Introduction

The Single European Act mandated the European Commission to propose policies to bring about a single market in financial services, gas, electricity, transport and telecommunications. The Commission has been remarkably successful in issuing directives with that intent, and is now focused more on ensuring that the directives are implemented, and where necessary strengthened to achieve their purpose.

Different countries have embraced this reform programme with differing degrees of enthusiasm, with Britain, the Nordic countries and Spain in the vanguard but others more cautious. In the past, state-owned utilities were restricted to operating within their national frontiers. Part of the pressure for extending and accelerating market liberalization comes from newly privatized companies that are seeking to diversify out of their national markets. Some continental countries, notably France, have not restricted their still state-owned utilities from foreign ventures, and have undoubtedly benefited from a largely protected home market and access to cheaper, de facto state-guaranteed finance. The imbalance this creates for competition is a source of considerable tension within the EU, and a strong reason for further liberalization and harmonization, so that companies in the same industry face similar competitive conditions across the Union.

The underlying case for liberalizing network industries is that it allows competitive pressure to be put on sleepy monopolies, and restricts cross-subsidies that frequently take the form of a tax on competitive medium-sized industry to subsidize domestic consumers (and sometimes politically powerful large business).