The free movement of goods, capital, services, and people is the cornerstone of the European Union’s single market. However, the benefits of free movement across the continent have not yet cascaded from the physical to the digital world.
Only 15% of consumers bought online from other EU member states in 2014, while 44% made online purchases within their own country, according to research from the European Commission (EC). And while only 17% of small and medium-sized enterprises (SMEs) in the EU sell online, just 7% sell cross-border to other EU countries. The main obstacles to online cross-border sales include high delivery costs, overcomplicated foreign taxation, and excessively costly guarantees and returns.
Some 315 million Europeans use the Internet every day, so the benefits of a digital single market (DSM) would be significant. A fully functional DSM would create up to €415 billion per year in additional growth, according to the EC.
It would also raise employment levels and encourage investment. Consumers would gain greater access to content, goods, and services from other EU countries, and enjoy lower delivery prices. They may also benefit from a commerce system that encourages better telecom services. SMEs could benefit from reduced costs to grow cross-border e-commerce through lower parcel delivery prices. These businesses could also gain better access to finance and enjoy simplified company laws.
In light of all this, the EC recently unveiled plans to create a DSM across Europe, outlining targeted actions it hopes to deliver by the end of 2016. The EC’s strategy includes:
- Providing better access for consumers and businesses to digital goods and services across Europe.
- Creating the right conditions for digital networks and services to flourish.
- Maximizing the growth potential of the digital economy through programs such as a European cloud initiative, standardization, and encouraging job creation, among others.
Given the recent sluggish EU economy, Dun and Bradstreet views the DSM and its potential impact on GDP growth and long-term growth as welcome news. The EU’s real GDP bottomed out in the second half of 2013, and economic growth has since been slow.
Furthermore, the pace of the recovery lost momentum over the course of 2014; despite growing by 1.4% year over year in first quarter 2015, real GDP still remains some 1.7% below its 2008 precrisis level. Against this backdrop, EC’s data indicates that the long-run impact on GDP growth of the already in-place digital reform efforts could be above 1% of GDP and benefits from the current level of cross-border e-commerce could be 0.27% of GDP.
The benefits of boosting e-commerce by improving access to digital content or reducing VAT-related obstacles when selling across borders are likely to trickle down to other sectors, with positive effects on the wider economic environment.
While European consumers and SMEs will likely welcome the EU’s initiative to foster e-commerce across Europe, there are still a lot of details to work out. Individual EU governments will need to adopt the new rules before they can become effective.
It may not be time to pop the cork yet, but it’s probably safe to put a bottle of champagne in the fridge.
Daniele Fraietta has been a D&B economist for more than two years. He currently covers some Western European countries, notably Italy, Greece, Spain and Ireland. For D&B, Daniele has also developed the new econometric framework for commodity prices and exchange rates forecasting. He has an MSc in Economics from the University of Rome Tor Vergata, a Master in Business Administration from The Polytechnic University of Milan, and a Master in International Business from the Chapman College of Business.