Improving competition in the Member States to boost growth.
Date: 2016-03-29
Institutions: Directorate-General for Competition
Subjects: competition law, competition policy, economic growth, economic reform

Issue 2015-05 |  July 2015 

ISBN 978-92-79-45011-2, ISSN: 2315-3113

Competition policy brief  

Occasional discussion papers by the Competition Directorate–General of the European Commission  

Improving competition in the Member States  
to boost growth  

On 26 February 2015, to back up its recommendations for 
economic policy reforms in the Member States in the frame 
of  European  Semester,  the  Commission  published  the 
"Country  Reports"1.    This  Competition  Policy  Brief  focuses 
on the competition relevant aspects in the Country Reports.  

In search for growth in Europe: How can 
competition help? 

In  many  Member  States  there  is  the  need  for  ambitious 
implementation of structural reforms, to make product and 
service markets more flexible and competitive.  

Vibrant  competition  steers  innovation  and  makes  markets 
deliver benefits to consumers, businesses and society as a 
whole.  Furthermore,  the  benefits  of  competition  can  be 
magnified  when  several  countries  implement  structural 
in  parallel.  Commission  analysis  show  that 
reforms 
increased competition in EU Member States would produce 
a significant effect on growth. 2 

Source: European Commission calculations.  

By  boosting  growth,  competitiveness  and  job  creation, 
competition-enhancing structural reforms can contribute to 
a broader sharing of prosperity. 

1  

2  

available 

The  Country  Reports  published  on  26  February  2015, 
the 
recommendations  proposed  by  the  Commission  on  13  May  2015  and 
the recommendations as finally adopted by the Council on 14 July 2015 
are 
http://ec.europa.eu/europe2020/making-it-
happen/country-specific-recommendations/index_en.htm.  
European Commission calculations based on Commission Staff Working 
Document for 2014-2015, available at http://ec.europa.eu/europe2020/ 
making-it-happen/country-specific-recommendations/index_en.htm  

at 

Competition policy briefs are written by the staff of the Competition 
Directorate-General  and  provide  background  to  policy  discussions. 
They represent the authors’ view on the matter and do not bind the 
Commission in any way. 

In a nutshell

Estimates by the Commission show that improving 
competition can have a significant positive impact 
on GDP. 

In May 2015, the Commission called for reforms to 
increase competition - mainly in network industries 
and other service sectors.  

The  Commission  issued  this  call  as  part  of  its 
recommendations  for  the  European  Semester,  a 
yearly  cycle  created  in  2010  to  drive  economic 
reforms by Member States. The cycle culminates in 
the  spring  and  summer  when  the  Commission 
proposes  Member  State-specific  recommendations 
which are then adopted by the Council.  

Drawing  on  the  Commission's  Country  Reports, 
this 
which  underpin 
Competition 
some 
competition  challenges  at  national  level  and  how 
individual Member States tackle them.

recommendations, 

highlights 

Policy 

Brief 

the 

Remaining obstacles to competition in 
network industries and services 

The  Country  Reports  identify  impediments  to  competition, 
such  as 
insufficient  market  opening,  anticompetitive 
regulations  and  high  entry  barriers  in  the  majority  of  the 
Member  States.  Competition  is  not  an  end  in  itself:  some 
restrictions  are  justified  on  the  ground  of  other  important 
policy  goals,  such  as  social  and  environmental  objectives. 
However, unnecessary obstacles to competition constitute a 

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Reproduction is authorised provided the source is acknowledged.
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Improving competition in the Member States| Competition policy brief 

Survey – relate to the difficulty of switching providers. The 
Country  Reports  for  several  member  States  highlight  very 
low switching rates. For example, the Reports for Lithuania 
and  Croatia  draw  attention  to  low  switching  rates  among 
retail consumers 

reducing  environmentally  harmful 

Exemptions  for  energy-intensive 
industries 
from  energy  taxation  in  Germany  burdens  non-
exempted industries and households with higher 
electricity bills  
"In Germany, no measures have been taken to broaden the 
tax  base  by 
tax 
expenditure, such as energy tax reductions and exemptions 
or the favourable taxation of company cars. 
While  the  total  financial  exemption  of  energy-intensive 
industries from the renewable surcharge slightly decreased 
owing  to  the  reform,  the  number  of  exempted  sectors 
[…] 
and  companies 
Exemptions  for  large  sections  of  the  industry  add  to  the 
electricity bill of other industrial consumers and households 
and  tend  to  distort  price  signals.  In  the  future,  using 
auctions  as  the  standard  procedure  for  allocating  support 
could bring down costs even further." 

remained  almost  unchanged 

Overcoming some obstacles to 
competition 

Several  Member  States  took  steps  to  improve  competition 
in  the  energy  sector.  For  instance,  in  the  Baltic  States  the 
scope for competition increased as a result of investment in 
infrastructure  such  as  interconnectors  (Lithuania,  Estonia) 
and liquefied natural gas terminals (Lithuania). 

