This essay was originally published in "The Future of Europe", a collection of 20 essays written by prominent Europeans. The book is available for purchase, currently only in Greek, here.
In the beginning of 2016, the mood in Europe was quite gloomy and Europeans were full of doubts concerning the European project and the path to European integration. Several European cities had been hit by a series of terrorist attacks. The so-called Islamic State held important positions in Syria and Iraq, fuelling a massive influx of refugees to Europe. The Brexit referendum was on everybody’s mind, with fears to see the “Leave camp” winning the vote (which, unfortunately, happened). A rise in protectionism and populism was felt in pre-election debates in several European countries as well as in the US.
Today, even if we are still facing many challenges, and clearly have a lot more work to do to preserve our “European way of life”, BusinessEurope and its member federations definitely feel more optimism across Europe. There are two main reasons for this: the first one has to do with economics, the second one with politics.
A resilient economy is essential to alleviate citizens’ concerns about the future. During the European sovereign debt crisis, trust in the common currency area has been dwindling. However, this is no longer the case and according to the new Eurobarometer survey, 72 per cent of eurozone citizens are in favour of the single currency. This is the best approval rating in 13 years.
The economic performance of countries across Europe is improving. The EU as a whole has been entering its fifth year of economic recovery in 2017, with growth expectations of around 2.3% in the EU and 2.2% in the Euro Area. It is now at its strongest period of post-crisis recovery. Higher economic growth came alongside strong employment creation, with over 9 million jobs created since 2012. Today, businesses in general are more confident about their future. These are all clear signs that the reform efforts over the past years are paying off.
However, the recent improvement should not distract us from the fact that economic prospects among EU Member States are still very uneven. This is in particular the case regarding countries’ labour markets. While in some countries some firms are reporting increasing difficulties in hiring skilled labour, we are still seeing unemployment rates [well] above 10% in several other Member States. This implies that we must not rest on our past laurels, but use the current window of opportunity offered by an improving economic situation to complete still outstanding reforms in countries’ product and labour markets.
Greece in particular has made a great effort when it comes to reforms in the recent past. There are increasing signs that Greece may be turning a page and returning to sustainable growth alongside a gradual reduction in unemployment. This comes after almost a decade of recession which left economic output below pre-crisis level and, despite recent progress, unemployment above 20%. In addition, debt now amounts to almost 180% of its economic output.
All this shows Greece is not out of the woods yet. Boosting economic growth is of paramount importance to solve the major problems the country faces in terms of unemployment, poverty and high public debt. Greece needs to create an inviting institutional and economic environment for business, increase private investment, exports and innovation by attracting also significant foreign capital.
It remains key that the country manages to improve its performance and image as an open, innovative and productive economy. Restoring access to finance in order to allow firms to invest and grow is of vital importance. There is still clearly a need to strengthen the Greek banking system by addressing the issues of non-performing loans. In addition to further improvements in the business environment, Greece needs to ensure open, dynamic and mobile labour markets as well as a modern taxation system with low rates and a broad base. Addressing these issues should help Greece in becoming financially self-sufficient again once its third economic adjustment programme ends in August 2018. It should also enable it to take more part in the broader European recovery we are currently witnessing.
Politically, quite a lot has happened in 2017. The unity signals given in Rome on the occasion of the 60th anniversary of the Treaty and the swift unanimous agreement of the 27 on a mandate for constructive Brexit negotiations at the EU Council meeting on 29 April shows this.
Moreover, we had several positive surprises with elections results in Europe. First, with the Dutch elections in March. Then with the French Presidential election and the clear victory of Emmanuel Macron after his pro-European and pro-reform campaign. And more recently with the re-election of Chancellor Merkel in Germany.
Overall EU political indicators are more positive. A 2017 study of the European Parliament showed that EU support amongst citizens was growing. 57% said that belonging to the EU was a good thing (with only 14% of Europeans believing it is “a bad thing”). A recent study from Friedrich Ebert Foundation which surveyed eight European countries confirms that the EU is back in favour.
However, if we want to strengthen this positive evolution, we need to implement truly effective policies to further increase growth and employment across Europe, mobilising strategic areas such as the common trade policy, the single market and industrial policy.
