Laggard EU seeks growth fixes to compete in global shift to new technologies

BRUSSELS: The European Union risks being left behind by the United States, China and other rivals in the global shift to new technologies if it fails to radically improve the competitiveness and dynamism of its economy.

That is the consensus view of economists, business and many of the EU leaders meeting on April 17-18 to discuss how to drive the economic growth needed to maintain the bloc’s championing of living standards and climate change action.

They are set to call for a “New European Competitiveness Deal” - which may give some a strong sense of deja vu after the growth-focused Lisbon Strategy of 2000 and the Europe 2020 plan that came a decade later.

What is different now is the disruption of new technologies, from artificial intelligence to zero-carbon manufacturing, China’s rise up the value chain, increased protectionism and the loss of cheap Russian gas on which EU industry had relied.

Zach Meyers, assistant director of think tank CER, said the EU’s problem was twofold, with growth stubbornly lower than that of its rivals and a lack of dynamism and innovation to adapt.

“The focus needs to be less on ‘saving’ existing industries and more on making the EU economy resilient and innovative.” A McKinsey report shows Europe is a champion on tackling climate change and on metrics such as income equality and life expectancy, but a laggard on growth.

It sees a competitive edge increasingly coming from 10 frontier technologies, such as AI and biological innovation, of which Europe has a leading position in only two.

EU leaders were jolted 18 months ago by the US offer of nearly $400 billion of green tax breaks linked to local production as part of its Inflation Reduction Act (IRA).

But when a counterweight joint European Sovereignty Fund was proposed, frugal EU members blocked it and the bloc settled instead for a scheme involving a modest 10 billion euros ($10.6 billion) of new money.

Looser state aid rules have allowed single EU members to support new production, such as the reported 15 billion euros Germany put forward to lure chipmakers Intel and TSMC.

That largesse has prompted pro-free market countries such as Sweden, however, to warn of a damaging subsidy race between EU members.

The International Monetary Fund has warned too that tax breaks and subsidies were not magic cures for slow growth.

ExxonMobil Europe president Philippe Ducom said subsidies would not fund the huge investments required for the energy transition and Europe needed to create the business case for the private sector.