The future of European competitiveness
The future of European competitiveness
Part A | A competitiveness strategy for Europe
Foreword
Foreword
Europe has been worrying about slowing growth since the start of this century. Various strategies to raise growth rates have come and gone, but the trend has remained unchanged.
Across different metrics, a wide gap in GDP has opened up between the EU and the US, driven mainly by a more pronounced slowdown in productivity growth in Europe. Europe's households have paid the price in foregone living standards. On a per capita basis, real disposable income has grown almost twice as much in the US as in the EU since two thousand.
For most of this period, slowing growth has been seen as an inconvenience but not a calamity. Europe's exporters managed to capture market shares in faster growing parts of the world, especially Asia. Many more women entered the workforce, lifting the labour contribution to growth. And, after the crises of two thousand eight to two thousand twelve, unemployment steadily fell across Europe, helping to reduce inequality and maintain social welfare.
The EU also benefitted from a favourable global environment. World trade burgeoned under multilateral rules. The safety of the US security umbrella freed up defence budgets to spend on other priorities. In a world of stable geopolitics, we had no reason to be concerned about rising dependencies on countries we expected to remain our friends.
But the foundations on which we built are now being shaken.
The previous global paradigm is fading. The era of rapid world trade growth looks to have passed, with EU companies facing both greater competition from abroad and lower access to overseas markets. Europe has abruptly lost its most important supplier of energy, Russia. All the while, geopolitical stability is waning, and our dependencies have turned out to be vulnerabilities.
Technological change is accelerating rapidly. Europe largely missed out on the digital revolution led by the internet and the productivity gains it brought: in fact, the productivity gap between the EU and the US is largely explained by the tech sector. The EU is weak in the emerging technologies that will drive future growth. Only four of the world's top fifty tech companies are European.
Yet, Europe's need for growth is rising.
The EU is entering the first period in its recent history in which growth will not be supported by rising populations. By two thousand forty, the workforce is projected to shrink by close to two million workers each year. We will have to lean more on productivity to drive growth. If the EU were to maintain its average productivity growth rate since two thousand fifteen, it would only be enough to keep GDP constant until two thousand fifty - at a time when the EU is facing a series of new investment needs that will have to be financed through higher growth.
To digitalise and decarbonise the economy and increase our defence capacity, the investment share in Europe will have to rise by around five percentage points of GDP to levels last seen in the nineteen sixties and seventies. This is unprecedented: for comparison, the additional investments provided by the Marshall Plan between nineteen forty-eight to fifty-one amounted to around one to two percent of GDP annually.
If Europe cannot become more productive, we will be forced to choose. We will not be able to become, at once, a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage. We will not be able to finance our social model. We will have to scale back some, if not all, of our ambitions.
This is an existential challenge.
Europe's fundamental values are prosperity, equity, freedom, peace and democracy in a sustainable environment. The EU exists to ensure that Europeans can always benefit from these fundamental rights. If Europe can no longer provide them to its people - or has to trade off one against the other - it will have lost its reason for being.
The only way to meet this challenge is to grow and become more productive, preserving our values of equity and social inclusion. And the only way to become more productive is for Europe to radically change.