Europe’s share of the world economy is Contractionand there are growing concerns that the continent can no longer keep up with the United States and China.
“We are too small,” said former Italian Prime Minister Enrico Letta in a recent speech. report On the future of the single market for the European Union.
“We’re not that ambitious,” said Nikolai Tangen, head of Norway’s sovereign wealth fund, the world’s largest. Financial Times“Americans just work hard.”
“European businesses need to regain their confidence,” the Association of European Chambers of Commerce said. Declared.
of list So-called “Competitiveness crisis” The European Union has too much regulation but too little power for its leadership in Brussels, its financial markets are too fragmented, public and private investment is too low, and its companies are too small to compete on a global scale.
“Our organisation, decision-making and fundraising are designed for ‘yesterday’s world’ – before COVID, before Ukraine, before the Middle East catastrophe and before the return of great power rivalry,” he said. Mario DraghiHe is a former president of the European Central Bank who leads a study on European competitiveness.
Our fundamental reliance on cheap energy from Russia, cheap exports from China, and military protection from the United States 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 vehicle industries, seeking to upend the global free trade system.
Private investment has also lagged: Large companies, for example, invested 60% less than their U.S. peers in 2022 and grew at only two-thirds the rate, according to a report by the Committee on American Investment. McKinsey Global InstitutePer capita income is on average 27 percent lower than in the United States. Productivity growth is slower than in other major economies, and energy prices are much higher.
Draghi’s report will not be made public until voters in the European Union’s 27 member states go to the polls this week to elect their parliamentary representatives.
But he has already declared that “radical change” is needed: in his view, that means a big increase in joint spending, an overhaul of Europe’s messy financing and regulation, and the integration of small and medium-sized enterprises.
The inherent challenges of getting more than 24 countries to function as a single unit are exacerbated in the face of rapid technological advances, intensifying international conflicts, and the increasing use of national policies to direct business. Imagine what would happen if every state in America was sovereign and the federal government had limited power to raise money to fund things like the military.
Europe is already taking steps to catch up. Last year, the European Union Green Deal Industry Plan China first proposed an industrial defense policy this spring to speed up its energy transition, but these efforts pale in comparison to the resources the United States and China are putting into it.
The EU “will fall far behind on its ambitious energy transition targets, including investment in renewables, clean tech capabilities and domestic supply chains,” research firm Rystad Energy said in an analysis this week.
In Draghi’s view, public and private investment in the European Union needs to increase by 500 billion euros ($542 billion) a year just on the digital and green transition.
His report and that of Mr. Letta were mandated by the European Commission, the EU’s executive arm, to guide policymakers meeting in the autumn to set the bloc’s next policy. Five-year strategic plan.
There are still significant numbers of people in Europe and elsewhere who favor free markets and are suspicious of government intervention. But European officials, politicians and Business Leaders more and more talk About the need for more proactive collective action.
Raising public funds Single capital marketThey argue that Europe is unable to make the investments in areas such as defence, energy and supercomputing that are needed to compete effectively.
And without integrating smaller businesses, they will never be able to match the economies of scale that can be achieved by large foreign companies that are well positioned to monopolize market share and profits.
For example, Europe has at least 34 major mobile networks, while China has only four and the United States has only three, Draghi said.
Letta said he experienced Europe’s endemic lack of competitiveness first-hand during a six-month trip to 65 European cities researching the report. “It was not possible to travel by high-speed rail between European capitals,” he said. “This is a serious contradiction and emblematic of the problems of the single market.”
But the proposed solutions could go against a political current: Many leaders and voters across the continent have deep concerns about jobs, living standards and purchasing power.
But the EU is wary of giving the EU more control and financial powers, and is often loath to let domestic brands merge with rivals, erase familiar business practices and administrative rules, and worries about creating a quagmire of new bureaucracy.
Angry farmers in France and Belgium have blocked roads and dumped truck loads of fertiliser this year in protest at expanding EU environmental regulations that control pesticide and fertiliser use, cropping schedules and zoning.
Blaming Brussels is also a popular tactic for far-right parties looking to exploit economic fears. France’s anti-immigration Rally National party has called the European Union “the enemy of the people.”
at the moment, poll Right-wing parties are expected to win more seats in the European Parliament, further dividing the legislative body.
At the national level, government leaders may seek to protect their own power. Over the past decade, the European Union has sought to create a single capital market to facilitate cross-border investment.
But many small countries, including Ireland, Romania and Sweden, are opposed to ceding powers or changing laws to the EU, fearing that their financial industries would be disadvantaged.
Civil society groups are also concerned about the concentration of power, writing a report last month by 13 European organisations. Open Letter They warn that greater market integration would harm consumers, workers and small businesses, give big corporations too much influence and lead to higher prices, and worry that other economic, social and environmental priorities would be neglected.
For over a decade, Europe Falling behind The assessment is based on a range of measures of competitiveness, including capital investment, research and development and productivity growth, but it also says the country is a world leader in reducing emissions, reducing income inequality and increasing social mobility. McKinsey.
And part of the economic gap with the United States is the result of choice: half of the difference between Europe’s and the United States’ gross domestic product per capita is the result of Europeans choosing to work fewer hours on average over their lifetimes.
Others warn that such options may no longer be a luxury for Europeans if they want to maintain their living standards, saying policies governing energy, markets and banking are too fragmented. Simone TagliapietraHe is a senior researcher at the Bruegel Institute in Brussels.
“If we continue to have 27 poorly integrated markets, we will not be able to compete with China or the United States,” he said.
