Europe’s share of the global economy is shrinking and fears that the continent will no longer be able to keep up with the USA and China are increasing.
“We are too small,” said Enrico Letta, a former Italian prime minister who recently presented a report to the European Union on the future of the single market.
“We are not very ambitious,” Nicolai Tangen, head of Norway’s sovereign wealth fund, the world’s largest sovereign wealth fund, told the Financial Times. “Americans just work harder.”
“European companies need to regain their self-confidence,” said the European Association of Chambers of Commerce.
The list of reasons for the so-called “competitiveness crisis” goes on: the European Union has too many regulations and its leadership in Brussels has too little power. Financial markets are too fragmented; public and private investments are too low; Companies are too small to survive in global competition.
“Our organization, decision-making and financing are designed for ‘yesterday’s world’ – before Covid, before Ukraine, before the Middle East conflagration, before the return of great power rivalry,” Mario Draghi, a former president of the European Central Bank, said leads a study on Europe’s competitiveness.
Cheap energy from Russia, cheap exports from China and heavy dependence on US military protection can no longer be taken for granted.
At the same time, Beijing and Washington are pouring hundreds of billions of dollars into expanding their own semiconductor, alternative energy and electric car industries and upending the global free trade regime.
Private investments are also lagging behind. For example, according to a report from the McKinsey Global Institute, large corporations invested 60 percent less than their American counterparts in 2022 and grew two-thirds as fast. Per capita income is on average 27 percent lower than in the United States. And productivity growth is slower than in other major economies, while energy prices are much higher.
Mr Draghi’s report will only be published after voters in all 27 European Union states go to the polls this week to elect their parliamentary representatives.
But he has already declared that “radical change” is necessary. In his view, that means a huge increase in shared spending, an overhaul of Europe’s complicated financing and regulation, and consolidation of smaller companies.
The inherent challenges of getting more than two dozen countries to operate as a single entity have intensified amid rapid technological advances, increasing international conflicts and the increasing use of national policies to manage the economy. Imagine if every state in America had national sovereignty and there were limited federal powers to raise money for things like the military.
Europe has already taken some steps to keep pace. Last year, the European Union adopted a Green Deal industrial plan to accelerate the energy transition and proposed an industrial defense policy for the first time this spring. However, these efforts have been dwarfed by the resources deployed by the United States and China.
The bloc “is expected to fall well short of its ambitious energy transition targets in terms of renewable energy, clean technology capacity and domestic supply chain investment,” research firm Rystad Energy said in an analysis this week.
According to Mr. Draghi, public and private investment in the European Union for the digital and green transition alone needs to increase by an additional half a trillion euros a year ($542 billion) to keep pace.
Both his report and Mr Letta’s were commissioned by the European Commission, the European Union’s executive body, to provide guidance to policymakers when they meet in the autumn to draw up the Union’s next five-year strategic plan.
In Europe – and elsewhere – there is still a sizeable group that favors open markets and is wary of government intervention. But many of Europe’s top civil servants, political leaders and business leaders are increasingly talking about the need for more aggressive collective action.
Without pooling public resources and creating a single capital market, they argue, Europe will be unable to make the investments in defense, energy, high-performance computing and more needed to compete effectively.
And without consolidation of smaller companies, it cannot compete with the economies of scale offered by giant foreign companies that are better positioned to grab market share and profits.
Europe, for example, has at least 34 major mobile networks, Mr. Draghi said, while China has four and the United States three.
Mr. Letta said he experienced Europe’s unique competitive shortcomings firsthand when he visited 65 European cities over six months to research his report. It would be impossible “to travel between European capitals by high-speed train,” he said. “This is a profound contradiction that is emblematic of the problems of the internal market.”
However, the proposed solutions may go against the political grain. Many leaders and voters across the continent are deeply concerned about jobs, living standards and purchasing power.
However, they are concerned about giving Brussels more control and financial power. And they often balk at watching national brands merge with competitors or familiar business practices and administrative regulations disappear. Another concern is creating a new quagmire of bureaucracy.
Angry farmers in France and Belgium blocked roads and dumped truckloads of manure this year to protest expanding EU environmental rules that regulate pesticide and fertilizer use, planting plans, zoning and more.
Blaming Brussels is also a convenient tactic for far-right political parties looking to exploit economic fears. The anti-immigrant Rassemblement National party in France has described the European Union as the “enemy of the people”.
Polls currently show that right-wing parties are likely to win more seats in the European Parliament, making the legislature even more fragmented.
At the national level, government leaders can protect their prerogatives. For a decade, the European Union has been trying to create a single capital market to facilitate cross-border investments.
But many smaller countries, including Ireland, Romania and Sweden, have opposed ceding power to Brussels or changing their laws because they fear it would disadvantage their national financial industries.
Civil society organizations also fear the concentration of power. Last month, 13 groups in Europe wrote an open letter warning that greater market consolidation would harm consumers, workers and small businesses and give corporate giants too much influence, leading to rising prices. And they fear that other economic, social and environmental priorities will be ignored.
For more than a decade, Europe has lagged behind in various competitiveness indicators, including capital investment, research and development and productivity growth. However, according to McKinsey, it is a global leader in reducing emissions, limiting income inequality and expanding social mobility.
And some of the economic differences with the United States are the result of voluntary choice. Half of the gap in per capita gross domestic product between Europe and the United States is due to Europeans choosing to work fewer hours on average over their lifetime.
Such decisions could be a luxury that Europeans no longer have if they want to maintain their living standards, others warn. Policies for energy, markets and banks are too different, said Simone Tagliapietra, senior fellow at Bruegel, a research organization in Brussels.
“If we continue to have 27 markets that are not well integrated,” he said, “we cannot compete with the Chinese or the Americans.”
Source link
2024-06-05 04:00:18
www.nytimes.com
