The picture is however clouded. The EU has entered a period of stagnation. Productivity growth is close to zero. The lack of structural reforms and current high debt burden has lead the Member States to a path of insufficient productivity. In 2015 the EU’s GDP just about reached its level of 2008. The EU’s GDP per capita was 26 200 euro in 2007 and 26 900 euro in 2016. The increase since 2007 is only 700 euro.
This not only undermines Europe’s position as a world leading economy but also sows discord among our people. Cohesion of social prosperity can only be achieved by cohesion of growth. This demands structural reforms in many Member States.
If reforms in market competition, taxation and decreased public expenditures were to be implemented, Europe would see positive effects on growth and prosperity. It would ensure the jobs that we need to fight unemployment and it would provide for the demand that would create new opportunities. Increased convergence regarding reforms would give more of the social cohesion we need. The agenda for reform needs to be done both with a general approach and by country specific measures.
Your Rapporteur has divided the report in five parts: The first part is an introduction to the economic outlook in the Member States and need for reforms; the second part of the report discuss the areas for structural reforms, the third part of the report discuss the need for investment for an economic upswing; the fourth part of the report concerns responsible fiscal policies, the fifth and last part is dedicated to country-specific recommendations and the need for coherent and coordinated reforms by implementing the country-specific recommendations.
Economic growth and social cohesion
Those who argue that economic growth is unevenly distributed within the European Union are right. But growth is not distributed as this recurring formulation would make believe; this unevenness is a reflection of the structural differences between Member State economies. The countries that have carried out reforms for better competitiveness have had higher economic growth rates and stronger job creation and therefore enjoy higher living standards and lower unemployment rates, whereas the countries that have failed to pursue structural reform are lagging behind.
Among Member States, there is a strong correlation between competitiveness and income levels. In the graph below, 26 countries are plotted according to its World Economic Forum (WEF) Global Competitiveness Index (GCI) score and its GDP per capita (PPP). The more competitive, the higher income level.
The most competitive economy
At the March 2000 European Council in Lisbon, heads of state and government solemnly committed, within a ten-year period, to making the EU the most ‘the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion’.
Since then, the opposite has taken place. By 2016-2017, the EU average had declined to place number 34 in the GCI ranking, down from the 28th spot in 2001-2002. It is important to stress that competitiveness is not primarily about the cost of labour. The most competitive EU countries are the ones with the highest wage-levels, not the other way around.
Various voices are calling to enhance social cohesion in Europe, the Commission proposal for a European Pillar of Social Rights (EPSR) being one example. Safety nets and social security require resources created by economic growth, which is the result of structural reform for enhanced competitiveness. Strengthened social cohesion therefore requires better cohesion in competitiveness. However, since 2001-2002 the difference in competitiveness between Member States has increased. The most important step for increased social cohesion in Europe is therefore a convergence of structural economic reform creating an upward convergence of competitiveness.
Germany is the largest economy of the Union, and will be even more dominant after Brexit. This was not always so. In the beginning of the 2000s, Germany was called ‘the sick man of Europe’ and suffered from high unemployment. Since then, Germany has gone through serious structural reform, moving up twelve places in the GCI ranking since 2001-2002. There is important lessons to learn from the German success story. The EU needs to lift its target for potential growth. The only way to do that is through structural reform.
Key Structural Reforms
In order to put Europe back on track structural reforms need to be implemented. This is vital for our future competiveness, our ability to create jobs and not to be forgotten a more social Europe.
In 2015 EU average public expenditures was 47% of GDP. However, 9 Member States had public expenditures of 35-42% of GDP. Certain Member States need to limit the public expenditures by reforming pension systems, cut administration and excessive social transfers in order to increase competiveness. A best practice system would be of gain to all Member States and to the Union as a whole.
Not only do we need to cut public expenditures in order to raise competitiveness, but also in order to strengthen our fiscal sustainability and soundness. In 2015 EU public debt was 87% of GDP. This leaves Europe vulnerable for the future with massive liabilities for coming generations and is an effect of overspending.
The European Semester is viable in order to assess our economic strength. Structural reforms are needed in order to strengthen the Union as a whole. This is needed as a general approach but also country specific. In all our efforts to create a more social Europe, the most social policy is to lay the ground for growth and with that social growth. This is not just a concrete possibility to build a strong future Europe, but needed in order not to be weak.
At European level, establish a dynamic digital market. Deepen the service market. Implement an Energy Union with open markets. Research and science for excellence and facilitating a European area of Research and Science. At national level decrease the tax burden and taxes on labour and investments. Reform labour markets in order to facilitate the creation of new jobs and new people entering them. Increased competition in order to open up for new start-ups, a growing number of small and medium sized companies developing into national and global champions.
We should be able to achieve a growth of at least 3 % and we should implement the reforms needed for us all to do that, in the framework of the Stability and Growth Pact and without creating imbalances. Therefore we are in a need to set bolder targets for growth and higher standards for reforms aiming at an increased level of the potential growth of our economies. That is how we can secure economic and political leadership and provide our citizens with the best possible opportunities.