In their speeches at the recent European Banking Congress in Frankfurt, both ECB President Christine Lagarde and Bundesbank President Joachim Nagel emphasised the great economic power that a completed European single market would have.

„This is an vast waste of potential – especially at a time when we must rely more on ourselves than on others,“ Lagarde said of the current situation. „And the key point is that achieving these gains would not require radical change."

Full harmonization of all regulations in the individual EU member states is neither politically feasible nor necessary. However, greater „mutual recognition“ would be a major step forward. According to Lagarde, a service or product that is permitted in one EU country should be freely tradable throughout the EU without having to comply with the granular regulations of each individual member state. Lagarde identified the different VAT regulations, which make cross-border trade difficult, as one of the obstacles to the single market.

To ensure greater harmonisation in Europe, Lagarde supports the proposal for an optional EU-wide legal framework for companies – the so-called 28th regime, which Mario Draghi and Enrico Letta proposed in their respective reports to the EU.

Joachim Nagel also advocated the introduction of the 28th regime at the conference. „This would make cross-border operations easier, cut compliance costs even more, and help businesses scale up faster,“ he said. „In effect, it would remove some of the remaining barriers across our internal market, which encompasses 450 million customers. And by helping small and medium-sized companies to expand across borders, we could turn hidden champions into global leaders.“

However, according to Nagel, this alone is not enough. There is an urgent need for deeper and more integrated capital markets. Startups have insufficient access to venture capital financing. But also larger companies have difficulties obtaining liquidity due to fragmentation in Europe. This slows down economic growth.

Nagel and Lagarde urge the EU to speed up reforms. „If we make our Single Market truly single, Europe’s growth will no longer depend on the decisions of others, but on our own choices“, said Lagarde. „This was my message six years ago. Today, that message has only grown more urgent. Another six years of inaction – and lost growth – would not just be disappointing. It would be irresponsible.“

Lagarde emphasised that completing the internal market would more than compensate for the burden on the euro economy caused by US tariffs. The International Monetary Fund (IMF) recently made a similar statement. EU productivity could increase by 20.2% if structural reforms were implemented, barriers to internal trade were removed, and labor mobility was raised to the level of the US. This would also enable Europe to close its productivity gap with the United States.

Nagel also sees an urgent need for action in Europe. However, he points out that the starting position may not be as bad as is often portrayed in public. After all, productivity is ultimately only a means to an end. The really decisive factor is the standard of living of the population.

This is not so easy to determine, because looking at gross domestic product alone is not enough. In his speech, Nagel also cites a number of statistical pitfalls. To compare living standards, differences in price levels would have to be taken into account. Statisticians usually work with purchasing power parities for this purpose. According to Nagel, the common basket of goods and services may not be fully representative for all of the countries under consideration. In addition, there are gaps in the data, which means that some prices have to be estimated.

„But one thing we can say with great confidence: When price level differences and their changes are taken into account, Europe’s standard of living relative to the United States has developed less badly than suggested by the unadjusted figures," he added. „Still, this is no reason to be complacent.“