WTO chief Pascal Lamy: Competitiveness must drive European growth
Europe is struggling to find its place in the new global economy because of 'domestic' issues, not external factors (like a rising China or trade disadvantages). On the contrary, the external climate favors European growth – if Europe can improve competitiveness and find its niche.
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Having said that, it is glaringly obvious that Europe’s hourly productivity is currently being eroded, particularly compared with the US. The euro’s high rate of exchange against the dollar in recent years has also had a far from negligible impact on European products’ loss of competitiveness in the world’s marketplaces.Skip to next paragraph
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OPINION: Europe’s big question
In parallel with price competitiveness, Europe’s (and especially Germany’s) comparative advantage stems largely from its “non-price competitiveness.” This type of competitiveness comprises all of those characteristics that cause a product to stand out positively among its competitors, regardless of price. In particular, it comprises know-how, quality, and innovation, which allow a company to sell the same products as its competitors but at twice the price.
This explains the performance of the German manufacturing system – and that performance, incidentally, is on a par with the average figure for the European community, according to the most recent figures.
The countries of central and eastern Europe have made enormous progress in terms of price competitiveness; yet while they have now overtaken even the Germans, they perform less well than those in the field of “non-price competitiveness.” Other countries, on the other hand, have fallen below the average, performing less well in the sphere of price competitiveness, like Italy, or less well in the sphere of “non-price competitiveness,” like France.
The difference between France and Germany in terms of comparative advantage on the international trade scene does not lie in price competitiveness, because salaries and productivity are the same in both countries. The Germans, on the other hand, enjoy a very clear comparative advantage in the field of “non-price competitiveness,” in other words, in terms of the range of products that they manufacture and export.
The level of specialization that sets France apart from Germany does not lie in pure product but in the range of products offered. “Up-market” products are sold at a higher price and guarantee higher profit margins. Their quality attracts consumer loyalty and confidence, and this, to some extent, shields manufacturers from having to worry about fluctuating global prices and competitor attacks.
We have to admit that comparative advantage is going to depend on price competitiveness but also to a large extent on “non-price competitiveness.” Thus the problem of Europe finding its place in the new global economy boils down to a European “domestic” issue. The external environment is not negative; on the contrary, it is rather positive.
The necessary reforms
Europe enjoys comparative advantages that ought to allow it to find its full place in the global economy. If we accept the idea that an improvement in its integration into international trade depends first and foremost on its internal policies, then we need to go back to the basic problem, which is a problem of excessively weak economic growth in Europe. That was true before the euro crisis, when the European Union’s potential for growth hovered around the 2 percent to 2.5 percent mark, but since the start of the crisis that potential for growth has decreased by half.
On a global scale, Europe is an island of prosperity and well-being thanks to a welfare system that is of unquestioned quality, yet whose sustainability depends on significant growth both in the economy and in the population. However, Europe has a problem in both of those spheres.
A well-known solution to its demographic problem would involve falling back on immigration, but it is difficult to envisage such a solution being adopted in the short term on account of the positions espoused by Europe’s political forces on the issue. It would also be opportune to make it easier for people to reconcile their personal and professional lives, and to remove obstacles standing in the way of an increase in the birth rate, which has dropped to critical levels in European countries where the generational turnover is no longer guaranteed – although there are a few exceptions, and one of them is France.