Europe’s competitiveness gap: Never waste a good crisis

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

To avoid a lost decade for the competitiveness of the European economy, EU leaders will need to summon the same energy they used to prevent a catastrophic economic meltdown, say Carl Björkman and Guillaume Amigues.

Carl Björkman is director and head of International Organisations and Government Affairs at the World Economic Forum in Geneva. Guillaume Amigues is community manager at the World Economic Forum in Geneva.

The most striking feature of the EU summit in October was the lack of alarmist headlines stemming from it. No mention of a “last chance” to save the eurozone, no warning of an imminent Greek default, no sovereign debt downgrade to report.

Reading through the upbeat comments on the implications of the European Stability Mechanism and a banking union, we were left wondering: where has all the doom and gloom gone? Is Europe, which was seemingly on the verge of an imminent and unavoidable collapse, out of the woods?

Certainly not – this view is not only wrong but is also dangerous. Complacency is a luxury Europe cannot afford as several member states face continuous financial troubles, depressed growth rates, rising unemployment and a creeping sense of social injustice.

The significant steps taken during the European Council to secure the eurozone are naturally welcome, but they should not distract Europe from addressing the root causes of the issues that got it into its predicament in the first place.

Europe’s deficits and sovereign debt crisis can be traced back to its competitiveness gap, which strains the economic and monetary union, compounds the trade balance of its least competitive members and traps them in a public debt whirlpool.

A diverging multi-track Europe

The performance of European economies, as measured by the World Economic Forum's Global Competitiveness Index, reveals the existence of large and growing internal disparities. Indeed, Europe can be grouped into four broad blocks.

The first comprises the highly competitive Nordic countries which remain firmly anchored at the top of the global rankings due to their strong performance in all pillars, including innovation, social inclusion, digital agenda, labour market and employment.

The second block, consisting of a western core, to which Estonia must be added, performs relatively well across the various pillars. A third group is made up of Europe’s less competitive southern and eastern economies, while Greece, Romania and Bulgaria form the fourth and least competitive group.

Avoiding a lost decade

The time for decisive action to bridge this competitiveness gap is now. To avoid a lost decade, European leaders will need to summon the same energy they used to prevent a catastrophic economic meltdown.

The long and arduous climb-back – or the marathon after the sprint to save the eurozone, in the Director of the Centre for European Policy Studies Daniel Gros’s words – has started with the identification of some of the most urgent issues: boosting the knowledge economy; securing the conditions for gainful employment; optimizing the single market services; and upgrading physical, energy and technological infrastructures.

Adopting the corresponding reforms and engaging in growth-enhancing investment in education, research and innovation is the way forward to restore economic and social dynamism, ensure further resilience and create jobs.

Rebuilding Europe’s Competitiveness – moving from what to how

Yet, identifying what needs to be done is not enough. In a challenging fiscal and political environment, understanding how this transformation can be achieved is essential. This question was addressed by Prime Minister Mario Monti during the recent World Economic Forum meeting in Rome.

Drawing from the experience of successful economic reforms in Europe, participants emphasised the importance of broad coalitions of businesses, governments, labour organisations and citizens to support the transition to more advanced economies. Generating such support is no easy feat: to build trust and overcome vested interests, skilled and steadfast political leadership is key.

The relatively high approval ratings that Monti’s unelected emergency government of non-political technocrats still enjoys – despite unpopular austerity measures and painful structural reforms – is cause for optimism. It was also a point he emphatically underscored as he urged Italy's politicians not to cower from taking tough, unpopular decisions after the general elections in 2013.

Never waste a good crisis

Whichever path is followed, decisions taken today will have an enormous impact on the well-being and prosperity of future generations. It is all the more necessary, therefore, to ensure that their views are integrated into the decision-making process. Strengthening the legitimacy and transparency of the European Union has arguably been an urgent need for decades. The importance and magnitude of the choices ahead make it an absolute necessity today.

The 2014 parliamentary elections are the next chance to spark interest in European politics and democratically chart the future course of the continent. Let us not fail to meet this opportunity! Will European political parties identify their candidates to the Presidency of the Commission before the vote, giving a face to the choice to be made by Europeans?

This idea, derailed as a Europhile fantasy a few years ago, has been gaining traction: asked by the World Economic Forum, 69% of the Young Global Leaders and Global Shapers, representing Europe’s next leadership generation, said they would welcome this evolution.

As Europe attempts to move out of the headlines and international pressure recedes, so does the urgency to act on its intrinsic economic and political deficiencies. In this regard, the current squabbling over the next multiannual European budget is a worrying example of the same kind of irresponsible short-term vision that led us to the brink of catastrophe.

Let us hope that European leaders will draw on the lessons of the past and bear in mind that, in the current context, delaying action to strengthen European economies is just passing on our burden to the next generation.

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