Public Services and the Internal Market: Building Blocks or Persistent Irritant?

Date01 November 2015
Published date01 November 2015
Public Services and the Internal Market:
Building Blocks or Persistent Irritant?
Wolf Sauter
Abstract: Critics such as Fritz Scharpf maintain that in the EU, negative integration
(abolishing national rules) by denition wins out over positive integration (adopting new EU
rules). This claim is examined here regarding public servicesboth utilities and welfare
services. In EU law, the (partly overlapping) relevant categories are as follows: (1) services
of general interest (SGI) and (2) services of general economic interest (SGEI). The latter
are provided by undertakings. SGI that are not also SGEI are subject only to
non-discrimination requirements: this covers most welfare services. SGEI must comply with
the EU competition and state aid rules, which promotes liberalisation. H owever, a proportional
exception is allowed in so far as necessary for SGEI to carry out their public tasks. Moreover,
alongside liberalisation, EU regimes for public services have emerged that benet
citizens/consumers. In sum, public services can now arguably be seen as building blocks
of the internal market.
I Introduction
In this paper, I want to look at public services in EU law. Public services are frequently
a source of friction in the integration context. According to former Internal Market and
Competition Commissioner Mario Monti, Since the nineties, the place of public
services within the single market has been a persistent irritant in the European public
That is to say, disagreement on the role of public services has obstructed
integration. Yet in the same report on the single market, Monti states that these services
form building blocks for reconciling the single market and the social and citizenship
dimensions as components of the highly competitive social-market economy that the
2007 Lisbon Treaty has introduced as one of the main objectives of European
These contrasting observationscoming from such an eminent EU pol-
icy insiderrequire explanation.
In addition, the topic of public services in EU law is salient today not only because of
the liberalisation and (re)regulation trend of the past two decades but also given the
M. Monti, A new strategy for the single market: at the service of Europes economy and society. Report to
the President of the European Commission, José Manuel Barroso, 9 May 2010, available at, at p. 73.
Ibid., 68.
*Tilburg Law and Economics Center (TILEC) and Dutch Healthcare Authority (NZa). This paper draws on
my book Public services in EU law (Cambridge University Press, 2015). I am grateful to Eva Hartmann,
Agnieszka Janczuk, Malcolm Ross, Harm Schepel and an anonymous referee for comments. The opinions
expressed here are personal.
European Law Journal, Vol. 21, No. 6, November 2015, pp. 738757.
© 2015 Blackwell Publishing Ltd., 9600 Garsington Road, Oxford, OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
increasing nancial constraints on public budgets that are partly due to the ongoing
international nancial crisis. Because of the need to match or outperform competitors in
order to maintain or increase market share, prots and protability, private provision of
services under competitive conditions is generally seen by mainstream economists as
inherently more efcient than public provision (or for that matter, private provision) lacking
similar incentives. The benets of effective competition will accrue at least in part to
The resulting preference for competitive regimes of private provision that is
prevalent in the utilities may spill over into the sphere of welfare services (such as health
care) now that public nances are under duress. This does not mean there is no need for
regulation: both for reasons of equity and in order to protect competition regulatory
intervention may be required.
This involves harnessing the market mechanism to promote
the public good without resorting to public ownership. As we will see in the succeeding texts,
the development of the role of the state in the economy and the trajectory of EU integration
intersect here.
In this paper, I will look at public services and EU law. This discussion will be placed
in the context of the mixed economy as well as economic regulation and the integration
debate. The three main issues that I wish to address are as follows:
1. the role of public services in the interaction between positive and negative integration;
2. the impact of the general EU law regime for public services on the regulation or
re-regulation of such services; and
3. whether public services are building blocks or an irritant in the internal market
context. In other words, do they form part of a successful internal market or an
obstacle to its success?
Without cutting the argument on these three points short, I want to signal two
contrasting trends. These are, on the one hand, the use by the Member States of legal
exceptions to the rules of the Treaty on the Functioning of the European Union
(TFEU), and on the other hand, harmonisation of national lawthe setting of
common rules at EU level. The relationship between these two trends will be examined
in the succeeding text. However, I will start by briey introducing the general EU law
context and some essential EU terminology.
II EU Law Categories and Terminology
A General and Specic Rules
The general EU law that is relevant to public services is quite broad: in fact, with the
arguable exception of external relations and trade,
public services touch most areas
of EU law. In the rst place, the rules on the internal market can be affected, that
is, the primary Treaty freedoms of goods, services, persons (including establishment)
and capital, but also the secondary rules (set out not in the Treaty itself but in
regulations and directives) such as the services directive
and the public procurement
Cf. standard economics textbooks, e.g. W.J. Baumol and A.S. Blinder, Economics, Principles and Policy,
12th edn. (South Western College, 2012). In this paper I will not address alternative state-centred accounts.
N. Barr, Economics of the Welfare State, 5th edn. (Oxford University Press, 2012).
However see P. Delimatsis, The external dimension of services of general interest in the area of energy,
TILEC Discussion Paper 2013/015 available at s.cfm?abstract_id=2375588.
Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in
the internal market, OJL 376, of 27.12.2006, pp. 36-68.
Public Services and the Internal MarketNovember 2015
© 2015 John Wiley & Sons Ltd. 739

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