Wanted: A strategy for a more competitive Europe

Sweden has assumed the EU presidency at a time when Member States and the Union as a whole are facing historic challenges. In Ukraine, people are fighting for their lives and security against invading Russian forces. European security in general has also been affected by Russia’s illegal invasion. In addition to the humanitarian crisis, the war has far-reaching consequences for EU citizens and businesses. It has driven up energy costs, disrupted supply chains, pushed up interest rates, and triggered rampant rises in transport costs.

Faced with strong economic headwinds, it is of course important to address the short-term needs of businesses. But that’s not enough. At the same time, it is crucial to take on long-term challenges, especially the widening growth and innovation gaps that have arisen between the EU and the rest of the world. Alongside crisis management, Europe is in dire need of a competitiveness agenda with a medium-term perspective.

The EU’s share of global GDP dropped from 25 per cent in 1990 to 17 per cent in 2020. This means that the global economic growth of the past three decades mainly took place outside the EU – in Asia and especially China. Part of this decline is due to different starting points, but the EU’s growth – and especially growth in the eurozone – has been weak also compared to the US. The EU’s relative share of global trade has also decreased. Comparing firms – the backbone of competitiveness – in Europe with firms in the US reveals a substantial gap. Between 2014 and 2019, European businesses grew on average 40 per cent slower than their US peers. European businesses spent 40 per cent less on research and development during the same period.

It is vital that we do not draw the wrong conclusions from current developments. Conflicts and crises must not become a pretext for Europe to close itself off from the outside world. Rather, it is important to draw attention to the importance of open and competitive markets in a healthy economy. Our economy, and thus the global competitiveness of our businesses, forms the foundation of the EU’s global strength. If we are to successfully tackle the great challenges of our time – geopolitical, security-related, climate-related and demographic – it is necessary to secure economic growth.

The Confederation of Swedish Enterprise takes, as its starting point, the need to improve Europe’s competitiveness. The development of an entrepreneurial and knowledge-based economy alongside businesses’ ability to innovate are key issues for the future. Competitiveness has been a vital building block for the EU ever since its early days. Unfortunately, a more systematic approach to competitiveness at European level is now lacking. But a course correction may be on the way. Ursula von der Leyen has promised a “competitiveness check” on new EU policies. But the fact remains that no follow-up strategy has been developed to replace EU strategies for improved competitiveness that have expired.

The good news is that in many ways Europe is still a leading economy and there are reasons to be optimistic about Europe’s economic outlook, provided the right policies are implemented. With a policy framework at EU level designed to increase competitiveness and productivity growth, the gap between the EU and the global leaders at the forefront of growth and innovation can be closed. Swedish Enterprise therefore welcomes the Swedish EU presidency’s stated goal of anchoring a concerted approach to European competitiveness at the top of the political agenda.

In order to become more competitive, the EU needs to pursue new initiatives in a number of areas. A new competitiveness agenda should guide policy developments in the coming five to ten years, and focus on issues where the EU has a significant legislative mandate. The strategy should target areas where there is a clear need for new initiatives that can help businesses and economies become better equipped and motivated to compete globally.

We must learn from the past that the EU can make strong contributions to Europe’s economic performance when policies and reforms focus on areas of strong EU competence. By clearly stating that “the EU must continue to provide the best possible conditions for a sound and open economy based on free competition, private investment and successful digitalisation”, the Swedish Presidency has provided the initial framing, along with the conclusions of December’s European Council meeting, which invited the Commission to present, in early 2023, a strategy at EU level to boost competitiveness and productivity.

Our hope is that the European Council in March will provide a clear steer that paves the way for the development of a strategic agenda with a medium-term perspective – a compass to guide policy initiatives in support of productivity and competitiveness. The best way to deal with the rising tide of challenges is to strengthen the competitiveness of our own economies. The Swedish presidency would be a great place to start.