Is Europe doomed to economic decline? This is the question that haunts minds as the Old Continent loses ground to the United States in terms of productivity. A long-awaited report from Mario Draghi, former Italian Prime Minister, draws up an alarming observation of the situation!
The gap is widening between Europe and the United States
Europeans are on average 25% less wealthy than Americans. Contrary to popular belief, this difference is only marginally explained by greater working time across the Atlantic.
The reality is more worrying: Europeans simply produce less for each hour worked.
This trend is not new. Since the mid-90s, European productivity is gradually declining. While it was comparable to that of the United States 30 years ago, it is now significantly behind. This phenomenon affects many countries on the continent, including leading economies like Germany, France or Italy.
The report Draghicommissioned by the European Commission, highlights three major challenges for European competitiveness:
- A lack of innovation screaming
- A energy too expensive
- Of the vulnerable supply chains and a weak defense industry
Europe no longer innovates
The observation is clear: Europe suffers from a deficit of leading technology companies.
The question “Where is the European Google?” » remains unanswered. Even more worrying, European companies slow to adopt technologies. This delay results in a growth in productivity at half mast, particularly in sectors making intensive use of IT such as business services.
Europe facing the energy challenge
On the energy front, the situation is not much better. Europeans pay much more for their electricity and natural gas than their American or Chinese counterparts.
A major handicap for the competitiveness of the Old Continent, which weighs heavily on the production costs of European companies.
The Draghi report sounds like a necessary call to order for a region which has considered itself for too long an immutable and preserved “garden”.
Too many old people in Europe?
Surprisingly, the Draghi report does not mention the aging of the European population as an explanatory factor for the decline in productivity.
However, since the mid-1990s, the median age in Europe has increased from 2 to 4 years older than in the United States. Numerous studies show the negative impact of aging on growth, both by the increase in the burden of dependencies and by the slowdown in productivity.
This demographic phenomenon has profound implications for the European economy. It affects not only the size of the working population, but also its composition and dynamics. An aging workforce may be less inclined to adopt new technologies or take entrepreneurial risks.
If Draghi considers that there is nothing to be done against aging, he would have at least deserved to be mentioned as probable cause of the divergence between Europe and the United States.
Too much state?
The report calls for increased coordination between EU countries in many areas: regulation, trade policy, industrial policy, research spending, education and training, land use, etc. The idea is to make Europe a more unified entity, like the United States or China.
If this approach can be beneficial in certain areas, such as the single market, we can question its systematic relevance. Europe will always remain lagging behind the United States and China in terms of centralization, if only because of its linguistic and cultural differences.
Wouldn't it be more judicious to play to your strengths rather than trying to imitate his competitors?
Historically, European fragmentation has been a source of dynamism and innovation.
Competition between states fostered industrialization and technological advances in the 18th and 19th centuries. More recently, China benefited from competition between provinces during its period of strong growth (1980-2007). This emulation has enabled the emergence of centers of excellence and innovative local initiatives.
Europe could benefit from its diversity by encouraging emulation between its members. Some European countries, such as Scandinavian countries, already have higher productivity than the United States.
Why not draw inspiration from their good practices rather than seeking centralized coordination at all costs?
European institutions could focus on disseminating best practices rather than forced centralization.
America: ally or enemy?
The Draghi report implicitly presents the United States as a competitor to Europe. If this rhetoric can be mobilizing, it obscures the cooperation opportunities transatlantic which could be beneficial for both parties.
Europe faces much more pressing threats, including Russia and Chinae. The latter represents a major challenge for European industriesparticularly in the electric vehicle and green technology sectors.
Beijing's massive subsidies to its domestic industries pose a much more serious threat than American competition.
Rather than seeing the American Inflation Reduction Act as a threat, Europe would benefit from taking inspiration from it while deepening its economic integration with the United States. American LNG exports have already saved the European economy when Russian gas was cut off.
Europe could benefit from American investments in venture capital, participate more in joint research projects, or even negotiate a major transatlantic trade agreement.
Faced with the rise of China, the western alliance remains more relevant than ever.
A Europe corrupted by ideology?
Some recent European decisions seem guided by ideological rather than pragmatic considerations.
The abandonment of nuclear power in Germany is a striking example. Despite the growing unpopularity of this measure and its negative impact on energy costs and CO2 emissions, German elites remained prisoners of a vision dating from the early 2010s.
Regulations GDPR on data protection, if it starts from laudable intentions, has also had perverse effects on Europe's capacity to develop its own technological industry. Compliance costs favored already well-established American giants, able to absorb these expenses more easily than European start-ups.
More generally, Europe sometimes seems the victim of an ideology valorizing economic decline. The Old Continent has become the global epicenter of research on “degrowth”, a project more ideological than truly scientific. This trend, if it responds to legitimate environmental concerns, risks weakening Europe's position in global economic competition.
A Europe corrupted by ideology?
The Draghi report constitutes a welcome warning signal for a Europe that can no longer afford complacency.
The challenges are immense: catching up on innovation, reducing energy costs, securing supply chains, coping with demographic aging, etc.
Europe also needs to rethink its relationship with technology. Rather than simply regulating American digital giants, it must create the conditions conducive to the emergence of its own technological champions. This goes through a increased support for research and innovationbut also through reflection on the cultural and regulatory obstacles that hinder entrepreneurship in Europe.
Finally, Europe will not be able to meet the challenges of the 21st century alone. A rapprochement with the United Statesfar from being a threat, represents an opportunity to be seized. Faced with the rise of China and the revisionist ambitions of Russia, the Western alliance remains more relevant than ever.
Between the American model and the Chinese model, Europe has a card to play by proposing a third way, combining economic dynamism, social progress and respect for the environment. It is at this price that it will be able to remain a major player on the international scene and offer its citizens the prosperity and quality of life to which they aspire.
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