Monday March 2, 2015 Search
Weather | Athens
11o C
6o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
The EU challenge in 2014 and the competitiveness dilemma

By Terence Tse* & Mark Esposito**

This year will be a crucial one for the European Union. While we are still struggling with the ongoing eurozone crisis, the European elections will be taking place this coming May. This means that work is already winding down and the new EU machinery may not be running in top gear until 2015. With both Slovenia and Portugal probably needing rescues and austerity programs elsewhere, it looks like the bloc’s competitiveness will further deteriorate.

What not to do and what to do to build competitiveness

But this does not have to be the case if the EU and national governments turn their target to raising competitiveness. Contrary to what many people believe, the fundamental trouble of the eurozone is much less about heavy debt – both the US and Japan are more indebted – it is its inability to compete effectively. As our colleagues previously pointed out, enhancing productivity through innovation is the only way to restore competitiveness. And the EU has to do more, much much more on this front. So, how to go about doing that? Here's a short list of suggestions:

Forget about following the “German model.” This is because the country’s current strong performance is more due to its past labor. It has not been investing nearly enough to build up its future competitiveness. Indeed, Germany seems likely to undo some of its past reforms, which would only hamper its ability to compete effectively.

Stop trashing the weaker economies in the eurozone. It does not help to keep thumping them yet expecting them to stand on their own feet tomorrow. We should instead celebrate their successes. And there are no shortage of reasons: There are many what we called fast-expanding markets – fast-growing but hidden pockets of excellence – in these countries. For example, Spain has been very successful at moving up the value chain by turning more of their agricultural products into organic ones, thereby moving away from competing on price to competing on quality. Successful stories can also be found in Greece: The country has been churning out high-tech ventures, including Sboing and Taxibeat. Italy, on the other hand, has been producing carbon-fiber chassis for racing cars manufacturing near Palma. If we want to get the peripheral countries to be prosperous again, we should start helping and not suffocating them.

Help the small and medium-sized enterprises (SMEs). The reason is simple: They are the engine of growth and sources of new jobs. They can only flourish if the EU and national governments create a conducive environment for them to grow. Ironically, even in the absence of help from the governments, we can expect the number of SMEs in the EU to go up substantially in the next couple of years. However, this has less to do with people’s entrepreneurial flair and more to do with the lack of job opportunities. Consequently, many of them, especially those aged between 18 and 24, have turned to starting their own businesses instead. The trap here is that policymakers would become complacent (again) as the unemployment rate comes down. What they are going to miss is that small companies will remain small – and therefore inefficient – as they cannot scale up in the current rigid and costly business and regulatory environments.

Attract foreign capital. The European Commission has been working hard to find new ways to give greater access to capital to Europe’s companies, especially the SMEs. While the banking union, when completed, will help banks become healthier – and therefore more able to lend, it is in itself insufficient. Surely finding new financing sources, such as crowdfunding and promoting competition among banks – as the EU government has been trying, would certainly help. But neither of these would give the instant boosts that capital-starved businesses need. The EU should therefore redouble its efforts to attract and convince foreign investors. This does not mean more trade missions to China – these often benefit large companies. What’s more important is to convince investors that there remains a great number of businesses in the EU that they can put their money in, even in the peripheral countries. This is one of the reasons why we argue for making the fast-expanding markets in the weaker economies more visible to the investors. The truth is that there are lots of Americans and Asians considering investing in European companies. The truth is that Germans tend to save a lot. Yet all of them prefer to invest their money outside the EU. Therefore the first step is for the EU to change people’s perception of itself and promote both what it can do and what it is good at.

The huge cost of doing little


The EU cannot really afford to slow down even though it is about to go into a governmental transition. All the more reason for national governments to make the necessary reforms to help SMEs grow. Not doing enough not only leaves the EU becoming less and less competitive; what’s worse is that it is nurturing more problems down the road. While we have somewhat defused the sovereign debt problem, we could be facing another crisis as a result of corporate and household debt. Moreover, there is already talk about using credits – which only adds more debt to households – to boost consumption in order to reboot the national economies. On the surface, the economy of Spain is growing again, but if we dig deeper, we can see that it is by and large property-fueled. If it continues in this manner, we are setting ourselves up for calamity again. So, if we continue to do little to raise our competitiveness, we would not only be falling further and further behind in global competition; we could end up finding ourselves in another crisis. There is no guarantee that the EU can survive this one.

*Dr Terence Tse is an associate professor of finance at ESCP Europe Business School in London, UK, and head of Competitiveness Studies at the i7 Institute for Innovation and Competitiveness in Paris. He is a member of the faculty of the Microeconomics of Competitiveness Curriculum developed by the Institute for Strategy and Competitiveness at Harvard Business School.
**Dr Mark Esposito is an associate professor of business and economics at Grenoble Graduate School of Business in France, an instructor at Harvard Extension School, and a senior associate at the University of Cambridge-CPSL in the UK. He serves as Institutes Council co-leader on the Microeconomics of Competitiveness program (MOC) at the Institute of Strategy and Competitiveness at Harvard Business School.

ekathimerini.com , Saturday Jan 11, 2014 (18:04)  
A unionist agenda
The beguiling limelight
A breath of opportunity
Give the green light
Greece to make international protest over Turkey reserving Aegean air space
Greece is protesting Turkey's move to reserve a large chunk of airspace over the Aegean Sea for military maneuvers until the end of the year, a Greek foreign ministry spokesman says. Foreign...
Spanish PM hits back at Greek accusation of anti-Athens ΄axis΄
Spain's centre-right Prime Minister Mariano Rajoy hit back on Sunday against accusations from Greece's leftist premier that Spain and Portugal had led a conservative conspiracy to topple his...
Inside News
ANALYSIS
Greek debt becoming less sustainable
The agreement between the Greek government and its lenders, which was sanctioned by the Eurogroup last Tuesday, appears to be more of a respite and less of a sea change in the relationship b...
No progress seen in tax administration
Tax evasion loopholes remain wide open in Greece, the monitoring mechanisms are still shackled to political power, and an apparent determination to adhere to all laws and regulations conceal...
Inside Business
SOCCER
Super League to seek way out of impasse
The Super League governing board is convening again on Monday in a bid to overcome the tensions that keeps building up in Greek soccer despite the suspension of action on the field over the ...
BASKETBALL
Spanoulis leads Olympiakos to win over Malaga
A good second half was enough for Olympiakos to get the better of Unicaja Malaga (77-72) and score its seventh win in eight games at the second group stage of the Euroleague on Friday. Playi...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Greece to make international protest over Turkey reserving Aegean air space
2. Super League to seek way out of impasse
3. Greek debt becoming less sustainable
4. No progress seen in tax administration
5. House protection criteria will benefit wealthy borrowers, too
6. Agenda
more news
Today
This Week
1. Greece to make international protest over Turkey reserving Aegean air space
2. Greece's lenders skeptical on new bills but focus on funding needs
3. Schaeuble softens tone, says Greece 'needs time'
4. Greece to prioritize IMF repayments but wants talks on ECB-held bonds, says Varoufakis
5. Lenders to be consulted over collective bargaining
6. Spanish PM hits back at Greek accusation of anti-Athens 'axis'
Today
This Week
1. Time for Alexis Tsipras to keep his nerve
2. A fierce battle looms
3. The ignorance of the West about the culture of Islam
4. Spain said to lead push to hold Greece to terms as Podemos grows
5. SYRIZA feeling the pain
6. The unlikely winners of Greece's surrender on euro
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.