27/06/2012 04:35 BST | Updated 26/08/2012 06:12 BST

Europe's Need to Become Competitive

Neither Britain nor Sweden is part of the eurozone. But we both want and need it to recover and succeed.

On 28-29 June our prime ministers and their EU colleagues will meet for another European Council summit. Like many such meetings over the past two years it will be dominated by the debt and growth crisis in Europe.

Neither Britain nor Sweden is part of the eurozone. But we both want and need it to recover and succeed. It is in our nations' interests to see a strong European Union with a growing economy, competitive on the world market. But for Europe to develop properly, change needs to be pursued in a way which supports our shared vision of a liberal, reforming, inclusive and outward-facing union.

Underlying the management of the current crisis is the need to address Europe's growth challenge comprehensively. We need to adopt a programme of ambitious reforms to remain competitive. Our competitors outside Europe are manufacturing goods cheaper and better. Through innovation, other countries are producing new products which we do not make yet, but which we could. Other countries are more successful at attracting the investment that we need in order to grow.

Our two prime ministers, along with ten other European leaders, wrote to President Van Rompuy and President Barroso in February this year, setting out the urgent changes we need to address the competitiveness challenge. We were clear that Europe needs to modernise our economies, build greater competitiveness and correct macroeconomic imbalances. We can restore EU growth through reducing regulation, strengthening governance, pushing ahead with free trade agreements and strengthening the single market. The March European Council set this ambitious agenda for us to pursue.

An essential part of promoting growth is realising the full potential of the Single Market. The UK and Sweden are trading nations, and we benefit a great deal from the Single Market in terms of trade, investment and jobs. The Single Market adds €600 billion a year to the EU economy. It is larger, and incorporates more people, than the US economy.. We should push forward with raising standards of implementation and urge a renewed focus on the services sector. As our prime ministers made clear earlier this year, services now account for almost four-fifths of our economy, and yet there is much that needs to be done to open up services markets on the scale needed.

It is absurd that in a 21st century Europe there are still barriers to online transactions between EU member states. Fewer than 16% of UK and Swedish citizens purchase goods or services online from sellers in other EU countries; a much lower figure compared with those purchasing products online from indigenous businesses. There are several reasons for this, including poor online payment systems and opaque dispute mechanisms. The consequence is that consumers lack confidence to buy online across national borders. It is not only individuals who find it difficult to engage in cross-border online trade; businesses encounter trouble too. Incompatible legislation, such as different copyright laws across Member States has meant small and medium enterprises continue to encounter obstacles when trying to sell goods or services to consumers in other EU countries. The Commission's proposal to create a Digital Single Market by simplifying the rules governing online transactions, improving the internet infrastructure and increasing protection to EU consumers will go a long to help break down these barriers. The result would be an economic boost right across the EU. More choice for consumers will mean more competition and lower prices. Businesses will open up a much larger customer base to target. We assess that the Digital Single Market could benefit each EU household by over £2,000.

Completing the digital single market is expected to result in a 4% increase in EU GDP over a ten year period. Full implementation of the Services Directive could add 2.8% to EU GDP within 10 years. Completing all open bilateral EU trade deals could add a further £73 billion to the EU economy. And a deal with the US would be bigger than the rest put together.

We also need to get much better at encouraging innovation in Europe. A lack of investment is stalling ambition: eight out of ten EU citizens say it is hard to start a business due to lack of finance. Take for example the low carbon and environmental goods industry, worth almost £3.2 trillion a year. Investing in these growing sectors is good for innovation, growth and job creation, as well as for opening up commercial opportunities in emerging markets.

Reprioritisation of the EU's future budget is urgently needed to rise to the challenges of competitiveness and innovation. Many EU Member States are making tough domestic spending decisions and embarking on austerity to bring their economies back into balance. Against this backdrop the EU budget must contribute to the fiscal consolidation taking place across the EU.

The Commission's proposal for the budget is unrealistic. It is too large; it is not the restrained budget the Commission claims and it is incompatible with the tough decisions being taken in countries across Europe. The UK and Sweden have stated jointly that the maximum acceptable expenditure increase through the next Multiannual Financial Framework is a real freeze in payments. The challenge for the EU is not to spend more, but to spend better. Expenditure in the EU budget needs to be re-prioritised in order to focus on growth and competitiveness, both of which are underpinned by research and innovation. These are priority areas and should have a proportionately larger share of a budget that, at most, increases by no more than inflation.

So next week's European Council needs to continue to address the urgent crisis of the eurozone. But the old cliché is true: every crisis is also an opportunity. So Sweden and Britain will argue for Europe to seize the opportunity to pursue growth through modernising the EU budget, completing the single market and ambitious external trade agreements. A more modern, effective, internally and externally competitive Union is our shared goal.