30/12/2013 10:19 GMT | Updated 27/02/2014 05:59 GMT

Happy New Year EU! May 2014 Be the End of Your Ages...

In his letter to Santa, Dr Terence Tse talks about the EU's challenging destiny for 2014. The lack of competitiveness is one of the Region's major sorrows and the current economic and social indicators do not seem to suggest a different story.

The EU cannot really afford to slow down even though it is about to go into a parliamentarian transition, next May. The reasons for national governments to make the necessary reforms to help SMEs grow will become one of Europe's most expected actions. Not doing enough does not only prevent the EU from becoming more competitive; it is a recipe for more problems down the road.

While we have somewhat defused the sovereign debt problem, we could be facing another crisis as a result of corporate and household debt. Moreover, there are already talks about using credits - which only adds more debt to household - to boost consumption in order to reboot the national economies. On the surface, the economy of Spain is growing again. But if we dig deeper, we can see that it is by and large property-fuelled. If it continues as such, we are setting ourselves up for calamity again.

In light of this concern for Europe and following on the suggestions to discontinue the reliance on the German model and to embrace the potential coming from the southern European economies, this end of the year article wants to offer additional food for thought, for the criticality of 2014.

The EU could see the light in 2014 if the following prescriptions are put into place:

Help the small and medium sized enterprises (SMEs): SMEs are the engine of growth and sources of new jobs. They can only flourish if the EU and the national governments create a conducive environment for them to grow. Interestingly, the highest number of SMEs is to be found in the southern economies, reinforcing our belief that it will be from the current "Cinderellas" of Europe, the most significant response to the European recovery. Ironically, even in the absence of help from the governments, we can expect the number of SMEs in the EU to go up substantially in the next couple of years. However, this has less to do with people's entrepreneurial flairs but more about the lack of job opportunities. Consequently, many of them, especially those aged between 18 and 24, have turned to starting their own businesses instead. The trap here is that policy-makers would derail from understanding how to help these entrepreneurs, who need to have a favorable fiscal policy, in support of their efforts.

Generate a favorable fiscal environment for youth entrepreneurship: The current taxation is not helping the acceleration of the economy towards a structural re-integration of what got lost after the financial crisis. The fiscal policies reflect a world of the past, where over-regulation was needed to determine acceptable standards of labor protection and rights. The situation today needs to evolve towards a more flexible fiscal model, which incentivizes the creation of start-ups, without absurd tax burden, which undermines the possibility for any business to succeed. Entrepreneurs need to have the most favorable fiscal environment, with low taxation, especially in the first years of the venture.

Attract foreign capital: The European Commission has been working hard to find new ways to give greater access to capital to Europe's companies especially the SMEs. While the banking union, when completed, will help banks become healthier - it is in itself insufficient. Surely, finding new financing sources such as crowd-funding and promoting competition among banks, as the EU government has been trying, would certainly help. But neither of these would give the instant boosts that capital-starving businesses need. The EU should therefore redouble their efforts in attracting and convincing foreign investors. This does not mean more trade missions to China - these often benefit large companies. What's more important is to convince investors that there remains a great number of businesses in the EU that they can put their money in, even in the peripheral countries. This is one of the reasons why we argue for making the fast-expanding markets in the weaker economies more visible to the investors. The truth is that there are lots of Americans and Asians considering investing in European companies, but they are often uninformed or misguided to where to invest. This is also the case for some northern economies, where several individuals have significant amounts of savings, which sit in the bank. Those investors should be prompted with the possibility to venturing into exciting projects within Europe. Yet, all of them prefer to invest their money outside the EU. Therefore the first step is for the EU to change perception of itself and promote both what it can do and what it is good at.



If we continue to do little to raise our competitiveness, we would not only be falling more and more behind in global competition; we could end up finding ourselves in another crisis. We would become sub-merging economies, with deteriorating prosperity and increased social tension. We must avoid to fall into a new recession, because our socio-economic systems are too fatigued to handle a new Black Swan, unless systematically reformed.

So, Happy New Year, EU! May 2014 be the year of renewed competitiveness, as the only way to avoid the occurrence of the day in which Europe may stand still.