by Markus Kerber*
The start
of the EU’s 2014-2019 legislative term offers a unique opportunity to rethink
Europe’s future political priorities.
We urgently need more growth to reduce
unacceptably high unemployment rates in the EU’s southern member states, to
consolidate public finances and overcome growing divergences within the
eurozone.
But over
the next five years, economic growth will mainly be generated outside Europe,
so the key challenge will be to fashion and implement an industrial policy that
strengthens Europeans’ global competitiveness and preserves our high living
standards.
The
European Commission aims to increase industry’s share of GDP from 15% to 20% by
2020. But different strategies exist around Europe for achieving this.
National
industrial policies based on intervention and state aid are seen as key instruments
for reindustrialising an economy.
In France, recent state interventions in the
cases of Peugeot and Alstom have shown that promoting national champions is
still a top priority, whereas in Germany the traditional focus has been on
creating the right framework conditions for the hidden champions of the
“Mittelstand”.
“A far more
determined effort to complete the internal energy market, including strong
incentives for private investment in cross-border energy infrastructure, is
required.”
An EU
industrial policy should complement national approaches by focusing much more
on providing European public goods for globally-competitive value chains.
The
EU and its member states must provide a truly integrated and open single market
that will promote joint production and innovation within Europe and beyond.
Europe
needs a more pragmatic approach in its industrial policy to the roles of states
and markets. Whether or not more state intervention is needed to boost
competitiveness and growth should become less of an ideological question.
In
many cases, the urgent need is for less state intervention. Italy, for
instance, could make its strong industrial base more competitive by
liberalising the labour market and reducing the labour tax wedge.
The need in
Germany is to ensure more competition in services, and Europe as a whole should
set a new quantitative target for reducing the EU’s regulatory burden.But in some
cases, what’s required is a stronger or better state.
In many European
countries, corruption remains an important brake on economic development. The
European Commission says that corruption costs the European economy €120bn a
year, which happens to be exactly the amount that Germany should invest in
infrastructure over the next ten years.
“What
Europe needs are common rules to promote a fast and reliable internet in Europe
and enable companies to better run complex European value chains.”
What Europe
really needs, therefore, is a political debate about how to achieve convergence
between industrial competitiveness and energy and climate targets during the
next legislative term.
A strong industrial base is vital if we are to integrate
Europe into international value chains. But in practice, ambitious Europe has
been giving its highest priority to energy and climate targets.
Too often, this
has been however, at the expense of industry. Between 2000 and 2012, the EU’s
share of world manufacturing value added declined by 5%, while Asian emerging
market economies increased their share by 18%.
During that time, six million
industrial jobs were lost in Europe.The aim of
the European Commission to reindustrialise Europe is very welcome.
But it will
demand a fundamental change in EU governance affecting industrial
competitiveness. The Competitiveness Council will have to be significantly
scaled-up to become a monitoring and control body with real decision-making
powers.
The incoming European Commission should carry out the announced
structural changes to strengthen industrial value chains and ensure a more
consistent and transparent application of competitiveness-proofing.
The EU has
to avoid imposing unnecessary regulatory burdens.Once its
new forward-looking industrial policy aims are agreed, the EU and the member
governments should agree on the most efficient balance between states and
markets needed to achieve them.
For greater competitiveness, public
intervention should be focused much more at a European level. More
European-level decisions on public goods are needed to boost competitiveness
and growth.
An
integrated European single market with well-functioning infrastructure is
crucial if the EU’s full potential in innovation and cross-sector as well as
cross-country production is to be realised.
Europe is the world champion in
industry service integration and joint production of industry and services
together contributes 8.5% to total value added in Europe, whereas the worldwide
average is only 3.7%.
Europe’s success is notable in producing innovative,
tailor-made products that are difficult for our international competitors to
copy.
Another
important factor is the way countries are specialising within value chains that
stretch far beyond their own borders.
Today, 21% of intermediates are imports
from other European countries, but only 14% of patents are joint patents registered
by at least two member states.
This shows that there is still a lot of
potential for cooperation within European innovation networks. Improved
European value chain management is needed if we are to use Europe’s
historically-rooted diversity in economic structures as a comparative advantage
in global competition.
What this
boils down to is the urgent need for a 2014 – 2019 EU industrial policy agenda
that provides the right infrastructure for a well-functioning single market
that’s open to the world: Europe
needs a much more integrated internal energy market.
A European Parliament
estimate suggests a more integrated energy market could yield efficiency gains
of €50bn a year.
At present, each member state decides its own national targets
and policy measures, leading to differences in energy prices and distortions of
competition.
Industrial electricity prices have increased by 37% in the OECD’s
European members between 2005 and 2012, yet decreased by 4% in the U.S.
This is
weakening Europe’s competitiveness and has led to “investment leakage” with
major projects being off-shored.
A far more determined effort to complete the
internal energy market, including strong incentives for private investment in
cross-border energy infrastructure, is required. Much more
could be done to create Europe’s digital single market.
Another European
Parliament study says a truly integrated digital market could result in
efficiency gains of as much as €260bn per year.
The telecoms market in Europe,
for instance, remains highly fragmented along national lines. The U.S., unlike
the EU, has a unified telecommunications market of 315m customers, served by
only four operators who compete within a single framework.
What Europe needs
are common rules to promote a fast and reliable internet in Europe and enable
companies to better run complex European value chains. The EU
institutions should be making the single market more open to the rest of the
world.
European leaders and their U.S. counterparts should make sure that work
on a Transatlantic Trade and Investment Partnership (TTIP) is strengthened
substantially.
With 16.6% of European exports going to the U.S. in 2013, it is
by far Europe’s most important export market. And beyond market access for
goods, services, investments and public procurement, industry would like to see
bold and rapid progress in transatlantic regulatory cooperation, thereby
increasing the EU’s growth and jobs prospects.
Europe is
at a turning point. For the next five years, we need to go far beyond merely
preserving the status quo. The EU’s institutions and member states must agree
on much greater convergence between industrial competitiveness and other
headline targets.
The key will be fashioning an EU industrial policy that
complements national policies and so provides Europe with a truly integrated
and open market.
*Author is Director General of the Federation of
German Industries (BDI)
By: N. Peter Kramer
