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Policy priorities
[...] Restarting growth requires financing for the real economy, which was severely reduced during the crisis. [...] In this context, it is essential to broaden and diversify the financing opportunity of European firms. This will not only help in terms of financing the recovery but it will also enhance the resilience of the eurozone corporate sector to potential future crises, by fostering diversification in firms’ funding sources. The project of a capital markets union, put forward by the European commission in September 2015, aims at achieving this objective. However, implementation to date has not been sufficiently ambitious and major obstacles to the integration of capital markets – including divergent accounting enforcement regimes, fragmented market infrastructure, or incompatible frameworks for the taxation of financial investment – remain untouched.
Productivity is the cornerstone of economic growth. According to data from the Conference Board, the level of eurozone labour productivity is about 75 per cent of the US one when measured in terms of employment and 85 per cent when measured in terms of hours worked. Labour productivity growth in the eurozone has been positive after the crisis but yearly growth is below one per cent. After the substantial contraction in total factor productivity (TFP) growth during 2008 and 2009, the eurozone had a positive TFP growth only in 2010 and 2011. The growth rate of TFP has been around zero in 2014, after two years of negative growth. It should be noted that significant variation exists in productivity across the eurozone, but improving productivity growth appears key to ensure sustainable growth.
Fostering productivity growth requires ultimately an understanding that competitiveness is essentially a firm-level phenomenon and that looking at the aggregate average picture could be misleading and ineffective. An OECD study comparing the contribution of firms to employment growth across 18 (mostly EU) countries over a 10-year period found that a small cohort of young and high-growth firms are net job creators and are responsible for a large proportion of employment growth.
Internationalisation and innovation are frequently considered to be very important driver of productivity at the firm level and growth: the literature finds a strong relationship between internationalisation and innovation, suggesting that trade and innovation policies should be coordinated and integrated under a single responsibility, so that policymakers would internalise the external effects of the individual policies.
Innovation plays a crucial role in fostering productivity and growth, but it requires investment. Based on a linear trend from 1970 to 2005, EU investment is currently estimated to be around €280bn below the pre-crisis/pre-boom trend (€170bn for non-construction investment), leaving little doubt about the urgency to act on this front. [...]
The eurozone desperately needs solid growth to reduce unemployment levels across its member states and rebuild a positive meaning for European integration in the eyes of Europeans. Growth in turn is best achieved by “a policy mix that combines monetary, fiscal and structural measures at the union level and at the national level”, as expressed by the ECB’s president Mario Draghi in 2014. Since then, the ECB has indeed embarked on unprecedentedly expansionary monetary policy, and this should be seized as a precious window of opportunity for pushing forward progressive structural and resolute actions.
At the same time, it is clear that rebuilding a positive meaning for the EU in the eyes of Europeans also requires addressing the evident dissatisfaction with the way democracy works in the EU [...] Reinforcing the role of the European parliament, in turn, would possibly be an important step on the way of rebuilding trust in European institutions.
Full article on Policy Network