The services directive, a piece of legislation that was supposed to give the biggest boost to the internal market since its creation in 1993, entered into force on 28 December – but hardly anyone noticed. The European Commission, which proposed the legislation back in 2004, made no announcement to mark the occasion, despite having previously heralded the sweeping changes that this law would bring to Europe’s business environment.

The law requires member states to remove requirements (such as economic needs tests and nationality/residency rules) that prevent or deter people from setting up shops or offices in other member states. It also requires member states to set up websites (poetically styled as ‘points of single contact’) where businesses can complete all the administrative requirements for operating in that country.

The intention behind the directive was to guarantee in practice the rights that businesses already in theory enjoy under the EU treaty – namely freedom of establishment and freedom to provide services.

The Commission was silent on the day mainly because a majority of member states had not implemented the law by the deadline. It is thought that only 11 member states have completed the legal steps needed to put the directive onto their national statute books. Still fewer are believed to have completed all the necessary operational steps on time. It is an embarrassing result, even if another seven or eight member states are expected to cross the legal finishing line in the first quarter of 2010.

Nevertheless, business associations report that many member states have made substantial changes to their national rules and procedures to implement the directive. In addition, member states will, in the coming weeks, begin a mutual-evaluation exercise to identity oversights and gaps in implementation, and correct them.

But even when fully implemented, it is clear that the services directive will not bring the revolution that the Commission initially promised to business.

The directive, as adopted, is a shadow of what was originally proposed by the Commission. Fears in France, Germany, Belgium and Austria that the directive would threaten their cherished social models led them to emasculate the Commission’s proposal. They eliminated the ‘country of origin’ principle, which would have allowed businesses to operate abroad without having to adapt to local regulation. They also removed financial services, gambling, healthcare and some social services, from the directive’s scope. The final version of the legislation is estimated to cover only 20%-30% of the services sector.

The Netherlands Bureau for Economic Policy Analysis has estimated that the agreed version of the directive could still bring EU-wide economic gains of €60 billion-€140bn, but this appears highly optimistic unless further measures are taken to reinforce it.

Only around ten member states are considering making information on their websites available in multiple languages – a step considered critical by the business community, but not required under the legislation. Some member states are going further than others to remove unfair restrictions on businesses. Italy, Poland, Slovakia, Romania, Greece and Lithuania are believed to be the countries where implementation has been least effective.

Having allowed member states (with ample help from MEPs) to cripple its original vision of the services directive, the Commission should demand that what was eventually agreed is robustly implemented and applied.

Implementation of the services law is a test of how serious the EU is about recovering the potential for economic growth that it lost because of the economic crisis.

José Manuel Barroso, the president of the Commission, has stressed the need to recover this growth potential and the importance of using the single market to generate economic growth. In November, as a mark of intent, he appointed former commissioner Mario Monti to prepare proposals on ‘relaunching’ the single market.

These sentiments will be seriously undermined if the Commission cannot convince member states to fulfil the provisions contained in the services directive.

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