By Ariane Poulain
The response to the Greek crisis is still unfolding but regardless of whether the solution includes another bailout package and/or reprofiling, investment in areas that will ensure long-term competitiveness for Europe cannot – and must not – be sidelined.
Earlier this month, the European Commission released the “Innovation Union Competitiveness Report 2011” which directly taps into the overall argument of BNE’s latest publication “Competitiveness – What the EU needs to do” and BNE’s letter signed by British business leaders in the Telegraph.
To ensure Europe’s competitiveness in the global economy, it must prioritise reforms that will boost growth, jobs and productivity. As the Commission’s report rightly noted increasing “smarter” investment has a “counter-cyclical effect in times of crisis”. Table 1 demonstrates the detrimental extent to which the EU has been failing to compete with other advanced economies.
The sovereign debt crisis could actually be renamed the lack of competitiveness crisis; the absence of fiscal convergence under the single currency allowed debt levels of the peripheral countries to soar but the ultimate nail in the coffin was that competitiveness in the EU, particularly in the euro zone, was neglected. Joining the euro was not synonymous with fully embracing the single market. For example, Greece and Portugal benefited from cheaper imports but did not exploit the heightened export opportunities that the EMU created.
However, going forward, it is not too late for competitiveness in the EU to be restored and amidst the panic of the Greek bailout Europe must not forget this. As Nouriel Roubini argued in the Financial Times last week “debt reduction will not be sufficient to restore [Europe’s] competitiveness and growth.”
The short-term options to achieve an optimal currency area in Europe are unrealistic and do not contribute to proactive discussions on crisis resolution. Yes, resolving the critical problems in Greece is the immediate priority – the headlines leave no doubt about that. Following the meeting of EU finance ministers yesterday, the Greek bailout will undoubtedly overshadow the upcoming Council summit later this week but the other main topics on the agenda for Thursday and Friday must not be neglected. Broader economic policy, migration, Croatian accession and the Danube Strategy will all make a valuable contribution to the medium and long-term position of the EU in the global political economy.
Furthermore, beyond the main topics on the agenda for the European council meeting, there are other major areas that deserve serious attention. For example, the Commission’s initiative to help SMEs access venture capital and the next Multiannual Financial Framework (MFF) 2014-2020.
SMEs account for approximately 60% of EU GDP and in our publication, Guy Berruyer and Sir Mike Rake both emphasized the importance of helping innovative SMEs become more efficient because they are a “key driver for economic growth, innovation, employment and social integration.” In regards to the MFF, John Peet, Europe Editor for the Economist, argued at our publication launch event on Friday that the EU budget must be “updated and modernized” and BNE fully agrees. Negotiations on the next MFF must recognize that previous EU spending has targeted areas that do not promote an open trading culture in their current form, such as the CAP. BNE wants an overall reduction in the next seven-year budget plan alongside a reallocation of spending, with funding moved away from protectionist policies and instead, invested in areas such as infrastructure and R&D, which the business leaders in our publication advocate as vital to boosting jobs and growth as well as creating a true single market. Table 2 below charts the extent to which the EU has fallen behind other advanced economies in labour productivity and demonstrates the importance of introducing reforms that will increase labour productivity, particularly in the single market for services.
Completion of the single market is a key theme across the articles by business leaders because securing Europe’s energy security, strengthening Europe’s digital marketplace and fulfilling the potential of the EU in services would add €800bn to EU GDP, significantly improving labour productivity. Furthermore, after a ten-year implementation period, the EU national income would be approximately 14% higher and in the UK alone, exports would increase by nearly 50%.
“Everyone talks about the single market as important but not enough is being done to complete it” stated the Minister for Europe, David Lidington, at Friday’s launch event and the business leaders in BNE’s publication have provided practical steps for Europe to take to progress towards the completion of the single market. The Minister for Europe agreed with BNE Chairman, Roland Rudd, that Europe’s leaders could do a lot worse than follow this advice.