At its meeting on 23-24 March, the European Council will deal with the issue of European competitiveness and the EU’s internal market. On the occasion of this meeting, the chairman of the Swedish Confederation of Business, Jacob Wallenberg, writes about the reforms required to reverse Europe’s long-term economic decline.
Europe can turn its economy around and become a centre for innovation, productivity, and growth. The European Council summit on March 23-24 will discuss competitiveness and the single market. The summit, as well as the comprehensive set of actions the EU Commission presented on March 16th, will be imperative for European growth and prosperity.
Long-term economic growth, powered by increasing productivity, has slowed for decades. While this has happened in other advanced economies too, Europe remains significantly behind its peers. It is especially the gap in total factor productivity growth, a measure of innovation and technological change, that marks Europe out. The reality of low productivity growth is increasingly experienced by struggling households.
To turn Europe around we need a new agenda for competitiveness and growth.
To turn Europe around we need a new agenda for competitiveness and growth. The Confederation of Swedish Enterprise has recently proposed such an agenda. Crucially, it starts with a European Union programme that sets clear overarching targets for improved economic performance. In the spirit of unity, national governments need to do their part. Much needs to be done, but some outcomes are more important than others.
First, resilience begins at home. Europe needs a new single market agenda that knocks down internal barriers. There is no real single market for services and the digital economy. Capital markets remain fragmented along national lines. Trade in goods is also fraught with border frictions.
Second, European businesses need better access to global markets and that can only be achieved through a better trade policy that is open to the world and that seeks new trade agreements with others.
Third, Europe needs an innovation booster with vastly bigger spending on R&D, better protection of intellectual property and more efforts to attract key talents.
Fourth, our digital capacity can improve by creating a policy environment which enables greater investment in connectivity and digital infrastructure, and by providing incentives for the development and experimentation of new digital technologies and business models, including A.I.
Fifth, the greening of our energy system needs to go hand-in-hand with an energy market that leads to affordable and predictable energy costs. We need far more investment in energy systems research and the production of fossil-free energy sources. This means that for companies to make those investments, barriers need to be removed.
Sixth, infrastructure systems can be improved by reducing transport bottlenecks and better regulation of transport service like rail and road.
Finally, the EU regulatory framework needs an overhaul that takes us not to better but best regulation. Business needs simple, transparent and predictable regulation. Complex and unpredictable regulation dents investment.
With economic reforms that reduce the regulatory burden, greater trade integration with the world, and increased R&D spending, the European economy would grow by 3 percent according to a new study by the Brussels-based think-tank ECIPE. Another €430 billion in value added would go right into the EU economy, boosting productivity, income, jobs and tax revenues.
For Europe to get fit enough to be competitive, it must remain actively invested in its own future.
Chair Confederation of Swedish Enterprise, Chair Investor AB, Member of Steering Committee of European Round Table of Industry, ERT.