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Declining productivity growth is undermining Europe’s ability to compete in the global marketplace. This was the message of economic experts and policy makers as they debated the current state of Europe’s economy. A high level conference by the Economics Department of the European Investment Bank (EIB) held in Berlin today discussed recent political and macro-economic efforts to restore competitiveness in Europe and respond to structural investment needs.
In his opening speech, EIB President Werner Hoyer called for a concerted effort to create an environment where investment and innovation naturally take place: “This means a combination of structural reforms in member states, efforts to complete the EU internal market where needed and a well targeted investment stimulus which addresses long term competitiveness challenges.” Hoyer also pointed to the shifting global environment for competition: “In a globalized world, it is really firms that compete, not countries. It is at the firm level that the all-important innovation process mostly takes place. But this does not mean that policy makers and public institutions can just wash their hands and hope for the best. We have a vital role to play, creating the right conditions and the right incentives to foster a dynamic process of innovation.”
The ensuing expert panels discussed how the economic crisis was aggravated by structural weaknesses and how high uncertainty, weak demand, and low investor confidence has hampered overall investment. With Europe’s banks facing constraints impeding their ability to absorb further risk, it was argued that ample liquidity in the system is not translating into the right kind of risk financing instruments. Yet to be able to compete in an increasingly open world, a dynamic and technologically innovative economy is critical.
The €315 billion investment offensive launched by European Commission President Jean-Claude Juncker received public backing from German Chancellor Angela Merkel on Monday (2 March).
“The Juncker plan stands for a paradigm shift in the European Union. We support the initiative,” Merkel said at an event hosted by the European Investment Bank (EIB) in Berlin.
Merkel indicated that investments play a key role in overcoming weak growth in Europe. As a result, she said, Germany has decided to use almost all the financial leeway available on spending that stimulates growth.
German Finance Minister Wolfgang Schäuble already announced his intention to contribute €10 billion to the plan.
And to the extent that further budgetary margins emerge, “we will continue to further update this,” Merkel indicated.
Still, the investment plan does not suffice to strengthen competitiveness in Europe and specifically in the eurozone, the Chancellor said. What is necessary instead, are further budgetary consolidation and structural reforms, she explained.
“We assume that from now on, everyone will adhere to the established rules,” Merkel stated. Consistent savings and growth do not cancel each other out, she said.
Turning to domestic debates, Merkel called for more openness in the EU’s free trade talks with the United States (TTIP) and and Canada (CETA). One look at Asia is enough to see what is happening with regard to free trade agreements, the Chancellor indicated. There, economic powers like China and the United States are concluding a whole collection of agreements, she pointed out.