BusinessEurope identified some key actions in a wide range of policy areas on which there is a need to focus for a prosperous future and which businesses believe to be fundamental to the way forward for the European Union.
1. Strengthen the European arm in trade policy
The EU has a leading role to play in the process of globalisation by strengthening companies’ ability to face global competition and by concluding ambitious trade deals which are able to shape globalisation according to high level European standards. . Ensuring that the benefits of globalisation are widely shared across society is essential. However, the crucial role of national flanking policies in this redistribution has to be stressed more in the public. We believe that it is important that the European Union does not overload its trade agenda with priorities that need to be addressed in other policy areas.
Reflecting the globalised dimension of trade, the EU’s common trade policy needs to continue to focus on generating new trade and investment opportunities for our companies by opening markets. The EU’s common trade policy must also be re-empowered and the commitment to the multilateral trading system reiterated and completed by comprehensive and ambitious plurilateral and bilateral agreements. In comprehensive trade agreements that go beyond the areas of exclusive EU competence, procedures must be found to enable Europe to play its role credibly and effectively in the world. The EU external investment plan must be swiftly agreed and rolled out in a manner that ensures broad participation of business.
The finalisation of the free trade agreement between the EU and Japan announced in December is a good step and sends a very positive signal to the world that free trade and rule-based trade remain in place. European business has always been in favour of an ambitious and comprehensive agreement that can further expand our long-standing economic partnership.
It is also necessary to give a final boost to EU-Mercosur negotiations and hopefully be able to conclude an ambitious agreement that opens the doors to a market that is fairly closed but with huge growth potential. We also need to strengthen economic relations with African countries through an effective combination of trade, investment and development with a central role played by the private sector
A recurring debate in advanced economies is the impact of China’s rise and its asymmetric openness. In order to push for more reciprocity in trade relations, the European Union must also engage with China and other new global market players in order to build fair and mutually beneficial economic relations, while ensuring reciprocity. The EU must use all instruments available to achieve this objective.
The US is the EU’s top trade and investment partner. We need to ensure that we maintain a conducive environment that supports investments and jobs on both sides of the Atlantic.
2. Launch a renewed industrial policy for Europe
Industry is much more important for the overall economy than it is often given credit for. We are a global leader in many sectors: the automotive, aeronautics, engineering, chemicals, pharmaceuticals, etc. Industry accounts for over half of Europe’s exports and around 65% of research and development investments. It provides more than 50 million jobs (direct and indirect).
In order to not give up this industrial leadership, the EU must urgently set a European industrial strategy, where industry and services work in close partnership, based on openness, innovation, digitalisation and technological progress. In a context where all major competitors are setting their own industrial strategies, the EU must encounter some of the elements trending today, first and foremost protectionist tendencies, and set a forward-looking agenda based on our strengths. The aim remains to create wealth and strengthen the competitiveness of Europe..
We welcome the European Commission communication from September 2017, which acknowledges the importance of this topic, and recognises the EU industrial strategy as a fundamental piece of the future of Europe debate. However, this is only a first step. We now need a structured way forward in order to ensure we steer positive change without hurting or industry.
Such a renewed strategy must ensure a long-term vision for Europe. It must capture the qualities of the current industrial base and seize the opportunities in the macrotrends that lie in front of us, developing a horizontal framework ensuring that the conditions for all businesses are optimal and allow for industry to adapt to new developments, such as digitalisation and low-carbon economy. Europe must also continue the development of a larger and more integrated European energy market which also allows for more affordable energy prices.
Automation and digitalisation will bring transformation in terms of content and role of many jobs and by this also bring essential opportunities and challenges to European industry. Efforts that increase the supply of qualified work force, education and increased labour market mobility will be critical. Countries should also contribute to life-long learning opportunities by providing the right incentives for career change, re-education and allow for more flexible labour markets.
As the joint production of industry and services is of particular strength in Europe also services have to be taken into account in this industrial strategy reflecting on their role as the most important “raw material” of the manufacturing industry. In clear numbers, this “combined sector” represents 24.3% of value added in Europe (compared with a world average of 20.8%).
