Why European manufacturing SMEs in the South face fatal dangers

Antonio Tajani, European Commission Vice President responsible for Industry and Entrepreneurship heading for the EU Competitiveness Council. (Lithuanian Council Presidency photographic library, 26.09.2013).

Antonio Tajani, European Commission Vice President responsible for Industry and Entrepreneurship heading for the EU Competitiveness Council. (Lithuanian Council Presidency photographic library, 26.09.2013).

During this week in Brussels there was a lot of talk about Europe’s industrial competitiveness. The Competitiveness Council, part of the Council of the European Union, is currently meeting in Brussels, on September 26-27, for the first time formally under the Lithuanian Presidency. This Council brings together the EU ministers responsible for the single market, industry and research and the corresponding EU Commissioners. It meets about five or six times a year. This time it discusses two Commission reports on the EU’s industrial competitiveness. Unfortunately it’s the usual talk show without any ground breaking decisions in view. The main conclusion being that Europe keeps losing ground in manufacturing. Unfortunately this is not news for at least twenty years now.

Deindustrialisation has being progressing steadily in the European Union during the past two decades, with real estate developers acquiring cheaply entire areas of abandoned industrial sites to build commercial centres and upmarket housing. At the same time the European Union concludes bilateral trade and investment agreements with developing countries, facilitating the migration of manufacturing from Europe to low cost countries where labour and environmental rules are slack. Simultaneously, Brussels opens up EU’s customs frontiers to imports of industrial goods.

Punishing European workers

Only a few sectors like the pharmaceutical, the aerospace and the up market car industries have escaped from this exodus of European manufacturing towards the developing world. This was not a spontaneous and self-propelled process but a well- planned and executed programme of huge dimensions, aimed at rearranging the division of work globally. It was a capital plan to punish Europe’s working millions for their post WWII gains in social protection and wage increases.

After the fall of the Soviet Union and the elimination of the ‘communist’ danger threatening Western Europe, globalisation became the name of the game. Its meaning being very simply, the transfer of manufacturing from Europe and the US to the developing world, where labour and the environment could accept harsh pressing. To this effect the old industrialised countries opened up their borders wide to imports of those goods from all over the world. The fall of industry’s participation in Europe’s GDP was a natural consequence.

Now Antonio Tajani, European Commission Vice President responsible for Industry and Entrepreneurship, laments the decline of the European industry. Yesterday, speaking at the Competitiveness Council, he revealed that Europe’s “industrial base continues to shrink, from 15.5% last year to the current 15.1%”. This undeniable fact didn’t prevent him from advertising that there is “a strategy for the re-industrialisation of Europe, with the objective of increasing the share of GDP earned through manufacturing from 15% to 20% by 2020”. Let’s see how he will do that.

What about the SMEs?

However, despite the fact that 80% of new manufacturing jobs are created by SMEs, this Council didn’t plan or propose anything tangible to help them confront the lack of finance and the debilitating administrative burden they encounter, in everything they embark upon. Small and very small business cannot afford to employ an army of lawyers and accountants to steer them through the labyrinth of the administration, the tax authorities and the labour and security rules and controls. Not to say anything about the Daedalus of the environmental legislation.

No wonder then why Tajani discovered that “The employment situation is dire, with half of all young people unable to find work in Greece, Portugal, Spain and southern Italy”. To counter this dreadful reality the Commissioner offers a…table that is a competitiveness scoreboard. According to it the “scores are based on 10 indicators, chosen from among the 30 most important indicators of industrial competitiveness: (i) labour productivity (ii) level of training (iii) level of exports (iv) capacity to innovate (v) energy intensity (vi) cost of energy (vii) business environment (viii) adequateness of infrastructure (ix) access to credit (x) levels of investment in manufacturing”.

While the Commission scores well in its fact finding endeavours, there is nothing tangible to counter the real threats. “Access to finance has become more restrictive, particularly for SMEs. The cost of energy – already the highest among our competitors – has increased even further and is around double that in the United States and more than triple that in China. Consequently, every day we read about industries leaving Europe to invest in countries where energy costs are more sustainable”.

No financial defragmentation

What the Council has to propose to offset those disincentives is “an Industrial Compact, in the context of Europe 2020”. Tajani explained what is this all about. He said “In this regard, I have written to the Ministers for Industry of the 28 Member States and intend to start a discussion on the contents of the Compact as early as tomorrow”. He forgot to say that the Greek and the Italian governments currently face existential political dangers, and the last thing they will pay attention to, is the SMEs. On the contrary being pressed by Berlin and Brussels they increase taxation and do nothing to lift the financial iron curtain which divides those countries from the main stream European capital markets.

As a result Italian, Greek, Spanish, Portuguese and other SMEs have no access to bank loans. When they do, the interest cost is the triple of the quadruple of their peers in northern Europe, for the same business risks. The fragmentation of the EU capital market holds well. Yet the Commissioner knows what should be done, “to unleash industrial potential: a public sector that works with business, sustainable energy costs, modern infrastructure and research and training that are geared to the market”. To this effect he said, “The February 2014 European Council will be the first dedicated to industry. It is an opportunity not to be missed”. Thank God this is really a consolation…

All in all, globalisation started the dismantlement of European manufacturing SMEs. Then came the EU austerity programmes to finish the business. It’s not the same for everybody though. Highly competitive countries (Germany, Denmark, Sweden, Austria and Luxembourg) have escaped from this catastrophe. This was due to a benevolent combination of effective public administration and a positive wider social and political environment. South Europe lacks them both and Brussels do nothing to reverse that. As for the southern political elites they rather enjoy their brief periods in power and then they fight for their return to the ministerial seats, nothing else.

 

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