The Czech Republic in EU Single Market: Two Decades of Growth and Challenges

Vincent van Gogh: The Mulberry Tree // Public domain

After joining the European Union, the Czech economy experienced rapid growth. Exports to EU countries soared from 25 billion euros to 188 billion euros in 2022. The growth rate of foreign direct investment increased fourfold after the Czech Republic joined the EU. GDP per capita rose by an impressive 46%. These figures speak clearly: being part of the European Single Market has become essentially vital for the Czech Republic.

This conclusion is also supported by the estimated impacts of the absence of the Single Market, which would mean, for example, a drop in GDP of 18.5%, a decline in consumption of 32.7%, and a reduction in employment by 3.8%. These numbers clearly show that the Czech Republic has become one of the most integrated countries within the European Single Market.

The European Single Market provides EU citizens with a richer and better life. In existing member states, it prevents political representatives from engaging in protectionist efforts and unfairly subsidizing domestic industries. The benefits can be seen in a wide range of other areas, including human rights, travel, security cooperation, and collaboration in education and research. The achievements are remarkable, but succumbing to complacency could lead to economic stagnation, potentially resulting in increased negative reactions to European integration.

Regulation as Phenomenon Across Economy

However, it is important to remember that with the development of the Czech economy comes new challenges. A key issue is the increasing level of regulation, especially in the services sector, which was highlighted between 2014 and 2022 by the OECD’s Services Trade Restrictiveness Index. Tightening regulations across sectors could threaten competitiveness, so it is necessary to reassess current regulatory trends to simplify the business environment and support innovation. This should ultimately lead to further economic development and maintain competitiveness in a rapidly changing global market.

One of the areas most affected by regulation is the services sector. Although the Czech Republic remains one of the most liberal countries in the EU in terms of the amount of regulation, it has unfortunately become one of the “leaders” in regulatory growth compared to the rest of the European Union between 2014 and 2022.

Equally concerning is the high level of professional certification, which is among the highest in the EU. Since both economic studies and expert institutions agree that a high level of certification requirements is harmful to consumers and economic growth, the recommendations of the National Economic Council of the Government to audit and review certification requirements can be agreed upon. This would help increase competition and likely lead to lower prices.

In the labor market, it is worth highlighting the area of the gig economy, which is gaining increasing importance (the principle of the gig economy is that instead of full-time employees, companies hire external workers and independent contractors, offering them a highly flexible work model). However, the sector is unlikely to escape regulation by the European Commission. On the one hand, there is an effort to improve working conditions for people working in the gig economy. On the other hand, there is the risk of unintended consequences of regulation, as happened in Spain, where legislative regulation of courier workers led to the mass termination of contracts.

Lastly, the area of digital services is also gaining significance. The Digital Services Act aims to protect consumers, ensure fair competition in the digital environment, and provide tools for regulating dominant online platforms. Again, it is necessary to continuously question the necessity of regulation and carefully consider potential protectionism, bearing in mind that excessive regulation could disadvantage European companies in the international market, further exacerbating the lag of the European digital sector compared to the American and Asian markets.

Written by Jakub Kuneš, analyst at CETA.

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