by Dr. Luis Ritto*
“Prediction is very difficult, especially about the future”.
Niels Bohr (1885-1962).
As the 500 million citizens of the European Union (EU) get ready to vote in the European parliamentary elections of May 2014, we thought it useful to take stock of the EU today and of the challenges it faces in the future.
In fact, as we hear often in the media, the EU has lost lustre and prestige in recent times and it is not anymore an attractive project for a great number of its citizens. In an article published a few weeks ago in a Portuguese newspaper about the EU response to the annexation of Crimea by Russia, the European Union was branded as having no voice in world affairs and as a useless European organisation. Besides, the EU is said to have no strong leadership and to lack real strategic thinking. This anti-European feeling is forcing many countries to turn their backs to the EU and for nationalistic sentiment to spread in them.
But, what are the real problems facing Europe and the solutions to them?
As we all know, the EU was formally established in place in Rome in 1957 by the Treaty of Rome with the objective to bring peace to Europe by “laying the foundations of an ever closer union among the peoples of Europe”. The six founding members of the European Economic Community (as it was called at the beginning) -Belgium, the Netherlands, Germany, France, Italy and Luxembourg- after the two bloody world wars that devastated the European continent in the 20th century, wished to put an end to hatred and rivalry in Europe and to create the conditions for peace in the European continent based on shared interests and founded upon the rule of law and equality between states. Countries were encouraged therefore to work together, to jointly pool their economic resources, to show solidarity to each other and to build a single economic area (where people, capital and goods could move freely). In other words, European countries were encouraged to achieve their political goals through economic cooperation and integration.
Fifty seven years after the signing of the Treaty of Rome the European Union has succeeded to attract 28 democratic countries to join its project and has built a single market for goods and services with 500 million consumers. Besides, the EU is the largest economy in the world with a GDP per head of € 25,000 and is the world’s largest trading block. In fact, the EU is the world’s largest trader of manufactured goods and services. The EU created also a single currency- the euro- which is now a world currency. Finally, the EU is also the largest supplier of development and humanitarian aid in the world.
The European Union is a success story because it has been able to bring peace to Europe and to make countries that were enemies before to work together. And with peace prosperity spread in Europe. The EU is based on the rule of law, which means that every action taken by it is founded on treaties that have been approved voluntary and democratically by all EU countries. Another unique EU feature is that, although countries are sovereign and independent, they have pooled resources in order to work together in many fields: trade, agriculture, external relations, development aid, economic policy coordination, environment, energy, fisheries, transport…
Despite all that has been achieved so far and in a context of so many positive results, what has gone wrong and why are so many EU citizens not satisfied with the Union?
The economic power of the EU has declined sharply in recent times. Europe has since 2008 suffered an unprecedented economic and financial crisis, for which the EU was not prepared and which was tackled in a disunited and inefficient way by the EU political authorities causing decisions to be taken late and with little practical results. Austerity measures had to be put in place, but they have mainly helped thousands of companies to go bankrupt and unemployment to soar in Europe. The EU has today more than 26 million unemployed and real wages are lower than five years ago in most member states of the Union. It is no surprise therefore that EU citizens are disenchanted with the European Union! Besides, experts say that the EU has lost most of its industrial power base and has been unable to both ensure the sustainability of its public finances and to address well-known bottlenecks to competitiveness and growth of its enterprises. Taxes are high everywhere in the EU and there is not enough social justice.
After the EP elections of 22 to 25 May, the EU will have to appoint a new President of the European Council and a new President of the European Commission. By the end of 2014, the EU will have therefore a new team of European MPs and a new team of leaders at the Council, Commission and other institutions (like for example, the EU High Representation for External Relations and Security). European citizens expect that all these new people in Brussels will bring a breath of life to the EU, hoping that they will bring too direction and leadership to Europe and that they will give priority to economic development and the creation of jobs in the Union.
In fact, the so-called disenchantment of the citizens with the EU has mainly to do with its economic problems and the ways they have been tackled in the recent past. As one day former US President Bill Clinton said to a journalist: “it is the economy, stupid”. If Europe therefore returns to economic growth and prosperity, we are sure European citizens will feel closer to the EU and support again this project. Other things can be added to this objective, like for example more democracy and transparency in Europe, better governance and better management of EU public finances. But, the key issues are economic development, more social justice and jobs! The future of Europe depends on the three of them.
