He added: “The European Commission is making tremendous efforts to get rid of barriers to trade, and we fully support them”. But member states need to provide a fresh impetus to clear the rules and red tape which are stifling competition and blocking cross-border trade and investment.

The main weak spot in the EU’s internal market is the services sector, according to the report. Differences in national laws make it hard for a service provider in one country to do business across Europe. The report is cautiously optimistic that the EU Services Directive, to be implemented by the end of 2009, will help create Europe-wide markets but said that member governments need to stop protecting providers from outside competition.

Competition is weak also in network industries such as electricity, gas, telecoms, transport, ports and postal services.

To create more competition in energy markets, the report recommends improved linking of national markets to create regional or pan-European markets. The networks also need to be fully separated from the generation and supply activities. The legislative proposals announced yesterday by the Commission on this issue are a welcome development.