Lithuania  reinforces  its  gas  and  electricity 
connections within the Single Market 
"Lithuania has made some progress on upgrading its energy 
infrastructure.  It  has  opened  the  first  liquefied  natural 
gas terminal in the Baltic States, and is continuing efforts 
to  improve  its  gas  and  electricity  interconnections  with  its 
neighbouring states." 

Belgium  took  measures  to  facilitate  price  comparison  and 
switching  between  energy  providers,  while  France  decided 
to phase out regulated tariffs hampering competitive entry. 

injects  competition 

Belgium 
into  electricity 
markets  by  making  price  comparisons  and 
switching easier  
"In  Belgium,  retail  markets  for  gas  and  electricity  have 
become  significantly  more  dynamic  in  recent  years,  as 
reflected in lower market shares, higher switching rates and 
higher  entry  rates.  This  was  triggered  by  several 
government  measures  to  enhance  price-consciousness 
and  make  it  easier  to  switch  providers  which  have 
stimulated competition on the market." 

brake  for  achieving  growth  and  prosperity  across  the  EU 
and therefore shall not be left unaddressed.  

The  problems  assessed  in  the  Country  Reports  mainly 
telecoms  and 
industries 
concern  key  network 
broadband,  gas  and  electricity),  the  retail  sector  and 
professional  services.  Services  are  in  general  less  exposed 
to international competition than manufacturing.  

(rail, 

Obstacles  to  competition  and  reforms  to  tackle  them  by 
individual  Member  States  are  presented  below  by  sector. 
For  each  sector  illustrative  passages  from  the  Country 
Reports  are  quoted.    This  Brief  does  not  attempt  to 
exhaustively  describe  all  competition  issues  dealt  with  in 
the European Semester. 

COMPETITION IN ELECTRICITY AND GAS  
Examples of obstacles to competition 

Building  a  competitive  energy  market  based  on  the  best 
possible  use  of  resources  is  one  of  the  Commission's 
priority goals. The energy sector is of capital importance to 
the EU, as energy is an essential item for every household 
and  a  key  input  across  all  economic  sectors.  Many  EU 
citizens  and  businesses  suffer  the  consequences  of  a  lack 
of competition in the energy sector in terms of choice and 
prices.  

The  Eurobarometer  Citizen  Survey3,  published  in  March 
2015,  confirms  this  view  as  the  energy  sector  was 
mentioned  in  most  Member  States  as  the  sector  where 
citizens experienced lack of competition. 

Several  challenges  are  currently  affecting  the  electricity 
and  gas  sector.  Among  them,  the  key  issues  concern 
increasing prices, slow pace of investment in infrastructure 
and security of supply.   

These problems result from a lack of competition and from 
the insufficient diversification in the supply side. 

The Country Reports single out highly concentrated markets 
and/or low entry rates in France, Lithuania, Spain  and 
Belgium.  

in 

insufficient 

Likewise, 
infrastructure  (for 
investment 
example  in  cross-border  interconnectors)  is  identified  in 
Belgium,  Bulgaria,  Germany,  Italy,  Latvia,  Lithuania  and 
Malta.  The  Reports  mention  regulated  gas  and  electricity 
prices in Bulgaria, Croatia, Poland and France while lack of 
is  found  as 
independence  of  the  energy  regulators 
problematic in Hungary and Bulgaria.  

Another obstacle to competition in the energy sector – that 
was  also  frequently  mentioned  by  citizens  in  the  Citizen 

3    http://ec.europa.eu/competition/publications/reports/surveys_en.html 

2

                                                             
 
 
 
 
 Improving competition in the Member States| Competition policy brief 

France  strengthens  competition  by  phasing  out 
regulated gas and electricity prices  
"In  France,  the  most  problematic  regulated  prices  are 
being  phased  out  […]  Setting  retail  prices  at  levels  that 
does  not  cover  costs  makes  it  more  difficult  for  new 
suppliers  to  enter  the  market  and  therefore  limits  the 
contestability of the market." 