About this matter, we would like to quote here what Ms. Bernadette Ségol, General Secretary of the European Trade Union Confederation wrote in “The Economist” of 12 April 2014: “The answer is for the EU to move beyond its obsessive pursuit of austerity and invest in order to spur growth and create quality jobs. An investment of € 250 billion over ten years—-far less than what was spent saving banks, and much less than is lost through tax avoidance and evasion—could generate 11 million jobs”.
But where to invest and how?
Academics and economic experts have long defended that the path to economic development and jobs in the EU has to be based (i) on the re-industrialisation of Europe and (ii) on encouraging the Union transition to a circular economy.
Let us explain the two concepts for those that are not experts on those issues:
Re-industrialisation of Europe. Economic experts say that the future sustainable economic development of Europe needs to be based on industries (manufacturing) and that it was a mistake to allow EU countries to lose their industries in favour of emerging nations because other sectors (services and agriculture) will never be able to create so many jobs as the manufacturing sector does. And by creating jobs, industries can contribute also to the reinforcement of the social sectors of the economy and reduce unemployment.
To better make their point, economists give the example of Germany, a country that has a strong and competitive industrial sector and which has been therefore more successful than other EU nations at dealing with the fallout from the financial and economic crises that started in 2008. With the result also that the German research and labour markets have greatly benefited from the expansion of the industrial sector of that country and have consequently developed considerably.
Therefore, if Europe wants to stop its economic decline and grow in economic terms, it needs to look at ways to re-industrialise itself. Not with technologies of the past, but with technologies and industries of the future. By using for example pre-existing industrial know-how to develop new industries. This, EU economists say, will revive the European economy and create jobs.
To deal with this matter, the European Commission set in late 2012 the target of increasing the industrial sector’s share of the European economy from 16% to 20% by 2020. For information, the one of Germany currently stands at 22.4%; but on the other hand, manufacturing accounts at present for only around 10% of economic output in Greece, France and the United Kingdom. And in Italy it accounts for 12.5% whereas in Spain stands at 7.2% of economic output. This shows therefore that there are large economic regional differences linked to disparities in competitiveness of various EU member states, which require attention and need to be overcome in the future.
For this purpose, the EU Commission has requested that EU countries put in place industrial policies that invest in education, research and infrastructure as well as an investment-friendly climate, affordable energy and intelligent regulation. In fact, the EC has identified the following four priority areas where action is needed in order to increase the industrial sector’s share of the European economy: new technologies; improved single market for goods; improved access to finance, especially for small and medium sized companies; and more investment in human capital.
Because of lack of space, we would like to point out that in terms of new technologies, the European Commission has suggested that the following be given priority: green production technologies and motor vehicles; bio-based fuels and chemicals; intelligent networks; food industry; and key technologies such as microelectronics, nanoelectronics, material sciences and industrial biotechnology.
In addition, the European Commission plans to integrate goods in the areas of defence and security more effectively and to give better support in protecting the intellectual property of SMEs in non-European nations. Finally, the leading capacity of the European Investment Bank has been strengthened in order to provide improved access to finance to EU industrial companies.
Moreover, in recent times economic research has revealed the links between economy and geography, notably highlighting the importance of the link between transport and transaction costs, spatial agglomeration (business grouping together at market centres to reduce transport costs) as well as the territorial distribution of innovation sources and the creation of know-how in the EU economies. For this reason, the EC has suggested that EU member states must not simply coordinate their economic policies in the future, but also develop an industrial investment and development policy that is common to all European regions.
Let us hope that Europe will have from 2014 onwards the political will and the leadership ability to bring about an industrial renaissance in the European Union.
Circular economy. Together with the re-industrialisation of Europe, the development of a circular economy system seems to provide an additional hope for a new industrial revolution in the European continent. How?
In simple terms, the circular economy aims to reduce waste by re-using and re-cycling products and components in order to give them a second life and in that way make their production more ecological and cost efficient for countries. An example is the one of re-manufacturing which, experts say, can result in reduced greenhouse gas emissions, material use and water consumption when compared to the manufacture of new products. In this context, products and components are designed, made and re-used.
