European Economic
and Social Committee
WHATEVER THE RESULTS, THE EU MUST ACT DECISIVELY
We are on the eve of possibly the most important EU elections since 1979, when Europeans voted in European Parliament elections for the first time, by universal suffrage. Polls suggest that this time far- right parties will secure significant gains, reflecting a trend we have been witnessing across many of our countries for several years.
Although it is difficult to know how coalition- building will play out, it is clear that the centrist coalition that has long dominated the Parliament may be replaced by an EPP - ECR - ID majority, putting democratic v alues under pressure and imposing a polarised political model that has divided countries and fragmented the electorate.
The question is, how can we make sure that we are able to take the European venture forward, in spite of a possibly divided and divisive European Parliament?
Recent research and surveys show that economic and social issues are the main factors determining voting choices. People bear their own well-being and that of future generations in mind when they enter the voting booth. There is no doubt that economic security will be one of the top priorities for the new European Commission.
In 2008, the eurozone and the US had equivalent gross domestic products (GDP) at current prices, of $14.2 trillion and $14.8 trillion respectively (€13.1 trillion and €13.6 trillion). Fifteen years on, the eurozone's GDP is just over $15 trillion, while that of the US has soared to $26.9 trillion. These numbers are not without meaning. To put them into perspective: Italy is just ahead of Mississippi, the poorest of the 50 states, while France is between Idaho and Arkansas, in 48th and 49th place, respectively. Germany doesn't save face for the EU: it lies between Oklahoma and Maine (in 38th and 39th place, respectively).
To ensure its economic security, the European Union will need to use the until recently discredited concept of industrial policy to promote sectors and firms that it deems to be strategic. But it will have to use this wisely if such policies are to make a difference to the EU’s economic growth.
For many years, with the EU displaying a positive trade balance, many did not see that our competitiveness was at risk. We trusted the global level playing field and the rules-based international order, expecting others would do the same. But now the world is changing rapidly and the EU needs to up its game and respond quickly to all those wake-up calls that it has hitherto ignored.
Other regions are no longer playing by the rules and are actively launching policies to enhance their competitive advantage and redirect investment towards their own economies, at the expense of ours.
China, for example, is aiming to become a "world power" in innovation by the middle of the century and ensure domestic production along all parts of the supply chain for green and advanced technologies, while securing access to the required resources. By 2020 it was spending almost 2.9trn yuan ($420 bn, or 2.8% of GDP) on science and technology, according to Rhodium Group, a consultancy. The government’s contribution exceeded 60% if generous tax breaks were included. A sixth of the money ended up with universities and research institutes. Roughly 60% went to companies. This rapid expansion is leading to significant over-capacity in multiple sectors and is threatening to undercut our own European industries which in a number of cases are still in the initial stages of establishment and growth.
With the Inflation Reduction Act, the United States are using a large-scale industrial policy to attract high-value domestic manufacturing capacity to within its borders – including the manufacturing capacity of European firms – while using protectionism to shut out competitors and deploying its geopolitical power to re-orient and secure supply chains.
According to former ECB President Mario Draghi, now tasked to deliver a report on EU competitiveness after the EU elections, we have never had an equivalent “Industrial Deal” at European Union level, even though the Commission has been doing everything in its power to plug this gap.
As such, despite a number of positive initiatives that are under way, we are still lacking an overall strategy as to how to respond in multiple areas. Without strategically designed and coordinated policy actions, not least a review of the regulatory burden of some policies, it is inevitable that some of our industries will reduce capacity, shut down or relocate outside the European Union. This is in fact already happening as we speak.
So, whatever the Parliament's colours, we need to be focused on a common political direction that will allow us to regain ground globally.
We need a strategy to ensure that we have the resources and inputs we need to fulfil our ambitions without increasing our dependencies. For that we need common sense, not polarisation.
Enrico Letta set the scene for an urgent upscaling of Europe’s competitiveness in his report on the Single Market. Draghi will do the same and, I am sure, will go even go further, as he did in a recent speech calling for "radical change".
But the only way that political polarisation will not turn into something ugly and destructive is by remaining focused on the task in hand and acting together. Restoring our competitiveness requires us to act in an unprecedented European Union way. These are extraordinary times which require extraordinary actions.
Stefano Mallia,
President of the EESC Employers’ Group