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26/08/2016

EU’s first ‘competitiveness report’ exposes shortfalls

Innovation & Industry

EU’s first ‘competitiveness report’ exposes shortfalls

Antonio Tajani competitiveness report_Picnik.jpg

The European Commission issued its first annual "competitiveness report" last week, assessing countries' economic performance under the newly agreed framework for budgetary surveillance, which foresees sanctions for countries with serious imbalances. Many states showed serious shortfalls, the report found.

The report, published on Friday (14 October), confirms the deep divide between North and West European countries on the one hand, and those on the South and East on the other hand.

Labour productivity and innovation are well above average in countries such as Ireland or Germany, while serious shortfalls were apparent in Bulgaria or Spain, the report shows.

While these differences are already well-known, the scoreboard takes a special significance as it is intended to avoid a repeat of the Greek debt crisis by detecting broader macro-economic imbalances that threaten to put other EU countries at risk.

The board is one part on a newly-agreed framework, the economic governance package, which included an overhaul of the Stability and Growth Pact limiting public debt and deficits in the euro zone. The new package aims to put even more pressure on countries to keep their deficits below a 3% ceiling. 

Under the new surveillance mechanisme, the Commission can now initiate an "excessive imbalance procedure" and propose economic sanctions on a member state whose structural imbalances are not corrected.

Sanctions can be instigated in two steps, starting with an interest-bearing deposit imposed on a member state that fails to comply with the recommended corrective action.

“After a second compliance failure, this interest-bearing deposit can be converted into a fine (up to 0.1% of GDP). Sanctions can also be imposed for failing twice to submit a sufficient corrective action plan,” underlines the European Commission.

Key indicators

In the first exercise of the new monitoring framework, the Commission has outlined three indicators: labour productivity, innovation and bureaucratic burdens for enterprises.

In terms of labour productivity in the manufacturing sector, Ireland is by far at the top of the list, with the Netherlands and Austria also scoring above average. On the other side of the ranking are Bulgaria, Lithuania, Romania and Latvia, which have a much lower labour productivity.

As for innovation, the European Commission praises Germany and Luxembourg for having a share of innovative companies above 60% of the total number of enterprises. On the other end of the scale, less than one third of national companies in Hungary, Poland and Latvia are considered to be innovative.

Red tape

The fight against bureaucracy is among the EU Executive's priorities to increase the competitiveness of member states and of the European Union as a whole.

Italy, Hungary, Greece and Portugal are at the bottom of the ranking, their regulatory systems being extremely burdensome for companies, according to a poll of business executives. Finland, Estonia and Denmark are instead the most business-friendly countries in the EU.

To counter the negative impact of red tape on business development, the Commission recommends modernising public administrations, strengthening public infrastructure and improving business taxation.

Without entering the debate on the proper level of corporate taxation, the Commission proposes a “reduction of compliance burden deriving from taxation”, for instance by “increasing transparency and reducing the complexities of tax codes and compliance regulations, simplifying payment procedures, including through the use of e-government, and ensuring the stability of taxation legislation,” according to a Commission document published together with the competitiveness report.

Controversy on the launch of the report

Aside from its content, the Commission's competitiveness report caused a controversy surrounding the place where it was officially presented.

Last Friday (14 October), the Industry Commissioner, Antonio Tajani, decided to publish the report in Rome rather than in Brussels where Commission initiatives are usually made public and where most of the EU-specialised press is based.

Representatives of the International Press Association (IPA) criticised the fact that the Brussels-based press corps could not attend the launch event and could not ask the commissioner questions.

People close to Tajani claim they did not expect this criticism because the documents were presented at the association of the foreign press in Rome. What’s more, they argue that last year the Commission presented new industry documents in Berlin, sidestepping criticism from the Brussels-based press.

Background

In response to the Greek sovereign debt crisis, the European Union launched a reform of its economic governance, granting stronger surveillance powers to the European Commission which will be able to propose sanctions for member states that do not respect the rules.

After long negotiations, the plan – also known as the 'six-pack' – was adopted in September. Among the Commission's new powers is the possibility to ask countries to correct macro-economic imbalances by monitoring their competitiveness and using sanctions on those who do not correct them.

A competitiveness scoreboard has been introduced to review macro-economic indicators such as productivity, unit labour costs, employment, public debt and private sector credit in order to detect asset price booms and excessive credit growth at an early stage.

For all EU member states, these macro-economic imbalances would be addressed under the 'Europe 2020' strategy for growth and jobs. For countries which have adopted the euro, the peer review currently carried out by the Eurogroup would be upgraded into a more structured surveillance by making use of Article 136 of the EU treaty.

Timeline

  • Jan.-July 2012: EU semester of economic policy coordination and national debt vetting.

Further Reading