9 CLEAR BENCHMARKS FOR GROWTH IN EUROPE
Summary In recent months, the media has been full of speculation over who will occupy the EU’s top posts, but it is also high time to discuss what the new wave of reforms at the heart of the EU entails. Think Tank EUROPA’s Director, Bjarke Møller presents nine clear benchmarks here.
- Talk about the issues, not the political leaders
- Don’t use the wrong medicine: It’s a job crisis, stupid!
- Make more investments
- Learn from the Germans – without strong industry, the EU’s capacity for innovation will be weakened
- Accelerate Europe’s digital growth
- Without energy, Europe cannot compete
- Enhance growth through the internal market
- More mobility of labour will increase prosperity
- Smarter and simpler regulations
Several European government leaders and opponents of the European Union have tried to interpret the European Parliamentary elections as an indication that the public wants more of a national system and less of an EU one. This is the wrong interpretation. It is fine to give more responsibility to the Member States in areas in which it makes sense to do so, but in many other areas there is a need for closer EU cooperation. Seven out of 10 MEPs belong to pro-EU parties, so there is still a solid majority that wants common European decisions to be made.
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In the context of the European Parliamentary elections, European voters are not so concerned with abstract symbolic and identity talk. A strong desire can be detected among both EU supporters and sceptics for the EU to do more to solve key problems affecting Europeans’ daily lives – high unemployment and a lack of economic growth – through policy reforms. Opinion polls conducted by Eurobarometer show that these are the two problems European citizens worry about the most. The EU leaders should take them seriously.
As the outgoing President of the European Council, Herman Van Rompuy, warned before the Council leaders’ meeting in June, rising inequality is jeopardising many EU citizens’ potential.
Youth unemployment is unacceptably high, so the EU should introduce a new reform agenda that gives greater priority to growth and investments. Its member states also need to implement tax reforms that redirect taxes from the labour force to natural resources, in order to give an extra boost to employment in the EU.
Europe has experienced 3.5 million job losses in the industrial sector since 2008 and manufacturing now only accounts for 15 percent of the EU countries’ GDP. This is one aspect of a long-term trend in which almost all of the EU countries – aside from Germany, which controls 30 percent of Europe’s industrial production – have experienced a decline in industry since the turn of the century. This is a precarious situation, because industry supports about 50 percent of the EU countries’ exports.
Recent business research indicates that a country’s innovative strength relies considerably on manufacturing companies that compete globally and invest in research and development in order to increase their outputs. Europe’s industry must be modernised and optimal investing conditions must be created so that businesses can increase their investments in robotics, new digital solutions and energy efficient technologies in the coming years.
One of the secrets to the German miracle is that their ratio of robots to workers is relatively higher than in other EU countries. Germany’s relative wage expenditures in the industrial sector are, according to an analysis conducted by Deutsche Bank, more or less on a par with Denmark’s, so its competitive advantage is not created by cutting wages down to the lowest common denominator.
In the industrial sector, the cost of materials is more than twice as high as labour costs. Therefore, precision, minimising resource waste and productivity are also critical success factors. So, too, are leadership, developing a strong industry culture and the training of well-qualified employees. The leading German industrial companies can draw on several generations of successful manufacturing companies. Over 60 percent of the Germans’ total production still remains within their own country, while 21 percent is located in other EU countries.
The quickest and most effective way to strengthen Europe’s competitiveness and cohesion is for the EU to leap ahead digitally. All countries, regions and towns in Europe should accelerate their investments in fibre-optic communication and faster broadband connections in order to reduce the distance between different markets and cultures in the EU. This would allow companies located in even the EU’s outermost regions the chance to compete and sell goods and services in the global market.
Our GDP can be increased by 4 percent over the long term if our digital infrastructure is modernised, Copenhagen Economics estimates. Rather than being a frontrunner, the EU risks being left behind in the digital arms race. Japan, South Korea and the US combined have approximately the same population as Europe, but they have more than eight times as much fibre-optic broadband and more than 15 times as many 4G mobile networks. Europe will lose, if we do not go digital.
This is a major barrier which must be overcome before Europe can have a well-functioning internal market for digital services, trade and cultural exchange. The digital market is still split into national territories, which prevents the public from making the most of the internet’s full potential. They cannot, for example, download music, films or other services freely across national borders, so the EU must make a wholehearted push for digital development in the internal market. At the same time, the digitalisation of Europe should also the include public sector’s services and this is where the EU countries can draw inspiration from Denmark, which is one of the digital frontrunners. There is huge untapped potential in gathering and using the new knowledge accumulated in Big Data across the continent.
The result of the Scottish referendum is good news for the whole of Europe. A clear majority of Scots have said “yes” to remaining part of the 307-year-old United Kingdom. With this result Great Britain has avoided going through a painful and difficult division of assets and liabilities, which could have created significant financial and political unrest.
Now there is a great need to ensure that a national reconciliation process gets underway in Scotland, where there has been a severe polarisation between the yes- and no-voters. And reconciliation should also take place between the Scottish nationalists and the British unionists all the way to Westminster in London. Expanding Scottish autonomy, as the major British parties have promised the Scots, could be an important step towards ensuring this reconciliation.
The EU must revitalise one of its greatest success stories, the internal market. As a common economic space it is responsible for 23 percent of the world’s GDP, and the free movement of goods, services, capital and workers has contributed to increasing prosperity across the EU. At the same time, it has made the EU a more attractive region for direct foreign investment, as the chance to achieve large-scale advantages is much better in the internal market than in the old nation-states’ relatively smaller markets. Up to 40 percent of the direct foreign investments at a global level go to EU countries, which is twice as much as the US attracts.
A new wave of liberalisation and deregulation in the internal market can lift prosperity significantly across the EU, and analyses from the European Parliament’s database show that it is possible to achieve economic gains of up to 260 billion euro. A better functioning internal market, which encompasses services and digital transactions, will strengthen European companies’ global competitiveness and make it easier for them to achieve economies of scale. Political parties and nations should look beyond their ideological differences to gather and formulate the requirements that will determine the next generation of the internal market. This could be the battering ram for higher growth in the EU.
In the future, The European Union should only trade in and regulate areas in which the member states cannot manage better themselves. There was much talk about the principle of subsidiarity – or the so-called proximity principle – after the Danish vote against the Maastricht Treaty in 1992. This principle now appears to have had a political revival at the heart of the EU. The cooperation should focus on the big issues, but be less involved in the minor cases.
Smarter and simpler regulation will be one of the major points on the EU’s agenda over the next five years, and, under José Manuel Barroso’s Presidency, the Commission has already launched the so-called REFIT program for smarter, simpler and easier legislation. This work should continue during Juncker’s commission. The rules and guidelines on public procurement in the EU have already been simplified, simpler regulations for mutual recognition of academic qualifications have been introduced and several proposed laws have been withdrawn.
This is an important process which can contribute to strengthening the EU, making the legislative process more streamlined and producing much better results. It is also worth taking a closer look at the often very diverse ways in which member states implement EU legislation, as this has been a source of ongoing frustration and misunderstanding. The new European Commission should expand and intensify its work on developing smarter and simpler regulations so the EU’s rules appear less bureaucratic. This will make life easier for actors such as small and medium businesses in the internal market.
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