José Manuel Barroso, President of the European Commission (on the left), and Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship, gave a joint press conference on the adoption of a Communication “For a European Industrial Renaissance”. (EC Audiovisual Services, 22/01/2014).
Last Wednesday the European Commission presented a ground-breaking communication for a “European Industrial Renaissance”. With it, the EU’s executive arm “is urging Member States to recognise the central importance of industry for creating jobs and growth and to mainstream industry-related competitiveness concerns across all policy areas”. The truth is, however, that industry doesn’t play the same key economic role for the EU as a whole as it does for Eurozone. Consequently, this message carries a different weight when addressed to the euro area member states, in comparison to the rest of EU members.
This basic difference can be identified in the balance of payments euro-indicators for the EU28 and the euro area (EA17). Incidentally, Eurostat published yesterday its quarterly data on the balance of payments for the EU28 and the EA17, during the third quarter of 2013. Both areas show a quite healthy positive current account balance. For the EU28 this is €31.4 billion, while in the EA17 reached €42.7bn. The first obvious comment is that the Eurozone has a much stronger external position in international markets than the EU as a whole. By the way this is the reason why the euro, even at the most difficult moments during the financial crisis of the past five years, kept its value and even gained grounds vis-à-vis all the other major currencies of the world.
Manufacturing and services
Let’s analyse a bit further the external position of the EU28 and the euro area of the 17 member states in the third quarter of 2013. According to Eurostat the solid €31.4bn current account surplus for the EU28 came from an even larger positive trade balance in services, which at that period reached €40.8bn. During the same time the trade balance in manufactured goods for the entire EU28 was a mere €0.1bn. This means that the EU as a whole heavily depends on services for its external transactions balance and much less on manufacturing.
On the contrary, when passing to the euro area of 17 countries, the picture drastically changes. The amazing surplus of €42.7bn in euro area’s current account comes from a positive residual on transactions in manufactured goods of the order of €37.2bn and a smaller surplus in the trade of services of €27.4bn. Now the positive balance of €37.2bn in the trade of manufactured goods of Eurozone is transformed into a mere €0.1bn when passing to the EU28. This means that the 11 non euro area EU countries run a heavily negative external account in the trade of manufactures.
Undoubtedly then, Eurozone has to pay much more attention to its industrial base than the rest of the EU countries. At this point an obvious comment is that the production of manufactured goods, which are valued in international markets, may be judged as a more solid base for an economy, than a good position in the trade of services. Understandably the services in question are tourism and transports plus financial services.
Industrial renaissance
After this little analysis, the Commission’s call for immediate action for a European Industrial Renaissance should have a much deeper effect in Eurozone than in the rest of EU countries. This doesn’t mean that the other 11 EU member state can neglect it unpunished. It may be true that over the past decades, the developing world, including China, has undertaken a growing part of world’s industrial activities. Nevertheless, Europe managed to excel in key industrial sectors like the automotive, medical technology, pharmaceuticals, aerospace, telecommunications, machine tools, chemicals, etc.
The Commission estimates that every additional job in manufacturing creates 0.5-2 jobs in other sectors. Obviously, this may offer the perfect solution for Eurozone’s unemployment problem in economies like Italy with long tradition in manufacturing. To this effect, this Commission communication proposes a number of key actions to support industrial growth. It sets the following policy priorities for the EU and the member states as follows:
* Strengthening mainstreaming of industrial competitiveness in all policy areas.
* Maximising the potential of the internal market by developing the necessary infrastructures, offering a stable, simplified and predictable regulatory framework.
* Taking measures in the internal market and at international level to secure access to energy and raw materials.
* Deploying and implementing European financing instruments, based on effective combinations of COSME, Horizon 2020, Structural Funds (regional funds at least €100bn) and national funding to pursue innovation, investment and reindustrialisation.
* Restoring normal lending to the real economy.
* Facilitating the progressive integration of EU firms and of SMEs in particular, in global value chains.
In view of all that, the Commission proposes to relaunch the target for EU industry, aiming at reaching a 20% share of GDP for manufacturing by 2020 from around 15% today.
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