More Europe

Nowadays, Europe is not only facing an economic crisis. But also it is tackling a political one. Therefore, we are living challenged times. Nevertheless, comparing the European macroeconomic figures to the USA and Japanese ones, the EU seems to be economically better than we all imagine. As an example, EU's public debt is 79.03%, while USA's, arriving at a point of 106.7% and Japan with 234.5% are presenting considerable higher figures. One of the most important problems we are facing today is the inaccurate design of the Eurozone. We are a Monetary Union but not a real economic, fiscal nor political one. The theory is outstanding, but its development within the economic and financial field has been casting some doubts, the European crisis resulting a enormous lack of trust (absence of confidence). We should bear in mind this negative scenario: confidence is essential for the economy recovery as it is synonymous of credit as well, and credit, especially to SME, is the key element we need to increase the growth. Without confidence the economic recovery will be impossible. On the other hand, last July Mr. Draghi's statements provided an injection of confidence, relieving doubts on euro irreversibility as representing, probably, the most important fact since the euro implementation as well. Once the eurozone doubts seem dispelled, it is time to encourage growth. On this matter, both national reforms and fiscal consolidation are crucial. Spain is an example according to the results. Two years ago, the exports in Spain represented 20% of the GDP; nowadays, they represent 32%. Let me give you an example: last January in Spain, automotive production rose 12%. Consequently, this is an outstanding result, having in mind both the drop of the domestic demand and the dramatic situation of the automotive sector in the rest of Europe. These figures definitely show the improvement of the Spanish competitiveness, as shown by the increase of the investments within the sector in Spain. All this data show that Spain together with the rest of Europe are on the right path. There is still much to do. At the moment, the challenge of the Spanish economy is to allow credit access to SMEs. It is our main task. However, it is not just a Spanish Government's responsibility. It should be also a shared duty of European institutions, especially ECB's responsibility. As I requested Mr. Draghi last week in the plenary session in Strasbourg, ECB should act to avoid the difficulties faced by most of SMEs within the EU to access to credit. SMEs are not able to fund because of the exorbitant interest rates. This situation is deforming the Single Market and creating imbalances in Europe's competitiveness. The main message should be that the economic recovery will not come just as a result of national reforms. Cooperation among European institutions working together on the same path is also needed to restore confidence. At the European level, we must go ahead to the long-awaited and necessary economic union, fiscal union and, ultimately, political union. Member States which are able to act, should apply with expansive policies, in order to share the fiscal contraction of those countries which committed excesses over the last years. Consequently, we all should be supportive, acting together with the aim to overcome the economic crisis, also reminding the principle of solidarity as one of the most important principles in the Treaty on European Union: "The Union promote economic, social and territorial cohesion and solidarity among Member States".

Cyprus bailout and the banking union

A recent study conducted by Deutsche Bank concluded: "Based on this approach the authors could identify improvements in competitiveness in the GIPS countries (Greece, Ireland, Portugal and Spain), but not in Italy and France. This suggests that the reduction in Italy's current account deficit has been cyclical. The persistence of the French deficit is consistent with the lack of competitiveness and more robust domestic demand growth. In short, while some European countries such as Spain are improving the competitiveness of their economies, others are making no such progress. Should this trend continue, economic imbalances in Europe could emerge. In order to emerge from the crisis we need to improve productivity. The only alternative would be to lower wages. All European countries should strive towards creating innovative economies that can sustain relatively high wages and good working conditions. Europe cannot compete on the basis of labour costs. Rather, Europe must compete in terms of innovation and talent. The second issue on which we should reflect is the lack of competitiveness of the French and Italian economies, as found by Deutsche Bank. Economic experts are concerned about both economies. France has become less and less competitive because of a failure to introduce necessary structural reforms. In Italy, the forthcoming elections make it unclear whether or not an agenda of structural reforms, of the sort which benefited countries such as Spain, will actually be introduced. Hopefully in the coming months, Italy and France will resume a reform agenda and begin to experience economic growth once again. Not only for the good of their respective citizens, but for the good of all Europeans. http://thinkingeurope.eu/blog/restoring-europes-competitiveness