‘We have a real problem’: European industry fears decline

The EU has fallen behind the US and China in terms of economic growth and innovation, the European Round Table for Industry (ERT) warns in its latest paper, calling for a deeper integration of the EU’s single market, a capital markets union, and better incentives to invest in Europe.

ERT, formerly known as the European Round Table of Industrialists, is a group of sixty large industrial companies that was one of the driving forces for the development of the EU’s single market idea in the 1980s.

“Our goal is to come up with an analysis of the state of competitiveness of the European industry,” Jean-François van Boxmeer, the chairman of the ERT as well as the chairman at Vodafone, told EURACTIV.

Europe is falling behind

And this analysis looks dire. For example, the “vision paper” published by the ERT shows that the EU spends significantly less than its global peers in research and development – only 2.27% of GDP, versus 2.40% in China, 3.45% in the US, and 4.81% in South Korea.

Moreover, the past 15 years have seen a significant difference in economic growth between the EU and the US, as the EU stuck to macroeconomically counterproductive austerity policies that subdued investment while its peers invested more actively.

“If you look at the difference in the growth rate between the US and Europe, and you project that again on another ten years, we might become irrelevant in economic terms and become a kind of super nice museum for people to visit us, but not anymore a thriving place,” van Boxmeer said.

Jacob Wallenberg, a member of the ERT’s steering committee and chairman of Investor AB, a company that holds a large stake in many Nordic companies, is equally alarmed.

“We have a real problem,” he told EURACTIV, adding that Europe lacked a “sense of urgency that we think is so important”.

As an example, he pointed to the Australian Strategic Policy Institute’s technology tracker that monitors which actor is leading on which technologies. Of 44 technologies, China is leading on 37, with the US coming in second.

“The EU is painfully absent,” Wallenberg said.

Get rid of internal barriers

Both industrialists argue for a stronger focus on economic growth. And for that, a more integrated EU single market will be necessary, according to them.

“The European Commission must spearhead an ‘encompassing programme’ to shape a common market across all policy areas, including energy, digital, capital, environment, and defence,” the ERT paper reads, hoping to influence the programme of the next Commission that will start its work in autumn 2024.

The ERT wants the Commission to more proactively “compel EU member states to promptly remove unlawful or unreasonable barriers” in the single market. Moreover, the Commission should focus more on harmonising and simplifying rules instead of making ever new ones.

One of the key reasons why the EU is so reliant on regulations, however, is the fact that it has very little budgetary power to solve problems through subsidies or tax breaks, as the US can do.

Innovation incentives without fragmentation?

Meanwhile, the industry also calls for more incentives to invest in Europe.

“The balance between the sticks and the carrots in policy making is important,” van Boxmeer told EURACTIV. He pointed to the US Inflation Reduction Act (IRA) as an example of how to do it better than the EU.

“Like the IRA, you have to put your money into these infrastructural investments that will be needed in Europe, chiefly in electrification,” he said, criticising the European approach, which he described as “helicopter money on small local initiatives” at the member state level.

The current way of letting EU countries subsidise their industries through relaxed state aid rules puts countries like Germany at an advantage, as they have much more fiscal firepower than smaller or poorer member states.

ANALYSIS: EU subsidy race is on – and Germany is winning it

Germany is the number-one beneficiary of the relaxation of state aid rules, having received almost half of the total state aid approved since February 2022, according to fresh data from the European Commission – deepening concerns over market fragmentation.

“But if we think of the European level, I think there are a lot of things that you can do where all members of Europe can benefit. Otherwise, you will have too much of a discrepancy between the economies with stronger budgets and the ones with weaker budgets,” van Boxmeer said.

The ERT’s vision paper also points to structural problems in the EU and asks whether the EU would need to increase its budget to pay for European investments or whether the decision-making process should be made easier, for example on tax issues, where the EU can only decide with unanimous consent of member states.

However, the industrialists are reluctant to give answers to these politically tricky questions.

“We are not politicians, we can only give ideas of how better policies look like,” van Boxmeer said, arguing that a discussion would need to be had, not only in the Commission but mainly in the Council.

“All the European governments need to have a discussion,” he said, arguing that only then would the Commission have the political backing to come forward with specific proposals.

Capital Markets Union

Another way to increase investments, according to the ERT, would be to strengthen and integrate the European capital markets. Wallenberg argued for a “deep interest rate market” that could only be established by abolishing the internal barriers to capital markets.

A less fragmented and more liquid European capital market would lead to more venture capital, which could then help solve part of the EU’s innovation and growth problem, according to Wallenberg.

In the run-up to the European elections next year, the ERT is planning to come out with further, more detailed plans for how to strengthen European competitiveness.

At the same time, former Italian prime minister Enrico Letta has been tasked with preparing a report on the future of the Single Market for March 2024, while Mario Draghi, former president of the European Central Bank, is preparing a report on EU competitiveness for June 2024, trying to lay the groundwork for the next Commission’s programme.

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[Edited by Zoran Radosavljevic]

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