Dominant losers: a comment on the services directive from an economic perspective

Abstract

In this paper I take issue with the services directive, commenting on the article by Nicolaïdis and Schmidt (2007). Unrestrained services trade, I argue, would broaden competition and benefit Central Eastern and Western Europe alike, in the presence of compensating factors or in the long run. Despite the welfare-enhancing effects, the services directive did not succeed in realizing the home-country principle. Instead the host-country retains its rights with regard to freedom of establishment, to posted workers and to self-employed persons temporarily crossing European borders. For employees, moreover, abolishing the host-country rule was never considered. I explain this result drawing on Machiavelli's, Rawls' and Olson's insight that numerically few losers can successfully oppose benefits for the whole economy.

Keywords:

• Eastern Europe
• mutual recognition
• services directive
• trade
• unemployment

ACKNOWLEDGEMENTS

I would like to thank Susanne Schmidt for her helpful comments on earlier drafts of this article.