trade because many products stay stuck in regulatory limbo.
Energy explains only part of the trade slowdown. Even after adjusting for the oil-price shock, the share of intra-EU commerce in GDP has drifted down. Services, the bloc’s poorest-performing sector, still suffer from arcane licensing rules and local content requirements. Digital markets fragment along language lines. Venture capital flees to America, where exits are easier.
Europe’s strengths—educated workers, deep supply chains and patient banks—remain. But they erode when firms scale abroad rather than across borders. The Union’s hidden champions, Mittelstand stalwarts and Nordic engineers alike, risk staying mid-sized forever, just as Mr Nagel fears.
Waiting for action
The danger is less a spectacular crash than a slow glide to mediocrity. Internal barriers erode growth quietly, as each new shock nudges us on to a slightly lower trajectory. Ms Lagarde’s prescription is blunt: slash red tape, trust the single market and harness domestic savings that now chase higher returns abroad.
Another six years of inaction and lost growth would not just be disappointing. It would be irresponsible. — Christine Lagarde, ECB president
Commission officials mutter that member states guard their fiefs. Capitals counter that Brussels churns out rules faster than it polices them. Either way, the cost shows up in falling trade and thinning investment. The latest figures could sharpen minds.
So should it. Whether the Union can reverse the 2024 slide will test its appetite for collective prosperity over national comfort. The single market is supposed to be Europe’s crown jewel. It now looks in need of a decisive polish.
