Europe’s economy is stuck in a troubled state. According to the latest IMF World Economic Outlook, a large number of EU Member States will be in a recession this year. Too much focus has been put on austerity, too little on sustainability and growth. Europe, unsurprisingly, hasn’t been able to cut its way to sustainable debt reduction either.
The economic circumstances and the sense of political alarm that comes with them have been put to good use by some conservative voices. They have tried to reverse the judgement on one of the most fundamental economic strategy questions on which a great deal of ink has been shed: Will Europe be capable of reconciling its industrial competitiveness with a switch to a low-carbon economy? Time and time again this question has been answered positively. To counter the voices that are still not willing to reconcile themselves with this perspective, maybe we should radicalise the question: Will Europe in fact remain competitive without a low-carbon transformation? My answer: No.
Low-road to nowhere
Industrial competitiveness won’t be gained by taking the low road of an anti-regulation agenda consisting of social and environmental dumping. Neither will it increase via closing our borders with a new protectionism. Instead, Europe needs to rise to the occasion with an ambitious industrial policy that leads investments in a low-carbon modernisation offensive encompassing energy and resource efficiency. The European Commission has acknowledged in its own industrial policy communication of 10 October 2012 the need for a policy framework that increases investments into new technologies and gives “Europe a competitive lead in the new industrial revolution”.
This will be the basis for our industrial competitiveness and raise European industry from its knees to greater heights. For this to happen, Europe needs a Renaissance of Industry for a Sustainable Europe (RISE) strategy.
In my European Parliament report entitled “Reindustrialising Europe to promote competitiveness and sustainability”, I have put forth a blueprint of a RISE strategy that will bring an industrial renewal with economic dynamism, confidence and competitiveness. Its guiding lights are the principles of fair competition, the internalisation of externalities and an environmentally-conscious Ordnungspolitik embedded in a European ecological and social market economy. Such a strategy is based on a number of key pillars.
The road to RISE
First and foremost, we need an innovation, efficiency and sustainable technology offensive to modernise our industrial base and increase our core strengths. This means investing in renewables in tandem with energy and resource efficiency. The Bank of America Merrill Lynch has already identified energy efficiency as one of the next financial megatrends while the European Commission highlighted in its resource efficiency roadmap that resource efficiency gains in German manufacturing alone could generate cost savings up to 30%.
Renewed energy is required in this field. Innovative policy measures to stimulate efficiency investments could be the introduction of an energy efficiency feed-in tariff as well as the proposal by the German engineering association (VDMA) of eco-efficiency loans that include an advance on the efficiency gains to be realised (ie. a loan of 120%) which could be used to finance other non-efficiency related investments and be repaid inter alia through the remaining efficiency gains. Creating a state aid block exemption for all energy efficiency schemes within the Member States’ Efficiency Action Plans, as suggested in a study on state aid commissioned by the Greens, would also be helpful.
Ecodesign legislation also has a crucial role to play in this field. According to the consultancy Ecofys, ecodesign has the potential to save European consumers and businesses EUR 90 billion per year in 2020, reducing natural gas imports from Russia by 23%. As such, ecodesign legislation could be widened to include recyclability and resource efficiency. Public-private partnerships, such as the industry proposal SPIRE, dedicated to innovation in resource and energy efficiency, are also of great importance and help pushing forward this agenda.
Second, European leaders must put our money where their mouth is and start investing in those areas where Europe’s competitiveness will get the most bang for our bucks such as innovation and research and development. This is crucial, because as noted by the World Economic Forum, business-as-usual investment will not deliver stable growth and prosperity.
Words, but little action
At the European Council Summit on 27-28 June, the Heads of State and Government proudly launched a new “Investment Plan for Europe” to support SMEs and kick-start the recovery. But this investment plan is little more than a shiny red herring distracting from the actual cuts the European Council has forced. Together with the majority of the European Parliament, the European Council agreed to an unambitious multi-annual financial framework (MFF) that holds on to the current economic status quo and cuts those strategic areas mentioned above. The SME financing programme COSME was cut by 20 per cent while the research framework programme Horizon 2020 also took a big hit. Meanwhile, billion-dollar graves like the ITER fusion reactor continue to enjoy unabated financing.
A RISE strategy would provide new innovative ways to restore credit in the market. These include, for example, revitalising the asset-backed securities market for SMEs and promoting financing partnerships where public banks invest in private bank issued structured covered bonds linking such investments to increased SME lending targets for the private bank. In the context of increased bank deleveraging, RISE would also support the creation of local bonds markets and establish a European regulatory framework for crowd-funding in order to help businesses access alternative sources of finance.
Europe needs to rise to the occasion with an ambitious industrial policy that leads investments in a low-carbon modernisation offensive encompassing energy and resource efficiency.
Third, it is about markets. We need to complete the internal market and have a RISE strategy that leverages our own European home market to foster demand-driven innovation and the uptake of new technologies. This could be done, for example, via reduced VAT rates for particularly innovative goods, privileged access to public procurement for efficient products, as well as standardisation policies. Simultaneously, a RISE strategy also opens up international markets. The EU-US Transatlantic Trade and Investment Partnership (TTIP) plays a key role in this respect and this agreement could endeavour to advance a transatlantic low-carbon transformation by phasing out fossil fuel subsidies. SME desks could be established at the EU Missions and an export strategy for resource and energy efficient technologies and services pursued.
Fourth, we need to win the skills and labour force for the next industrial revolution. This means making workers part of the process by expanding workplace democratisation and innovation as well as providing an individual right to training. Increasing the number of students studying the STEM (science, technology, engineering, mathematics) fields and setting national STEM targets in addition to forging partnerships between industry and universities would also be crucial. Furthermore, Member States with strong vocational training systems have had relatively robust employment markets during the crisis. In this context, the Commission should help Member States to introduce such systems. Microcredit facilities promoting entrepreneurship could also be made available for young people in addition to the Youth Guarantee, which is being introduced to alleviate youth unemployment.
Last but not least, we need a strategy for a Southern RISE that gives an economic perspective for the EU’s South. Existing industrial strengths need to be promoted via increased innovation and smart specialisation efforts as well as a comprehensive integration of these economies into the global value chains. A microcredit programme funded by the EIB could also help SMEs to process orders and the EU needs a programme that integrates these economies into the single European market. Too often are the Southern regions negatively affected by their peripheral positions and the lack of adequate well-connected infrastructures ranging from energy and ICT to railways. These and many more proposals for a Renaissance of Industry for a Sustainable Europe (RISE) strategy, I have outlined in my parliamentary report.
RISE above the others
Europe is finding itself in an economic storm shaking the very European political foundations. Now is the time to resolutely move forward and RISE towards a low-carbon transformation that will provide industrial strength and economic resilience. Our competitors are hot on our heels. In his second Inaugural Address on January 2013, President Obama stated that the path to such a transition will be long and sometimes difficult. He continued “America cannot resist this transition, we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise. That’s how we will maintain our economic vitality”. Fortunately, Europe is presently ahead of the game in this race. Let’s not rest on our laurels nor dither in our ambition. RISE!