Competitive  entry  in  Slovenia  lowered  gas 
prices  
"In  Slovenia,  the  entry  of  a  new  supplier  (GEN-I)  in  the 
gas sector also lead to lower prices for the first time since 
2009."  

COMPETITION IN THE ICT SECTOR  
Examples of obstacles to competition 
The  ICT  (Information  and  Communications  Technologies) 
sector holds enormous potential in terms of new sources of 
growth  and  employment  as  it  plays  a  key  role  in  most 
business  processes,  from  production  to  marketing  and 
sales. A dynamic and competitive market in the ICT industry 
is therefore essential in this respect.  

A  vibrant  Digital  Single  Market  fuels  innovation,  creates 
new jobs and stimulates the development of new markets. 
It  creates  new  opportunities  for  European  start-ups  and 
SMEs  to  reach  out  to  a  market  of  over  500  million  people 
and helps governments that use digital tools. 

infrastructure 

A  comprehensive  approach  to  a  number  of  interrelated 
factors  is  necessary  to  achieve  the  Digital  Single  Market. 
Poor 
(networks  and  connections)  and 
regulatory  restrictions  and  fragmentation  remain  amongst 
the  key  challenges  in  the  ICT  sector.  As  identified  in  the 
Country  Reports,  Member  States  still  need  significant 
investment  to  increase  the  availability  of  high-speed  fixed 
and mobile broadband. 

Moreover, increasing broadband take-up is crucial: evidence 
shows  that  a  10  percentage  point  rise  leads  to  an  annual 
growth  in  per-capita  GDP  of  1  -  1.5  percentage  points 4. 
However,  as  mentioned  in  the  Country  Reports,  mobile 
and/or  fixed  broadband  take  up  is  still  low  in  several 
Member  States 
(Croatia,  Poland,  Portugal,  Romania, 
Slovenia  and  Spain)  and  this  is  partially  due  to  high 
subscription costs.  

Moreover,  regulatory  restrictions  or  regulatory  uncertainty 
are  highlighted  in  Bulgaria,  France  and  Hungary,  rendering 
the performance of the sector sub-optimal. 

4   Source: Broadband Infrastructure and Economic Growth, Czernich et al. 

(2009), http://onlinelibrary.wiley.com/doi/10.1111/j.1468-
0297.2011.024 
20.x/full .   

Croatia  has  the  highest  prices  as  well  as  a 
strong incumbent telecoms operator  
"In  terms  of  affordability,  Croatia  ranks  last  out  of  the  28 
Member  States.  This  could  be  related  to  the  market  being 
dominated  by  the  incumbent  operator  […]  challenges 
fast  broadband 
remain  as 
infrastructures  and  making 
internet  access  more 
affordable.  Greater  competition  in  the  market  could  also 
reduce  the  costs  of  the  internet  for  citizens  and 
encourage greater take-up." 

regards  availability  of 

Overcoming some obstacles 
to competition 

Certain  progress  was  achieved  across  the  EU  in  the  ICT 
area. For instance, Italy took measures to make it easier to 
switch between telecom service providers. 

Acting  on  recommendations  by  the  competition 
authority, Italy made it easier to switch service 
providers 
"In February 2015, the government has adopted a draft law 
on competition addressing barriers to competition in several 
sectors of the economy … The draft law covers most of the 
sectors  identified  by  the  Competition  Authority  and  in  the 
2014  country-specific 
the 
telecommunication  sector,  positive  measures  are  taken  to 
ease  switch  also  through  increased  transparency  on  the 
conditions and penalties." 

recommendations 

[…] 

In 

COMPETITION  IN  TRANSPORT  (COUNTRY 
REPORTS) 
Examples of obstacles to competition 

The transport  sector  represents a key area for  growth and 
competitiveness,  due  to  its  particular  function  in  servicing 
the  other  sectors  of  the  economy.  Transport  and  storage 
services account for around 5% of total value added in the 
EU. In addition, transport-related goods and services are the 
second biggest  household  budget  item after house-related 
expenditure. 

In  the  transport  sector,  regulatory  constraints  and  high 
entry  barriers  remain  quite  common,  contributing  to  a 
concentration  of  supply  and  a  weakening  of  competition. 
While some competition issues, for example those linked to 
public  procurement  aspects,  are  cross-cutting  across 
transport  modes,  other  competition  problems  are  peculiar 
to a specific transport mode. 

