European Lawmakers Faced with Decision Regarding EU's Future

European Lawmakers Faced with Decision Regarding EU's Future

All right, mates, let's dive into the gist of the 18th Cotec Europa Innovation Summit, shall we? They've had a bloody good chat about the challenges Europe's facing in these ever-changing commercial and international relations.

Apparently, things ain't been swell for years, but with the latest escalation of tariffs, it's reaching a whole new level of mess. Internal political fragmentation and sluggish economic growth have made it tricky for Europe to respond effectively. But now, recent events have kicked things up a notch, making it more important than ever to take action.

You see, they're saying the massive use of unilateral actions to settle trade disputes and the weakening of the World Trade Organization (WTO) has smashed the multilateral order, and that might be permanent. So, Europe needs to change its game plan, pronto.

A Vulnerable Europe

The EU's a mighty big player in international trade – almost one-fifth of its total added value comes from exports. Over 30 million jobs are tied to exports, accounting for about 15% of employment. The EU even records a current account surplus, which means it's soaking up demand from the rest of the world.

But this openness makes Europe's growth and employment sensitive to the whims of its trading partners and outside economic cycles, particularly those in the good ol' US of A. The EU's the main market for American exports, with over 20% of its exports going across the pond. Plus, if American demand slows, it'll have a ripple effect on European exports from their trading partners.

So, decisions by the American administration are gonna have an impact on the European economy, even if trade tensions ease. The uncertainty alone is puttin' a damper on investments in the European manufacturing sector.

Changing the European growth model

Now, instead of relying on American consumer demand to support European growth, they're asking whether Europe can generate wealth on its own. In the short term, replacing the American market is a pipedream, but Europe can try to open new trade routes and develop new markets.

In the long term, however, it's wishful thinking to believe that a return to normal trade relations with the US is possible after such a deep unilateral break or that new markets can grow fast enough to fill the void. If Europe wants to be less dependent on American growth, it'll need to generate it itself.

Reviewing the Macroeconomic Policy Framework

To do that, European leaders suggest reviewing the macroeconomic policy framework that was adopted after the financial and sovereign debt crises. Until then, the EU had a roughly balanced current account and decent domestic demand. But in the face of the crises' effects, governments sought to orient the economy towards global markets and foreign demand.

The model was based on three key elements:

1. Tight fiscal policy. From 2009 to 2019, the cyclically adjusted fiscal stance of the euro area had an average of +0.3%, compared to the -3.9% of the United States. The main victim of this consolidation was public investment, which dropped by almost one percentage point as a share of GDP and never returned to pre-crisis levels.
2. External competitiveness over internal productivity. From 2000, the annual growth of labor productivity in the EU was half that of the US, resulting in a cumulative gap of 27%. Instead of reversing this trend, policies focused on the labor market, favoring external competitiveness over internal productivity.
3. Abandoning the internal market as a growth engine. Rules were applied less and less, especially in services. Instead, external barriers were lowered more rapidly than internal ones, favoring foreign demand over European demand.

A New Framework for European Growth

The European Commission and the European Council have put forth a new course, sparking hope for a change. Among the proposals are increased investment and the removal of barriers that hinder the full functioning of the internal market.

These measures are interdependent – higher investments can provide a strong boost to domestic demand, offsetting the slowdown in US demand. A more integrated internal market increases supply elasticity, helping to contain inflationary pressures from investment growth – especially in a context of increasing global trade fragmentation.

However, Europe still depends too heavily on national budgets to finance these investments. The EU has reformed fiscal rules to make public spending more investment-oriented and activated the "escape clause" to facilitate increased defense spending. But only half of the euro area countries have opted for an extended adjustment period under the new rules.

In this context, the issuance of common European debt to finance shared expenses is a key element of the new strategy. It would ensure that total expenditure is not inadequate and especially ensure, in the field of defense, that expenditure occurs in Europe, contributing to operational effectiveness and economic growth.

That's the gist of it, folks. Europe needs to reassess its economic strategies to reduce dependence on American growth and generate wealth independently. It's time to focus on enhancing European innovation, technology adoption, education, entrepreneurial support, geopolitical and regional cooperation, and diversifying trade and investment. Only by pooling resources and competencies can Europe reach the scale required by these transformative technologies. As they say, a united Europe can still choose its own destiny!

The average economic growth in Europe has been negatively impacted by the sluggishness of the World Trade Organization and the increasing use of unilateral actions to settle trade disputes, making Europe's economy more vulnerable to external factors such as the whims of trading partners and the US market. As a result, the European Commission and the European Council have proposed a new framework for European growth focused on increasing investment, removing barriers that hinder the full functioning of the internal market, and issuing common European debt to finance shared expenses. This new approach aims to help Europe generate wealth independently and reduce dependence on American growth by enhancing European innovation, technology adoption, education, entrepreneur ship, geopolitical and regional cooperation, and diversifying trade and investment.

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