Dear Santa, Please Make the EU More Competitive

2014 will be a crucial year for the EU. The European elections are going to take place in May and we certainly hope that they will attract more attention and interest than in the past.

The New Year arrives, the old issues remain

2014 will be a crucial year for the EU. The European elections are going to take place in May and we certainly hope that they will attract more attention and interest than in the past. This is necessary because to many people, the EU is still a distant reality not least because they are oblivious to its influence or choose to view it as the ultimate cause of our current economic troubles. While a stronger collaboration among the countries to deal with the ongoing Eurozone crisis is needed more than ever, the work in Brussels is already winding down and the new EU machinery may not be running in top gear until 2015.

With both Slovenia and Portugal probably needing rescues and austerity programmes elsewhere, it looks like EU's ability to compete would get worse. With GDP per capita at well below the pre-2008 levels and average of unemployment between 20-25% in many countries - much worse for the youth, with more than 50% unemployment in some parts of the Eurozone, things don't look promising at all. It'll indeed a long while before we can get back onto the routes of new prosperity.

It's our ability to compete, stupid

While the austerity medicine may have helped with the symptom, it has certainly not treating the root cause. European countries are still very far from levels of competitiveness they deserve, and the current policies of national governments are not undertaking this issue seriously. Some of the historically strong countries have gradually been slipping down on global rankings, losing out to economies of Latin America, the Gulf and Asia.

Contrary to what many people believe, the fundamental trouble of the Eurozone is much less about heavy debt - both the US and Japan are more indebted - but much more on its inability to compete effectively. The levels of inefficiency in both the labour and goods markets remain high in almost all the European countries; indeed, numerous economic burdens and bureaucratic obstacles have made it difficult to do business in Europe today. But market reforms by themselves do not help restore its ability to compete. What is needed is enhancing productivity through innovation and innovation-driven entrepreneurship. And the EU has to do more, much more on this front. So, how to go about doing that?

Dr Mark Esposito and I propose that the first thing to do is to change our viewpoints by:

Forgetting the "German model". On the surface, Germany has weathered through the Eurozone crisis better than any other European countries. The country's economic strength is more the result of its past labour than its current actions. The country not been making nearly enough investments to ensure its ability to compete in a longer run. Germany has been on a trajectory of declining prosperity since 2005. Indeed, the country's level of poverty has been on the rise. All of these mean that the country isn't a template for economic growth.

Stopping to trash the weaker economies in the Eurozone. It doesn't help portray divisiveness among Eurozone countries. The economies of the South have suffered from unfair derogation since 2008 and have been often accused, unjustly. Instead, we should celebrate more their successes and resilience: there are many what we called fast-expanding markets - hidden pockets of excellence that are rapidly growing - in these countries. For example, Spain has been very successful at moving up the value chain by turning more of their agricultural products into organic ones, thereby moving away from competing on price to competing on quality.

Successful stories can also be found in Greece: the country has been churning out high-tech ventures including Sboing and Taxibeat, even though many people view innovation and Greece as oxymoron. Italy, on the other hand, has been manufacturing carbon-fibre chassis for racing cars near Parma. There is more innovation-driven entrepreneurship in the southern economies of Europe than in the North, which still heavily depends on its industrial and manufacturing strength. If we want to get the peripheral countries to be prosperous again, we should start helping, and not suffocating, innovation and entrepreneurship in this part of the EU.

Look (south) for the star that leads the way

Our initial study on the fast-expanding markets of the South suggests an impressive new story that should be spread across Europe and the rest of the world: Lots of active and relentless entrepreneurs in the peripheral countries are finding and selling innovative products and processes, thereby boosting the competitiveness of their countries and the EU.

But these efforts on their own are insufficient. If left unsupported, these efforts will never be able to scale up to create new and sustainable jobs in the region. We need to embrace the economies of the south, support their developments, incentivise the use of private credit to finance ventures, and simply act out of unity.

May 2014 be the year of the South, a star as well as a hidden engine of new growth and new hope.


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