Among  the  different  modes,  the  Country  Reports  devote 
particular  attention  to  rail,  where  effective  competition  is 
often  hampered  by  a  number  of  regulatory,  technical  and 
market barriers.  

Entry  barriers  and  insufficient  market  opening  impede  rail 
markets  in  Belgium,  Hungary,  the  Czech  Republic,  Croatia, 
France, Germany, Lithuania and Spain. Specific obstacles to 

3

 
 
 
 
                                                             
 
Improving competition in the Member States| Competition policy brief 

competition  include  high  track  access  charges  (Germany 
and Poland) as well as discriminatory infrastructure charges 
(Bulgaria).  The  Country  Report  for  Germany  highlights 
insufficient financial transparency as problematic.  

In  Italy,  the  level  of  public  subsidies  in  road  transport  is 
relatively  high  compared  to  their  counterparts,  while 
regulatory  restrictions  in  the  port  sector  exist  in  Belgium 
and Portugal.  

In  France,  Italy  and  the  Czech  Republic,  limited  public 
tendering  of  public  service  obligation  contracts  in  the  rail 
sector is identified as a concern.  

No  moves  by  Belgium  to  open  domestic  rail  to 
competition  
"The  transport  sector  is  still  suffering  from  the  inefficient 
way  the  market  functions.  No  steps  have  been  taken  to 
open  up 
rail  passenger  market  to 
competition"  

the  domestic 

Further  rail  liberalisation  is  needed  in  Croatia 
to attract investment 
"[…]  negative  profitability  in  railways  has  been  a  common 
phenomenon in most Member States since the beginning of 
the crisis. In 2012, the state-owned Croatian Railways was 
independent  companies,  but 
broken  down 
greater liberalisation in the market is still necessary to 
increase competition and attract investment." 

into  three 

No  significant  progress  in  the  German  long 
distance rail passenger segment  
"The  competitive  situation  in  the  German  railway  markets 
has not significantly improved since last year. In particular, 
in  the  long  distance  rail  passenger  segment,  the  difficult 
is  discouraging  for  new 
competitive  environment 
entrants.  Track  access  charges 
long  distance 
passenger  transport  are  among  the  highest  in  the  EU. 
The market share of new entrants in the long distance rail 
passenger market remains below 1% and is falling. One of 
the  few  non-incumbent  operators  stopped  operations 
during 2014."  

for 

Overcoming some obstacles 
to competition 

Several  Member  States  took  steps  to  improve  competition 
in  the  transport  sector.  For  instance,  France  liberalised 
segments  of  the  coach  transport  market,  while  Spain, 
Romania  and  Slovakia  took  action  to  open  rail  passenger 
services 
launched  an 
to  competition.  Portugal  also 
unbundling process for rail freight terminals.  

France opens up domestic coach transport 
"France  is  liberalising  the  market  for  domestic  coach 
transport. The market for domestic transport is traditionally 
subject  to  very  strict  authorisation  procedures  in 
France.  Typically,  authorisations  for  operating  a  regular 
coach  connection  are  refused  where  they  could  potentially 
compete  with  train  services  run  under  public  service 
obligations.  Only  a  few  lines  are  operated  on  the  French 
territory,  and  the  share  of  coaches  in  inter-regional 
transport of passengers is negligible […] 

The new Italian Transport Authority is beginning 
to tackle major obstacles to competition  
"The Transport Authority is operational and is consolidating 
its  work  and  activities.  The  Transport  Authority,  legally 
established  in  2011,  was  set  up  in  September  2013  and 
became  operational  in  January  2014.  Full  staff  enrolment 
is  still  pending,  but  the  authority  has  already  started 
taking some regulatory actions,  for  example  on  access 
to  railway  infrastructure,  passenger  rights,  airport  tariffs 
and tender criteria for highways and local public transport. 
This  could  help  to  address  some  of  the  major  barriers  to 
competition."  

COMPETITION IN RETAIL 
Examples of obstacles to competition 

In the retail sector, regulatory restrictions and a high degree 
of  market  concentration  can  be  identified  as  the  main 
obstacles  to  competition.  Strict  regulations  often  have  a 
negative  impact  on  productivity  growth  and  constitute  a 
barrier for new operators to market entry and expansion.  

