EUROPE S SOURCES OF GROWTH Presentation of J.M. Barroso, President of the European Commission, to the European Council of 23 October 2011
A roadmap to stability and growth 1. Give a decisive response to the problems of Greece 1 2. Enhance the Euro area's backstops against the crisis 3. Strengthen the banking system 4. Frontload stability and growth enhancing policies 5. Build a more robust and integrated economic governance
We have lost a lot 2 Actual growth compared to «crisis-free» growth (EU GDP level, billion) actual if growth had been sustained We have «lost» about 2 000 billion between 2007-2010 due to the crisis, equivalent to the GDP of France or 11% of Europe s cumulative debt.
Our competitiveness is at stake Trends in nominal labour costs (index, 2001 = 100) 3 EU DE IE EL ES PT 140 130 120 110 100 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Acting on our growth levers 100 90 80 70 60 50 40 30 20 10 EU GDP per head, productivity and employment as a share of the US in 2000 and 2010 0 (broken down by employment and productivity) EU gap 2000 2010 2000 2010 2000 2010 GDP per capita EU gap Productivity (per hour worked) There is a persistent one-third income gap between the EU and the US. This is mostly explained by a large and widening gap in productivity. Employment levels show a slight catching-up. EU gap Employment (hours worked) 4 US = 100
Explaining the employment gap Employment rates and hours worked in the EU and the US 5 78 76 74 72 70 68 66 64 62 60 % Employment rate ( = employed / working-age population) 1550 2000 2010 2000 2009 1900 1850 1800 1750 1700 1650 1600 hours Average annual hours worked per person employed EU US The employment gap with the US is explained by lower employment rates for both genders and at all age groups, as well as fewer hours worked.
Explaining the productivity gap Sector contribution to hourly labour productivity growth in EU25 and US 1995-2007 6 % 2.5 2.0 1.5 1.0 0.5 Non-commercial services Commercial services Construction Industry Primary 0.0-0.5 EU US From 1995 to 2007, labour productivity grew much more slowly in the EU. The gap is striking for commercial services, but industry is also lagging behind.
Our young firms invest less in R&D R&D intensity by age for EU and US companies 7 14 Old firms (created before 1975) Young firms (created after 1975) R&D intensity (R&D/net sales) % 12 10 8 6 4 2 0 EU US Young EU companies created after 1975 invest much less in R&D than their counterparts in the US. This reflects a specialisation in more traditional sectors, but also a difficulty to grow across borders and to access finance.
Europe is able to grow Growth in gross added value by sector situation in 2010 compared to 1995 (1995 = 100) 8 Agriculture, hunting and fishing Industry branches Construction Business activities and financial services Trade, transport and communication services Public administration, education, health, community and personal services Total economy 1000 120 140 160 Business activities (such as accounting, legal and consulting services), financial services, trade, transport and communication services are the sectors driving growth over 1995-2010.
And it has created 23 million jobs Job creation by sectors 1995-2010 9 Agriculture, hunting and fishing Industry branches Construction Business activities and financial services Trade, transport and communication services Public administration, education, health, community and personal services Total economy -10-5 0 5 10 15 20 25 million Million persons employed 23 million jobs were created over 1995-2010 (total jobs in EU = 212 million). Job creation was driven by the services sector, but the primary and secondary sectors lost about 10 million jobs.
Manufacturing also drives service sector jobs Manufacturing and related business services (number of jobs in 2009) 10 Manufacturing alone = 37 million jobs Manufacturing and related services = 74 million jobs R&D 1% Manufacturing 49% Renting and leasing 1% Media and communications 7% 12% Other business services 30% Transport and storage
Three courses of action Getting more out of what has already been agreed, for example Full implementation of the services directive The digital agenda The integrated market for energy Accelerating adoption of what is pending Unitary European patent protection Common EU sales law Energy savings directive Free trade agreements with key partners Fast-tracking future proposals Single Market Act (12 proposals) Youth Opportunities programme Collective rights management 11
Recommendations for action at national level 12 Public finances Labour market Structural policies Financial stability Fiscal consolidation Long-term Sustainability Fiscal framework Taxation Wage Setting Active Labour Market Policy Labour market participation Education Network industries Energy efficiency Service sector Business environment and SMEs R&D and innovation Public services and cohesion policy Banking Housing market AT BE BG CY CZ DE DK EE ES FI FR HU IT LT LU MT NL PL SE SI SK UK Total number 22 16 10 6 8 11 17 9 7 5 10 6 2 7 5 3 NB: for EL, IE, LV, PT and RO, the only recommendation is to implement existing commitments under EU/IMF financial assistance programmes
Priority areas for action at EU level Strengthened EU economic governance 13 Macro-economic & fiscal surveillance Regulation of financial services Targets and guidance for structural reforms Europe 2020 flagships for smart, sustainable and inclusive growth Digital Agenda Youth on the Move Innovation Union New Industrial Policy New Skills and new Jobs Platform against Poverty Resource Efficiency Modernised EU levers for growth and jobs Single Market Act Trade and external policies Structural Funds
Still a large potential for the internal market Medium-term impact (2020) on EU GDP of specific EU level reform measures model simulations 14 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Services Directive Integrated market for energy Financial integration including venture capital Public procurement modernisation Completing the single market would significantly boost growth. These reforms would add around 3% to the GDP level in 2020.