3. Complete and strengthen the single market
The single market is at the core of the EU’s path to success as it is the most important tool for Europe to deliver tangible benefits, prosperity and welfare to its citizens and companies. As such it is not only Europe’s greatest asset but also a major achievement in the Union’s history. To realise the full potential of the single market, the European business community calls for a renewed commitment to the single market and for an ambitious agenda to remove all remaining barriers that continue to hamper free movement.
Businesses are highly concerned about new protectionist trends in some parts of Europe and the introduction of new national measures in many member states that fragment the single market and considerably hinder free movement. Furthermore, diverse interpretation of agreed rules makes companies’ lives very difficult, for instance in the area of goods, services and road transport. It is fundamental for companies that extra or differing national requirements are held to a minimum and only kept when justified. Businesses need a stable regulatory environment, which is transparent and predictable to operate well throughout the single market.
Better implementation of agreed EU legislation, correct application and stronger enforcement of existing rules are key to create this needed certainty and confidence to do business across borders. This certainty is essential to trigger investment, create new business opportunities and boost cross-border entrepreneurship.
Furthermore, it is paramount to remove remaining obstacles to free movement and market access once and for all, and to create a fair level playing field to the benefit of consumers, citizens and businesses across the EU. In the area of services, Europe needs pragmatic proposals to unleash the potential of and facilitate cross-border service provision, which is the least developed of the four freedoms. In the area of goods, companies continue to be faced with obstacles to mutual recognition in the area of non-harmonised products and with unfair competition from non-compliant products in the area of harmonised products. More common and effective enforcement is needed to support companies in providing their goods across the single market.
The EU should also set clear objectives for reducing the regulatory cost of business with concrete improvements, establishing consultation with affected stakeholders, increasing transparency, improving impact assessment of planned legislation and evaluation of existing regulation.
Last but not least, we must also continue the transition towards a true digital single market to create renewed growth and jobs. The free movement of data is fundamental to Europe’s digital transformation and remaining competitive globally. This means ending national data localisation measures and supporting the free flow of data rather than blocking it. To compete effectively worldwide, Europe also needs a more innovation-friendly approach to empower companies in the digitalisation process and to foster the creation of new business models, while offering the legal certainty and stability needed to make the necessary investments.
4. Promote quality public and private investment
Europe must pursue a comprehensive European investment policy, using different tools for different objectives, including cohesion policy, an extended European Fund for Strategic Investment (EFSI), and effective action across the full range of policies to bring down the barriers to investment.
The EU must also promote productive public investment, strengthening the support and incentives for governments to orientate their public expenditure towards high-quality investment and expenditure that can support long-term growth, and catalyse private investment around innovation, technological development and digital transformation. The Stability and Growth Pact (SGP) must be properly enforced but it should give the fullest support possible to member states who wish to orientate their budgets towards investment and growth-supporting expenditure.
We need clear political signals from the institutions concerning the need to increase the attractiveness of Europe as an investment destination. Member States should continue to implement structural reforms, focussing government spending on growth-enhancing investment, and making further efforts to facilitate job creation and increase the supply of skilled labour which is crucial to attract investment, continuing fiscal consolidation where necessary, while drawing on the flexibility within the Stability and Growth Pact.
5. Deepen the Economic and Monetary Union
Last but not least, our Economic and Monetary Union must be strengthened. Following the economic crisis, the EU made important progress in strengthening the EMU. But since the publication of the 2015 Five Presidents report on completing the EMU, progress has been too slow. Several steps must be taken to consolidate the Euro-area and ensure its stability. The Economic, Financial, Capital Markets and Fiscal Unions must be completed.
- Greater priority must be placed on making sure the EMU delivers convergence towards strong growth rates in all member states. Competitiveness needs to be placed at the core of the Economic Union, with a reinforced European Semester which focuses on a better coordination of national economic policies and the implementation of structural reforms, as well as a strengthened implementation of the macroeconomic Imbalances Procedure in both deficit and surplus countries;
- A full Banking Union must be put in place, with its three pillars of supervision, resolution and deposit scheme, to address the continued fragmentation of EU savings and credit markets;
- A comprehensive Capital Markets Union must be implemented in order to strengthen cross-border capital flows, reinforce the resilience of the Euro-area to asymmetric shocks, and help companies access diversified funding sources;
- The efficiency of the fiscal rules must be improved, encouraging governments to pay more attention to the quality and composition of their public finances, with an orientation towards productive investment, helping to ensure fiscal consolidation takes place without tax increases.
