The Commission neglects the services sector and favours industry

Antonio Tajani, Vice-President of the EC, participated at the conference on the ‘Europe 2020 strategy for growth’, organised in Lisbon. (EC Audiovisual Services 29/11/2013).

Antonio Tajani, Vice-President of the EC, participated at the conference on the ‘Europe 2020 strategy for growth’, organised in Lisbon. (EC Audiovisual Services 29/11/2013).

On 22 January the European Commission will present a Communication on an EU wide project, under the grandiose name of “European Industrial Renaissance”. Despite its name, the Communication doesn’t seem to have a strong connection with reality. Even the early pre-announcement of this Communication released on 20 December contains elements of futility. It says “While industrial performance has stabilised thanks to improvement in exports, industry’s share in Europe’s GDP in 2013 has further declined from 15.5% of GDP to 15.1% getting Europe far from the 20% target”.

It is evident that the target of achieving a 20% participation of industry in Europe’s GDP is not just a dream but an always moving away benchmark. On top of that, it’s very probable that targeting such a much stronger presence of industry in Europe’s economy may be quite erroneous. For decades now the participation of industrial production in developed world’s GDP is constantly receding and the sector of services is emerging as a strong replacement. Let’s follow the facts.

Services produce trade surpluses

According to Eurostat, “EU28 international trade in services increased in 2012, with EU28 exports of services to the rest of the world rising by 9%, from €609 billion in 2011 to €662bn in 2012, and EU28 imports by 6%, from €478bn to €509 bn. As a result, EU28 trade in services recorded a surplus of €153bn in 2012, compared with €131bn in 2011 and €109bn in 2010”. There is more evidence in favour of services. During the third quarter of 2013 the EU28 balance of external trade in goods (mainly industrial products) was a mere +€1.4bn, while the relevant figure for the surplus of trade in services with the rest of the world reached €39.6bn.

Undoubtedly, Europe is the world’s largest provider of services. The two main powerhouses of this huge economic sector are transport, including, the oceangoing shipping, and tourism. At this point it has to be noted that both those two sectors of services are dominated by smaller EU member states. Greece and Denmark are specialising in shipping, while all the south EU countries plus France are dominant in the tourist sector. In a peculiar way all those countries are particularly hit by the financial crisis and their ability to exit from recession is largely based on their performance in shipping and tourism.

This said, it is an absurdity insisting that industry is the only way out from Europe’s present problems. Still, the Commission insists that “the Communication for a ‘European industrial renaissance’ puts the real economy and industry at the heart of our growth strategy. The aim is to revert the industrial decline and reach the 20% target of GDP related to manufacture activities by 2020”. Not a word about services. Is this due to the fact that Germany is a dwarf on both tourism and transport? Who knows.

Industry Vs services?

In any case, the Commission with this statement cited above sidesteps a double reality. Firstly, as noted above, Europe is a world leader in services and produces a vast external balance of payments surplus in this sector of economic activities. Secondly, down to earth economic reality has gradually guided Europe away from what was once called heavy industry. For a long time now investments in this sector are decreasing. According to Eurostat all along the past two years Gross fixed capital formation (GFCF) has been negative.

According to Eurostat’s definition “GFCF is also known as ‘Investments’ and consists of resident producers’ acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of non-produced assets (ESA 1995, 3.102)”. These assets acquired are intended for use in processes of production. “GFCF includes acquisition less disposals of, e.g. buildings, structures, machinery and equipment, mineral exploration…This is the kind of investments mainly used in industry”.

The relevant Eurostat statistical table informs us that GFCF in Eurozone decreases constantly. On a yearly basis, in the first quarter of 2011 (2011Q1) it receded by -2.4%, in 2011Q2 by -4.6%, in 2011Q3 -4.3%, in 2011Q4 -4.9%, in 2012Q1 -6.9%, in 2012Q2 -3.3%, in 2012Q3 -1.9%. Undoubtedly, the financial crisis has had its toll on industrial investments during this period, but a good part of this negative turn must be attributed to the long term tendency that drives industrial production outside the developed world, towards emerging economies like China, India, South America and elsewhere.

Why insisting on industry?

So then, it’s a bit awkward to watch the Commission insisting that industry is the only way out from the present EU recession. The above mentioned Commission Press release states that, “¾ of exports and several jobs (are) directly depend on industry”. Of course nobody can deny that hundreds of thousands of jobs depend on industry. However, it is questionable if industry surpasses the services sector as the leading export powerhouse.

According to Eurostat, “The EU28 external current account recorded a surplus of €35.6bn (1.1% of GDP) in the third quarter of 2013….the deficit of the (industrial) goods account turned into a surplus (+€1.4bn euro compared with -€6.8bn)…The surpluses of the services account (+€39.6bn compared with +€43bn) were reduced”. Even though the industrial goods balance became slightly positive and the services surpluses were reduced, the absolute might of services trade surpluses is undeniable. Let’s see the truth behind the numbers.

This passage tells us that the external trade balance in industrial goods oscillates around zero, while the surpluses of the services foreign account is well pegged around +€40bn. No wonder then why the EU economy gradually disinvests in the industrial sector and performs well in its services departments.

