1. A Strategy for a Competitive Europe: Boosting R&D, Unleashing Investment, and Reducing Regulatory Burdens
- Author:
- Andrea Dugo and Fredrik Erixon
- Publication Date:
- 07-2024
- Content Type:
- Policy Brief
- Institution:
- European Centre for International Political Economy (ECIPE)
- Abstract:
- The EU stands at a crucial economic juncture. Economic growth in Europe’s mature economies has stagnated, with productivity and other indicators of economic vitality showing poor results. Public debt is alarmingly high in several countries, and the region faces new fiscal demands due to an ageing population, conflicts and war, and the energy transition. To reverse its economic decline, Europe must adopt a new strategy for improved competitiveness. The starting point of this strategy should be an honest assessment of Europe’s declining productivity compared to leading economies like the US. Historically, some European countries matched or even surpassed US productivity levels, but this gap has widened over the past three decades. While the US economy has also faced challenges, its technology, R&D, and innovation sectors have significantly boosted productivity growth. This paper identifies three key areas for policy improvement to rejuvenate Europe’s economic dynamism: Radical expansion of R&D Expenditure: Governments must significantly increase funding for universities and create better conditions for private R&D investments. The EU currently fails to meet its own target of R&D expenditures at 3 per cent of GDP. Achieving parity with US R&D expenditure levels would require an additional €200 billion annually. Mobilisation of European Savings for Investment: Despite a higher savings rate than the US, Europe’s underdeveloped capital markets hinder economic growth and investment in new enterprises. The EU needs policies to channel savings into a vibrant corporate market. Expanding the European bond market, which is currently half the size of the US one, is essential for European firms to secure funding and keep the pace of American innovation. Regulatory Reform: The EU’s restrictive regulatory environment increases business costs and stifles innovation. A shift in regulatory attitudes, for instance in the banking sector, could unlock €4.5 trillion annually, providing much-needed capital for European firms, especially small and medium-sized enterprises, to finance innovation during the green and digital transition. By addressing these areas, Europe can create a more favourable environment for business growth, innovation, and long-term economic stability.
- Topic:
- European Union, Regulation, Digital Economy, Investment, and Research and Development
- Political Geography:
- Europe