A Euro-area fiscal capacity or stabilisation fund must be foreseen to strengthen the long-term stability of EMU and its ability to handle asymmetric shocks to one or more of its economies, fully conditional on Members States implementing structural reforms and ensuring that it does not lead to an increase in the overall tax burden in the Euro-area.
Progress in building the Economic and Monetary Union must be made in a way that protects the interests of all member states, with the door remaining open to the participation of non-Euro-area countries.
6. A social dimension promoting employment
The EU social dimension must focus on promoting social cohesion, rooted in employment creation and active participation in society, with a particular attention to tackling youth unemployment and long-term unemployment.
Europe needs more jobs, not more legislative measures that undermine job creation. This means that Europe must be more efficient and do less regarding social legislation. Labour market reforms can only be determined at national level and burdensome EU legislation can undermine job-enhancing reforms.
Member states should therefore carefully consider, together with their social partners, what would be the real impact of the different ideas proposed on employment, social regulatory frameworks and industrial relations practices across Europe.
Economic and social convergence can only go hand-in-hand. It is a gradual process. Forced harmonisation creates harmful divisive debates and, in the end, turns people against Europe. This is why national competences reflecting national realities must be respected. For a meaningful social dialogue the autonomy of employers and workers, as social partners, must always be respected at all levels, including at the EU level. Employers and workers are very often able to find balanced solutions to the problems they encounter. This ability must not be undermined by excessive and, sometimes, incoherent legislation. Companies and workers must be supported in their efforts to bring their contribution to society. For this, legislation must always leave room to private initiatives.
7. Avoid a disorderly Brexit
We are in the middle of Brexit negotiations. Brexit represents a significant long-term risk to both the EU and UK economies given the profound interconnectedness of production in the two economies and, in particular, the importance of trade between the two economies.
However, the long-term economic impact of Brexit will depend upon the nature of the long-term relationship between the EU and UK and mitigating adverse consequences of Brexit for companies and citizens across Europe is essential.
BusinessEurope believes that we must avoid a disorderly Brexit as companies need certainty as soon as possible. It is essential to organise the exit of the UK from the EU in an orderly and constructive manner to allow business to prepare and adjust to the new situation.
We want to maintain as close as possible economic relations between the EU and the UK but this must not happen at the expense of the integrity of the Single Market. However, until there is certainty on the future relation, it is indispensable to foresee transitional arrangements. A solution that ensures the UK will remain in the customs union and the single market for the duration of the transition period with all appropriate rights and obligations would help provide citizens and business with more certainty and predictability.
The EU must put in place policies which enable economic growth and prosperity for all. It must focus on projects of real European added value, respecting the principle of subsidiarity, with less regulation to release the creativity of European companies and citizens. We can build a Europe that sets out a vision for the future, and a Europe which delivers growth and jobs along the way. Only when joining forces and working together we will cope with the challenges that we are facing!
But there is no time to waste. The European Union has to act more quickly. Citizens need to see results and the rest of the world is moving, without waiting for us.
Modernizing our industry and services is absolutely crucial to come to terms with globalisation. Creating a supportive environment for the digitalisation of the economy and having a strategy for the competitiveness of our manufacturing industry is essential to maximise the benefits of globalisation for all Europeans.
At the same time, we must defend the drivers of Europe’s peace and prosperity: free trade and the rule of law values that go with it. Europe cannot win the battle for growth and employment, if it shoots the EU common international trade policy in the foot. The European Union has much better negotiation leverage than member states taken separately. Together, we are stronger to promote our economic interests and to shape globalisation according to our values.
European leaders must show unity, vision and leadership in view of the growing global challenges, with geopolitical instability, protectionism, populism and extremism.
BusinessEurope and its member federations stand united in expressing support for the European integration project, based on our common European values, and are ready to contribute to its continuous progress.
We must start immediately, building on the more positive mood that is emerging and better than expected economic results.
Member states, together with the EU institutions, business, social partners and all pro-European stakeholders have to develop a positive narrative regarding the European Union. However, the best narrative in the world will not work without an effective strategy leading to concrete results, in particular in terms of growth and employment.