No conflict, just reality

Undoubtedly, the key role of industry in the European economy is beyond question, but its scope is nowadays restricted in subsectors like pharmaceuticals, the aerospace, the defence and security industry, the food and drink specialities and the likes. In all those cases research plays a pivotal role. It’s a natural development then that Europe, redirects its industrial base only to the sectors with high human capital content, leaving the rest of industrial production to… China.

Consequently, the Commission has to address the issue of industry’s growth in relation to long term tendencies and realities, while at the same time has to start vigorously supporting those subsectors of services which can drive south Europe out of its misery. If Germany has a special interest in everything that relates to industry it can spend its own money to promote it. For the same reasons Berlin should leave the EU’s proper subsidies to be distributed fairly aiding primarily the countries in distress, which by the way specialise in some services subsectors, like transport and tourism.

Eurozone cannot prosper only on the German automotive industry. Around 80% to 85% of world trade is transported through sea-going shipping, and crisis hit Greece is a champion in this area. At the same time, all the south Eurozone countries plus France are the largest tourist markets of the world. Unfortunately, the EU spends almost all its proper funds subsidising industry and neglecting the services. This has to change.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How do we upskill a billion people by 2025? Leadership and collaboration will be key

The Commission calls for a climate neutral Europe by 2050*

COVID-19: Budget MEPs call for quick progress on post-2020 contingency plan

4 steps towards wiping out cervical cancer

These are the best MBAs if you want to be an entrepreneur

China-EU Special Report: Chinese Premier Li Keqiang endorses China’s big investment on Juncker’s plan at 10th China-EU Business Summit

Sochi not far away from Ukraine

Why are Black people in the UK more at risk from COVID-19?

UN member states express their will to tackle global migration but specific actions are still missing

International Women’s Day: Where does she belong?

COVID-19 is an unmissable chance to put people and the planet first

In Pakistan, Guterres urges world to step up climate action, praises support to Afghan refugees

1 in 4 Africans had to pay a bribe to access public services last year

A Young student assesses the Programme for International Student Assessment (PISA)

‘Over-reacting is better than non-reacting’ – academics around the world share thoughts on coronavirus

Berlin cannot dictate anymore the terms for the enactment of the European Banking Union

OECD’s Gurría calls for overhaul of economic thinking to address global challenges

Finnish Council Presidency priorities debated in plenary

7 innovative projects making cities more sustainable

ECB settles the bank resolution issue, makes banking union tangible

Tobacco-free Public Space in Africa’s Most Populous Country

There are more than 1 billion guns in the world and this is who owns them

UN lauds special chemistry of the periodic table, kicking off 150th anniversary celebrations

How video games can reunite a divided world

Brussels wins game and match in Ukraine no matter the electoral results

The true EU unemployment rate may have soared to 21.9%

Landmark EU Parliament – ECB agreement on bank supervision

GSMA announces first speakers for Mobile 360 Series-Middle East and North Africa

OECD sees rising trade tensions and policy uncertainty further weakening global growth

Does hosting a World Cup make economic sense?

How governments and mobile operators are easing network congestion during the COVID-19 crisis

Macron leads EU-wide minimum wage call as Merkel, Medvedev warn of global injustice

Coronaviruses: the truth against the myths

Sustainable fisheries: Commission takes stock of the EU’s Common Fisheries Policy and launches consultation on the fishing opportunities for 2021

Hungary: Commission takes next step in the infringement procedure for non-provision of food in transit zones

Do we need a new Marshall Plan to rebuild Europe after COVID-19?

Summertime Consultation: 84% want Europe to stop changing the clock

Groundbreaking cancer-fighting drugs now included in updated UN list of essential medicines

First-ever global conference of national counter-terrorism chiefs will strengthen cooperation, build ‘resilient’ States, says top UN official

Stricter rules to stop terrorists from using homemade explosives

3 innovations which are leading the fight to save our ocean

During the coronavirus pandemic, we must fight for LGBTQ rights more than ever

New rules make household appliances more sustainable

The world is failing miserably on access to education. Here’s how to change course

The ECB ‘accidentally’ followed IMF‘s policy advice for growth and job creation by printing more money

Don’t compare data to oil – digitization needs a new mindset

Q&A on extraordinary remote participation procedure

What kind of action on social justice should we expect from companies in the future?

Banks get new capital for free and citizens pay the bill

The widely advertised hazards of the EU not that ominous; the sting is financial woes

David Attenborough: The planet can’t cope with overpopulation

The future of suicide and depression prevention

These 5 start-ups are shaping the future of Africa’s cities

Migration and asylum: EU funds to promote integration and protect borders

Here’s how sustainability can make you stand out from the crowd

Dieselgate: Parliament calls for mandatory retrofits of polluting cars

It’s not summer holidays what lead to the bad August of the German economy

We need to deep clean the oceans. Here’s how to pay for it

As people return to work, here’s how we can make commuting more inclusive and sustainable

International Literacy Day: What you need to know about youth literacy

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s