Europe must narrow energy price gap with its rivals
Now, with financial tensions easing and confidence returning, Europe’s leaders should shift their focus back to the real economy and the industrial base. February’s meeting of the European Council of Ministers will be a good place to start.
Investment in manufacturing — historically one of the main drivers of growth in Europe — holds the key to revitalising the economy. Over the last decade, industrial policy has been sidelined in favour of the financial and service sectors. Manufacturing was deemed a pursuit of the past, and Europe was no longer considered a suitable location for competitive industry.
Many European countries have since undergone deindustrialisation. Industrial production in Italy, for example, has declined by about 20% since 2007. Nonetheless, the sector continues to play a key role in the EU economy, employing more than 34m people and accounting for 80% of exports, while providing a substantial share of private investment in research and development.
Industrial manufacturing thus affects every other sector of Europe’s economy, including the service sector. Despite policymakers’ shift in focus and emerging economy competition, European countries remain among the top performers in the world in manufacturing, owing to the many firms that have managed to adapt and innovate.
A similar shift toward highervalueadded manufacturing activities is occurring across the EU. These developments suggest Europe’s future success will depend on its ability to combine its traditional economic strengths with strong innovation.
But national efforts alone are not enough. The EU should pursue measures that support the competitiveness of energyintensive industry, with a particular focus on reducing the energy price gap with Europe’s industrial rivals, such as the US and emerging economies.
An efficient internal energy market is vital to the delivery of affordable energy. Another important initiative — a European Research Area — is already under way.
By creating a shared agenda for national research programmes and facilitating the circulation of skills and scientific knowledge — allowing, say, a topnotch centre for mechanical sciences in Italy to attract researchers from Finland or Portugal — the research area promises to create an optimal environment for innovation.
An innovationdriven industrial economy also demands workers with specific, highlevel skills. Meeting this demand requires EU policies that promote secondary, upper secondary, and higher education. In order to create deeper, more integrated, and more multi dimensional markets, the EU should place a high priority on freetrade agreements, especially the Transatlantic Trade and Investment Partnership currently being negotiated with the US. Such trade integration — and, eventually, a Transatlantic Common Market — could prove to be one of Europe’s most effective growth mechanisms, especially for small and mediumsize manufacturing firms, in the coming decades. European manufacturing companies also need much better access to finance.
Reindustrialisation, and the fight against youth unemployment, should top Europe’s agenda in 2014, with the goal of establishing an industrial sector that accounts for 20% of GDP by 2020. This will be possible only through deeper EU integration.
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