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Perspectives of European competitiveness and empowering the EU-wide single market have been the most vital issues in the European political economy. Several times during almost quarter of this century, the Commission asked external experts to draft feasible perspective strategies; hopefully the latest two will help although fundamental differences in approaches to growth are difficult to reconcile.
Introduction
The EU’s growth strategies have been always based on Commission’s planning periods; suffice it to mention, for example, recent “decade-type” efforts – at least in the new century: the so-called Lisbon strategy for the first century’s decade and the EU-2020 strategy for the second one. Last four years was a “transitional period” in the Commission planning process connected to post-pandemic turbulence, military conflicts, geopolitical transitions and energy crisis, to name a few.
It is quite rear that the European Commission addresses external experts to conduct “independent” assessments of the possible scenarios for the Union’s growth. The last assessment commissioned by the EU was in 2010 by the so-called “Monti Report” which provided for some critical reassessments and set recommendations for the single market’s re-invigoration.
Two recently published reports –also by prominent Italian’s politicians and scientists (one report by E. Letta in April and the other one by M. Draghi this September) revealed the EU-27 challenges and weaknesses.
It has been evident for decades, that in the EU’s fierce competition with its rivals (mainly the US and China) the Union-27-block is lagging behind; numerous examples are evident in these two mentioned reports. Our Institute has already mentioned possible measures suggested in these reports showing and solutions to overcome expected challenges.
More on “disadvantaged competition” in our two articles:
1) https://www.integrin.dk/2024/09/09/eu-wide-competitiveness-challenges-and-perspectives-in-draghi-report/ , and
2) https://www.integrin.dk/2024/09/27/challenging-european-priorities-alternative-commissions-features/
50 vs. 27: uneven competition
In order to understand better the differences, as well as the ways to combine pros and cons of competing US-EU economies, it is necessary to reveal some basic political-economy’s aspects in the systems involved, as the differences abound… In is not only the numbers that are at stake: i.e. 50 states in the US and 27 in the EU (with the expected enlargement for up to 30 in the near future); besides the quantity issues there more vital qualitative ones!
For example, since the beginning of this century the real disposable income on a per capita basis has grown almost twice as much in the US as in the EU. Many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market. Between 2008 and 2021, close to 30% of the “unicorns” founded in Europe – startups that went on to be valued over $1bn – relocated their headquarters abroad, with the vast majority moving to the US.
The differences in the market systems
The US has a mixed economy which embraces the free market (dealing with the capital) and it also involves government intervention for the public good; the federal and states’ governments regulate minimum wage, some aspects of corporate activities, national tariffs, government-funded healthcare, etc. However, this governments’ intervention is fundamentally different from that of the EU-wide “social market economy” approach.
More in: https://study.com/academy/lesson/fundamental-principles-characteristics-of-the-us-economy.html
In the financial services, the US market consists of two major national financial securities’ entities: the New York Stock Exchange, NYSE and Nasdaq; the two major ones (Nasdaq and NYSE nicknamed “the Big Board”) are the largest stock exchange in the world by market capitalization. Presently, there are three leading stock indexes in the US: the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite.
Besides the financial sector, which is another core component of the “US capitalism”: the whole economy is guided by stock market approach. Currently, there are 13 stock market exchanges in the US that are guiding the whole economy. The US stock market sector is a group of stocks in similar industries: there are eleven different stock market sectors, according to the most commonly used classification system, known as the Global Industry Classification Standard, GICS. Stocks’ sectors make it easier to compare which stocks are making the most money, i.e. energy and utilities, materials and healthcare, industrial sectors and real estate, etc.
A vital component of the stock market system is the active use of private capital in the form of investments into different economy sectors: in this way the public and private capital can fruitfully cooperate.
More in: https://www.fool.com/investing/stock-market/market-sectors/
For example, in top 11 most wealthy states in the EU, individual income is over $ 100 thousand; this amount is divided roughly in: 50% for housing and utilities, 30% for discretionary spending and 20% for savings and investment.
In the EU’s internal market (often called also single and/or common) the four basis “freedoms” include: free movement of goods, services, capital and persons; in principle, the EU citizens are free to live, work, study and do business among 27 member states.
The basic principles of the European “social market model” (inaugurated by Jacques Delors in 1985) is the EU-wide commitment to robust social dialogue; however recently the essence of these dialogues has somewhat weakened. On the contrary, the need for coordination and negotiation mechanisms between employers and workers must be increased to support businesses and create quality jobs. Social dialogue and collective bargaining remain unique tools for governments and social partners to find targeted and fair solutions. It is essential to acknowledge the important role played by social partners in addressing modern challenges, such as climate change and digitalization and revitalizing the EU Single Market (EUSM).