Moreover,  in  several  Member  States  the  retail  sector  is 
characterized  by  relatively  high  prices  (compared  to  EU 
neighbouring or comparable countries) and low productivity.  

The  Country  Reports  single  out  Belgium  and  Denmark  as 
Member  States  where  the  lack  of  retail  competition  is 
reflected in relatively high prices. Moreover, the retail sector 
in  Finland,  Germany  and  France  suffers  from 
low 
productivity.   

level  of  regulation  and  operational 
High 
restrictions  hinders  Belgian  retail  sector  and 
may impact prices 
"The  retail  sector  continues  to  be  the  subject  of  a  number 
of  regulations  that  hinder  its  development.  Price  levels 
and  growth  rates  for  both  food  and  non-food 
products  are  substantially  higher  in  Belgium  than  in 
neighbouring countries. While certain factors inherent to the 
country  help  to  explain  this  difference,  the  Belgian  retail 
sector  also  displays  one  of  the  highest  levels  of 
regulation  and  operational  restrictions,  according  to 
the  OECD  Product  Market  Regulation  indicator.  These 
hinder  the  sector's  development  and  may  impact 
prices.  Estimates  suggest  the  price-cost  margin  or  mark-
ups in the Belgian retail trade sector are the second highest 
of all Member States"  

4

 
 
 
 
 
 
 
 
 Improving competition in the Member States| Competition policy brief 

Likewise,  Finland  show  a  high  degree  of  concentration  in 
the  retail  sector  compared  to  the  neighbouring  countries 
while  the  Finnish  product  market  regulation  indicators  – 
through  which 
restrictions  on 
the  OECD  measures 
establishment and conduct in the retail sector – attain one 
of 
(see  graph 
'Restrictiveness of regulation of the retail sector').  

level  across 

the  highest 

the  EU 

Other  obstacles  to  competition  involve  a  ban  on  sales 
below cost (France) and on retail outlets operating at a 
loss (Hungary). 

Restrictiveness of regulation of the retail sector 

Overcoming 
competition 

some 

obstacles 

to 

Certain  progress  was  achieved  across  the  EU  in 
improving competition in the retail sector. For example, 
France,  Spain  and  Belgium  made  it  easier  to  establish 
retail  outlets.  France  and  Spain  liberalised  opening 
hours.  Finland  added  competition  as  a  criterion  in  land 
use and planning.   

COMPETITION IN REGULATED 
PROFESSIONS  
Examples of obstacles to competition 

Member  States  maintain  several  regulatory  and  legal 
barriers  in  a  number  of  professions.  There  are  very  good 
reasons  why  such  restrictions  may  exist,  for  example 
consumer  protection;  however,  overly  restrictive  conditions 
for  accessing  certain  professions  may  result  in  excessive 
prices and insufficient market entry.  

Increasing  competition  in  this  area  would  enable  qualified 
workers  to  access  the  market  and  benefit  European 
consumers  with  wider  choice  and  more  competitive  prices. 
It  could  also  have  a  positive  impact  on  the  employment 
situation  and  enhance  economic  growth,  especially  since 

professional services alone amount to around 9% of GDP in 
the European Union. 

Regulatory  barriers  to  market  access,  fixed  tariffs  and 
quantitative  restrictions  on  market  entry  are  among  the 
most significant challenges in the energy sector. 

Several  Country  Reports  identify  regulatory  barriers  to 
market  access.  For  example,  competition  is  found  to  be 
constrained by fixed tariffs in Austria, France, Hungary and 
Slovenia.  

Likewise,  quotas  and  other  quantitative  restrictions  on  the 
number  of  entrants  constitute  barriers  to  competition  in 
Hungary, Italy and Slovenia.  

The  Country  Report  for  Hungary  pinpoints  discriminatory 
practices  against  foreign  competition.  Moreover,  Belgium, 
Spain,  France,  Ireland  and  Slovenia  suffer  from  a  lack  of 
competition which results in excessive rents. 

Overcoming 
competition 

some 

obstacles 

to 

Many  Member  States  are  taking  steps  to  make  the  rules 
more pro-competitive by making access to the professions 
easier 
(Austria,  Germany,  Slovakia,  Poland,  Slovenia, 
Belgium, France, Italy, Portugal, Ireland and Spain). 

Over  the  last  two  decades  competition  in  the  regulated 
professions  has  improved  overall.  As  shown  in  the  graph 
below,  the  price  mark-ups  over  costs  in  professional 
services fell in around half of the Member States between 
1996 to 2013, indicating increased competitive pressure.       

