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Mario Draghi’s new report on the future of European competitiveness is undoubtedly a work of impressive scope and detail. It does an excellent job of identifying the key internal and external challenges facing Europe’s growth model. However, the policy prescriptions derived from it point in a direction that is difficult to reconcile with both the fundamentals of the single market and the needs of Europe’s small businesses.
This is evident from the structure of the report. By presenting tailor-made policy solutions for the growth of ten pre-selected sectors, Draghi is proposing a renaissance of sectoral, top-down industrial policy. This is an approach that has long been buried by advocates of a new industrial policy, due to the lack of information available to policymakers and the high risk of policy being hijacked by vested interests.
Moreover, the proposed policy mix does not include many innovative measures. In addition to the call for a rapid implementation of existing EU strategies and regulations, there is a persistent focus on the need for member states to join forces to support large-scale transformative investments. This is the basis for the report’s general call for a new European Competitiveness Fund.
The high risks and coordination problems associated with long-term investments in the modernisation of Europe’s capital stock may indeed justify a collective contribution. However, the report lacks a fundamental economic justification for the role of the state as an active investor, especially with regard to the transfer of high business risks to the taxpayer community. The mere reference to a lack of competitiveness of European companies in supposed growth sectors is an insufficient argument for such a blurring of roles.
In the area of competition policy, the report’s suggestion that additional criteria should be taken into account when assessing mergers entails a softening of merger rules in areas of strong global competition and external dependence. The idea behind this is to encourage the creation of new European champions through cost-reducing synergies.
Given the undeniable presence of strong economies of scale in many emerging areas such as clean technologies, overcoming barriers to growth at the firm level will have to play a crucial role in the EU’s competitiveness strategy. However, to avoid hampering long-term productivity growth, it is important that the pursuit of international competitiveness does not come at the expense of competition in the internal market.
Draghi stresses the need to complete the single market by removing cross-border barriers through infrastructure investment and regulatory harmonisation in many areas. But for the single market to work properly, it must also remain contestable in the sense that incumbents must be challenged by new entrants. While large mergers may bring short-term cost benefits, they risk creating dominant positions that raise entry costs for domestic innovators. This in turn could undermine rather than enhance the global competitiveness of European industries in the long run....
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