The “guiding” principle in the EU-wide economy is a regulatory one: there are about thirty different socio-economic sectors in the member states that are regulated (mainly by the European Commissioners, serving as the “Union’s sectoral ministers) through the division of competences approaches. There are presently over 80 thousand different legal instruments (regulations, directions, decisions, etc.) that constitute the EU “economic law”.
Among disadvantages are the following facts: the EU companies still pay electricity prices that are 2-3 times those in the US, and natural gas prices are 4-5 times higher; this price gap is primarily driven by the European lack of natural resources, compared to the US.
Experts confirm that the EU-common energy market rules prevent industries and households from capturing the full benefits of clean energy in their bills; besides, high taxes and rents from the side of financial traders raise energy costs for developers.
Wealth and GDP by sectors
The US GDP is presently about $28,4 trillion (by the end of 2024); it is about 6 percent higher than in the previous year; compared with the EU’s $18,3 trillion, and the biggest European GDP in Germany with $4,4 trillion, France with $3 and Italy with 2,3 trillion. The US GDP from manufacturing is about $ 2,3 trillion, while $174 bn in Germany (the EU’s “driving motor”), $58 in France, $ 75 bn in Italy, $ 58 bn in France and $44 bn in Spain, etc (less than $500 bn in total).
Note. E.g. the GDP share in the Danish agro-sector is $ 8,5 bn (almost on par with France, Spain and Italy) but more than in Germany with about $7 bn. GDP from transport sector in Denmark is $ 31 bn, with $29 bn in France, $32 bn in Germany and $24 bn in Italy.
As to the US public debt (it is also a hot issue in the EU), it is about 134 percent of GDP (or about $35 trillion); in the EU’s member states the highest government gross debt projections by the IMF are: in Italy -145 percent, France – 115 and Germany- 64 percent.
Per capita GDP in the US is about $ 65 thousand, compared to $34 in the EU, with about $46 thousand in Finland, 43 in Germany, 39 in France and 61 in Denmark.
Generally, the GDP in the world (with a total of about $100 trillion) is divided by the following regions: about $35 tril. Is produced i Asia, $32 tril. in North America, $23 trln in Europe, $4 trln in South America, $2,7 tril in Africa and about 2 tn in Oceania.
All statistics from the Statistics Digest in:
https://tradingeconomics.com/country-list/gdp-per-capita?continent=world
Inspiring growth in the EU: Draghi’s suggestions
= profound refocusing the EU-wide collective efforts on closing the innovation gap with the US (as well as that of China), particularly in advanced technologies. There are numerous components in this agenda: e.g. the burdens of so-called “static industrial structures” and lack of trained personnel.
= joint and carefully planned actions in decarbonisation and competitiveness: i.e. decarbonisation will be an opportunity for the Union’s ambitious climate targets with the coherent plans to achieve them. Failing to coordinate the policies’ implementation entail risks that decarbonisation could run contrary to competitiveness and perspective growth.
= increasing security and reducing dependencies: the EU member states heavily rely on a handful of external suppliers for critical raw materials; growing global demand for those materials is exploding owing to the clean energy transition. Besides, due to the EU-wide digital transformation, the member states are also hugely dependent on vital rear-elements’ import: e.g. for chips production, 75-90% of global fabrication capacities are in the Far East and Asia.
Letta’s main factors in updating EUSM
= the EU is facing a shrinking and ageing population: in contrast to growth in other regions, the birth rate in the EU “is alarmingly declining, with 3.8 million babies born in 2022, a decrease from the 4.7 million births recorded in 2008”. Even without considering accelerated growth of Asian economies, the EUSM is lagging behind the US market: in 1993, the two economic areas had a comparable size; however, while GDP per capita in the US increased by almost 60 percent during 1993-2022, in European share increased by less than 30 percent.
= member states’ markets, initially designed to protect domestic industries, now represent a major brake to growth and innovation in sectors where global competition and strategic considerations call for a EU-wide approach, e.g. in finance, electronic communications and energy.
= establishing a dynamic and effective European industrial policy.
In the conclusion: the following issues might be vital for the next analysis and discussions: e.g. what the EU institutions and the member need to do to become part of a global economic powerhouse; what will be the main driving forces in growth and what kind of industries the member states shall sustain? The adequate answers to these and other questions would form a perspective path for the successful European future.