Mark-ups over costs in professional services 

Source: European Commission calculations 

5

 
 
 
Improving competition in the Member States| Competition policy brief 

entry costs), labour market reforms (increased participation, 
active labour market policies, and benefit reforms) and tax 
reforms  (shifting  taxation  towards  indirect  taxes)  have  the 
largest effects".  

The  GDP  impact  of  the  competition-enhancing  reforms 
after  respectively  5,  10  and  20  years  are  depicted  at  the 
bottom of each column in brown. 

The  potential  growth 
impact  of  structural 
reforms in the euro area (GDP effects by reform 
areas after 5, 10, and 20 years) 

Source: Varga and in’t Veld (2014) 

Conclusions 

Healthy  competition  and  well-functioning  markets  improve 
the  economy  and  deliver  benefits  to  businesses  and 
citizens.  For  this  reasons,  competition  challenges  are  an 
important part of the European Semester.  

By tackling the remaining obstacles to competition, Member 
States could significantly boost economic growth across the 
EU. 

37 

registered 

investigated 

Reforming  37  regulated  professions  in  France 
could add half a percentage point to growth 
"A  number  of  regulations  and  tariffs  for  regulated 
professions  in  France  constrain  economic  activity.  A  report 
from  the  Inspection  Générale  des  Finances  (IGF)  on 
regulated 
regulated 
professions 
professions,  out  of  over  200 
regulated 
professions, with a total annual turnover of about EUR 235 
billion  accounting  for  6.4  %  of  GDP  in  2010.The  report 
suggested that a number of regulations and tariffs were no 
longer 
justified.  These  regulatory  barriers  led  to 
excessive  rents.  [...]  To  end  these  excessive  rents,  the 
report  proposed  regulatory  changes  for  all  the  37 
professions which, if adopted, could increase GDP by 0.5 
pp. and create more than 120 000 jobs over five years 
according to estimates  by the  French Treasury  cited in the 
IGF  report.  For  the  legal  professions,  an  analysis  by  the 
Competition  Authority  broadly  confirms  that  there  are 
regulatory barriers that can create economic rents in these 
sectors […]" 

Ongoing Polish reforms of legal services lead to 
more competitive entry and lower prices  
"The  deregulation  of  professional  services  in  Poland  is 
progressing  well.  The  overall  aim  of  the  reform  is  to 
liberalise  access  to  ca.  250  professions,  where 
currently  almost  1  million  people  are  employed  or  self-
employed. The reform is carried out in three tranches. The 
first two tranches covering 147 professions (including legal 
and  real  estate  professions,  taxi  drivers,  tourist  guides, 
sport 
instructors,  security  personnel,  architects,  urban 
planners,  civil  engineers,  tax  advisers,  auditors)  were 
adopted  in  2013-14.  The  third  one  (101  professions 
including patent attorneys, geologists, stockbrokers) will be 
discussed in the Parliament in the first half of 2015 and is 
expected  to  enter  into  force  in  August  2015.  While  an  ex-
post evaluation of the effects of the reform is ongoing, the 
first  results  already  indicate  more  affordable  legal 
services and an increase in the number of lawyers and 
legal solicitors". 

IMPROVING 
GROWTH 

COMPETITION 

RAISES 

The  impact  of  competition-enhancing  reforms  on  growth 
and jobs could be amplified if several countries implement 
structural reforms in parallel.  

In  the  figure  below  the  Commission  estimated  the  GDP 
effects  for  certain  key  reforms  in  the  Eurozone,  assuming 
all  Member  States  undertake  similar  measures5.  More 
specifically,  it  found  that  "in  the  short  run  product  market 
reforms  (higher  competition  in  services  sector  and  lower 

5  

The  estimations  are  based  on  the  QUEST  model  of  the  European 
Commission. This benchmarking methodology uses structural indicators 
in areas such as market competition and regulation, labour market and 
skills,  tax  structure  and  R&D,  and  applies  a  distance-to-frontier 
approach  to  quantify  the  potential  for  reform  by  assuming  a  gradual 
and  partial  closure  of  the  gap  from  the  average  of  the  three  best  EU 
performers (see Varga and in’t Veld, 2014 for detailed explanation). In 
order  to  avoid  setting  unrealistic  and/or  unattainable  targets,  the 
scenarios involve only half of the gaps being gradually closed. 

6