But, it is not only in re-manufacturing that this innovative system can be used. Europe is resources-poor in geological terms (including in terms of fossil fuels like natural gas, fuel oil, coal…), but it is rich in materials that are already in use and circulation. Therefore, it makes economic sense to put in place systems that allow for the re-use and re-manufacturing of such products. Besides, in a context characterised by rising price volatility, industry managers know that circularity and material flows optimisation are the way to reduce Europe’s dependency of imported fuels and raw materials.
Therefore resource savings and waste reduction are keys to the future development of Europe. In December 2012, the European Commission published a paper entitled “Manifesto for a Resource Efficient Europe” in which it clearly stated that “In a world with growing pressures on resources and the environment, the EU has no choice but to go for the transition to a resource-efficient and ultimately regenerative circular economy” (1). The paper further points out to the potential positive impact of that economy in terms of innovation and investment and the creation of jobs. Studies made since the publication of that Manifesto argue that the EU manufacturing sector alone could realise material cost savings of around € 600 billion until 2025, which is not negligible at all!
And as the EC Manifesto also states, the circular economy “offers a path out of the current crises and towards the re-industrialisation of the European economy on the basis of resource-efficient growth that will last” (1).
As we tried to outline in this article, the main challenge currently facing the European Union is economic. More than anything else, the economy is far from going well and when the European economy is not going well the EU as a whole suffers tremendously. In fact, economic problems bring with them social inequalities and poverty. And also unemployment. It is therefore no surprise that European citizens are not happy with this situation.
The EU industry has been seriously affected by the recent economic crisis, revealing a number of structural weaknesses (lack of competitiveness and outdated production processes for example), which require fixing. Manufacturing industry in particular is fundamental for the growth and competitiveness of the EU economy and its declining overall importance can be reversed.
The economic crisis that started in 2008 has helped to change the perception about the role of manufacturing within the context of the European economy. In reality, economists think today (based on the example of Germany) that a comparatively large manufacturing sector in Europe is no longer considered to reflect an outdated economic structure, inadequate for a post-industrial, services-dominated economy like the one of the European Union. On the contrary, they consider that a dynamic European manufacturing sector is a prerequisite for an innovative and fast-growing economy able to create jobs and produce high quality goods. They have therefore been urging political leaders to maintain a broad manufacturing base in Europe with specialisation in high growth sectors.
As the studies carried out by the European Commission in recent years have shown, the EU can reverse the declining trend of its economy by investing in manufacturing industries. Europe has the brains, know how, capital and innovation able to help put in place the re-birth of its industry. The path to economic recovery is known, what lacks now is the determination and political will to invest in the future economic development of Europe in order to make it again one of the most important economic power houses of the world.
European citizens are hoping therefore that the forthcoming EP elections and the appointment of new leaders at the EU Council and Commission will help bring to Europe the leadership and vision of the EU founders and steer Europe consequently into more prosperous waters, away from the current apathy in which it is today. If they fail, then the European project might fail also and Europe will certainly go back to its past history of conflict and confrontations. This will be a pity!
– Manifesto for a Resource-Efficient Europe, European Commission – Memo12/989-17.12.2012.
*About the author:
Dr. Luis Ritto is the former EU Ambassador to the Holy See and the Order of Malta and former EU Permanent Representative to the United Nations Organisations, ISPD Emeritus Professor and expert on diplomacy, diplomatic protocol and world affairs.
Manifesto for a Resource-Efficient Europe, European Commission- Memo 12/989 – 17.12.2012.
Europe in 12 Lessons by Pascale Fontaine, EU Publications Office, Luxembourg – 2010.
Europe 2020: Europe’s Growth Strategy, EU Publications Office, Luxembourg – 2012.
EU Internal Market, EU Publications Office, Luxembourg – 2013.
Delivering on the Europe 2020 Strategy, EU Committee of Regions, Brussels September 2013.
European Competitiveness Report 2013: Towards Knowledge-Driven Reindustrialisation, Commission Working Document SWD(2013)347 final.
The Economist, April 12th 2014 (page 20).