Helping our entrepreneurs Time to start a business (calendar days) 15 50 40 30 20 The Small Business Act for Europe has set the target of 3 days to start a business by 2012 10 0 BE HU DK IT US PT SI EE FR CY NL RO IE UK FI EU DE SE LV SK BU EL LU CZ LT AT PL ES It currently takes 15 days to start a business in Europe, and only 6 in the US. The EU Small Business Act target is 3 days by 2012, for less than 100.
EU patenting costs could drop drastically Cost of patenting in Europe compared to elsewhere in the world (in ) 16 40 000 35 000 Validation costs Procedural fees 30 000 32 112 25 000 20 000 15 000 10 000 5 000 0 000 4 045 4 045 600 0 0 1 550 1 850 EU Commission proposal Japan US Today, the average EU costs of patenting is approximately 35 000. Such costs could be reduced by 80% if the proposed unitary patent system is adopted.
Spreading the use of e-commerce Share of consumers using e-commerce in 2010 17 Online purchasing 40.4% Cross-border r online purchasing 8.8% 0% 10% 20% 30% 40% 50% % of all EU Individuals aged 16-74 About 40% Europeans used internet to purchase goods and services in 2010, but only 9% did so from outside their own Member State. E-commerce stimulates competition in retail markets and creates new business opportunities, notably for SMEs.
Trade is an immediate source of growth Real GDP growth in 2011 18 Annual percent change 10% or more 6% - 10% 3% - 6% 0% - 3% less than 0% no data By 2015, 90 % of future economic growth will be generated outside of Europe. About a quarter of Europe s growth in 2010 came from trade with partners outside the EU.
The example of the EU-South Korea Free Trade Agreement 1.6 billion in customs duties saved per year New trade opportunities once fully implemented: nearly 20 billion extra goods and services exports New access for service suppliers Tackling non-tariff barriers Access to government procurement Protection of intellectual property Strong competition rules Commitment to sustainable development 19
Structural Funds can help - today Transfers of up to 4% of GDP in some Member States Possibility to reprogramme Social Fund to support young unemployed Proposal to increase co-financing and provide guarantees for SME lending for programme countries Pilot project for infrastructure project bonds Room to improve poor absorption capacity 20
There is room for faster absorption of EU funds 50% Payments to Member States under EU cohesion policy 2007-2013 (as of today) 21 45% 40% 35% Absorption rate 30% 25% 20% 15% 10% 5% 0% LT EE SE IE DE UK PT FI AT SI LV PL ES CY DK FR BE Note: total amount already paid from EU budget to each Member State as a percentage of the total allocation for 2007-2013. Figures include advance payments of between 7.5% and 11% per Member State. Average HU NL EL SK LU MT CZ BG IT RO
Structural Funds can help - tomorrow New Commission proposals 2014-2020 Simplification Strong focus on competitiveness/europe 2020 Innovative financing (leveraging/project bonds) Increased conditionality to deliver better results Connecting Europe Facility to deliver EU wide infrastructure for the Single Market 22
What if we meet our Europe 2020 targets? Average annual GDP growth: scenarios for 2010-2020 23 2.5% 2.2% 2% 1.6% 1.5% 1% 0.5% 0% Baseline Advanced structural reforms Reaching the Europe 2020 targets will raise growth significantly. This requires structural reforms together with fiscal consolidation efforts so as to increase growth by half a percentage point every year.
Let s agree to boost growth and jobs by Exploiting Single Market, digital agenda and trade opportunities Helping SMEs with venture capital funding and smart regulation Using Structural Funds to maximise growth capacity Commission to provide list of specific proposals to be implemented/fast tracked for adoption by December European Council 24
E U R O P E 2 0 2 0