Rigidity ‘block to European growth’

THE rigidity in some of Europe’s biggest labour markets is a major reason European economic growth has fallen behind most of the world, European Commissioner Charlie McCreevy said last night.

The former Finance Minister, who was addressing the Dublin Economic Workshop 28th annual economic policy conference in Kenmare, Co Kerry, said: “It can’t be efficient to operate an internal market with 25 different sets of legislation for a wide range of service areas.”

The Commissioner for the Internal Market and Service said Europe has the resources, infrastructure, stock of wealth, and many of the competitive advantages needed to face the challenges of intensifying global competition and demographic ageing.

“In some areas, Europe matches the United States. But in many areas where we are behind, questions have to be asked.

“The birth and mortality rates of our SMEs are similar. But why is it that over a period of a decade the average size of the surviving SME doubles in the US while in Europe it only grows by 20%?” he asked.

Mr McCreevy said one reason is the single market in Europe is much less integrated than in the US.

“This diminishes for Europe the benefits that come with scale in terms of cost efficiency and innovation. But on virtually every measure we are behind the US on innovation. We have less patenting, much lower R&D spending, far less risk capital for start-ups.”

In his address, entitled The Benefits of Economic Liberalisation, the commissioner said Europe has been insufficiently focused on the areas where it can succeed as a provider of top-quality specialised goods and services in our increasingly knowledge-based economy.

And he said the multiplicity of rules and permits throughout the EU is holding back development.

“It takes about eight times longer, costs five times as much and requires about three times the number of procedures to start a business in Europe than it does in the United States. So we need to address that,” he said.

Mr McCreevy said the benefits a properly functioning, well-integrated internal market of 450 million people can bring might be obvious to the economists in Kenmare.

“But they have yet to be sold to a wider and understandably fearful European public,” he said.

Mr McCreevy said there was considerable scope for further market liberalisation in other areas in his sphere of responsibility.

“In the financial services area, we have the potential to further deepen the integration of capital markets. That will further lower the cost of capital for industry. We can improve the efficiency of our pan-European payment and clearing and settlement systems. We can facilitate the development of a deeper and more liquid market for venture and development capital,” he said.