Fractured, unproductive and uncompetitive, Europe faces a bleak future unless it can boost investment and learn to embrace change and innovation, a senior development official warned yesterday.
Werner Hoyer, president of the European Investment Bank and touted as a potential successor to Wolfgang Schäuble as German finance minister, told GlobalMarkets in an exclusive interview that Europe risked “completely underestimat[ing]” the scale of the challenge from global competition.
“Europe is falling further behind every day due to insufficient productivity growth,” he said. “We are not good enough at taking seriously the fourth stage of the industrial revolution. Europe needs more courageous investment.”
Unlike the US and China, Europe has completely failed to foster the creation of a clutch of digital giants, its politicians preferring to overregulate and
hobble the corporates at the forefront of the so-called “gig” economy, he said.
The 28-nation European Union, set to lose a single but powerful member when Britain’s divorce from the EU is complete, has had to cope with “a number of big shocks in 2016” including the election of the populist and anti-trade figure of US president Donald Trump. But he added that these setbacks were “more than enough reason to be more active and less complacent. We need more development and more growth and more action.”
Asked what could be done to inject growth and investment into Europe’s still moribund economy — growth rates have picked up in recent quarters, but remain at troublingly low levels — the EIB chief said the region’s political leaders lacked momentum, with France’s new president Emmanuel Macron a rare voice calling for greater European cohesion and co-ordination.
“We are failing to address the issues of Europe’s lack of competitiveness and its lack of growth and structural reforms from a global point of view. We are bound up in our 28-nation [club], and we don’t think about the benefits of interacting and intermeshing with the world, in order to boost productivity and competitiveness.
Europe’s own IMF
However, in a sign that policymakers are responding to such warnings, some were this week pushing to establish a European Monetary Fund, taking advantage of the window of opportunity opened by the recent election of pro-European governments in major eurozone economies.
Pierre Gramegna, the minister of finance for Luxembourg, told Global Markets: “It could be useful to have an institution in an economic and monetary union, that plays, to a certain extent, the same role as the IMF, and we don’t have that institution right now.
“One idea on the table that Luxembourg is open to consider is to strengthen and widen the role of the European Stability Mechanism. This institution has worked really well in the years since it has been established.”
However the German finance ministry circulated a paper last week saying that using the ESM to backstop European deposit insurance would “put too great a strain on the ESM and go against its core purpose of bailing-out countries in severe trouble”.