the impact of the debt crisis, Brexit and the energy crisis on the industry, the EU's dependence on foreign trade and lower growth rates relative to other large jurisdictions in the face of rising geopolitical tensions; There are no EU countries in the region. Reasons why some economists and policymakers believe in the economic and political importance of the EU and the euro include the top 10 global startup ecosystem, an aging population, low rates of investment in research and development, These include reduced space and unfinished economic and monetary union. Its area is expected to decrease in the coming decades.
These factors should be fully taken into account when deciding what public policy to design, but other strengths may have been ignored recently, resulting in The outlook for the eurozone is gloomier than expected.
First, the EU is the world's largest single democratic market, with around 500 million consumers and uniform rules. Between 2012 and 2021, annual trade in goods within the EU increased from €2.4 trillion to €3.4 trillion, while annual trade in goods between the EU and the rest of the world increased from €1.8 trillion to €2.2 trillion over the same period. Increased. Trillion.
So while geopolitical tensions and a lack of respect for multilateral trading rules have a negative impact on the EU, its true foundation is the single market, which celebrates its 30th anniversary this year.
It is therefore of paramount importance to continue to maintain the single market, which requires proper implementation of competition policies to avoid unfair use of state aid instruments by resource-rich member states. is necessary.
Second, the EU and euro area labor markets are strong and resilient, with unemployment rates at historically low levels and labor force participation rates at historically high levels.
As of October 2023, the unemployment rate in the euro area was 6.5%, and in the second quarter of 2023, 65.5% of the euro area population aged 15 to 74 were employed or looking for work. But in other regions, such as the United States, the numbers are even better, with an unemployment rate of 3.8 percent and a labor force participation rate of 69 percent.
As a result, it is important not to become complacent and to maintain the momentum for necessary reforms in active and negative labor policies to facilitate the matching of labor demand and supply.
Third, Europe's banking sector, which was in crisis a decade ago, now has rising profits, high liquidity ratios, and has made a strong recovery from the financial turmoil that began in the United States last March. It shows power and is well capitalized.
The results of the latest bank stress tests conducted by the European Banking Authority confirmed resilience ahead of the summer holidays. Still, there is no room for complacency on this point either, and banks should use some of the profit growth observed in the short term to strengthen their resilience and better cope with the worst possible risk scenarios.
Fourth, there is considerable public support for economic transformation by the EU, national and local authorities. The Next Generation Recovery Fund, a response to the COVID-19 pandemic, will amount to approximately €800 billion in transfers and loans, primarily focused on the green transition and digital transformation of the economy.
Much has been made of the $369 billion U.S. Inflation Reduction Act (IRA). [€341bn], but the amount of funding for green transition in the US is not higher than in the EU. The difference between the US and the EU is the way public funds flow to the private sector, with the US relying on tax credits at the federal level and the EU relying on lengthy administrative procedures at various levels. Any effort the EU can make to increase the speed and certainty with which public funds reach the private sector would therefore be welcomed.
Fifth, the euro area relies on a thriving external sector and the euro, which is the second most important international reserve currency after the dollar. With the exception of recent months, the eurozone has traditionally relied on large current account surpluses, giving it lending capacity to the rest of the world. The euro's status as an international reserve currency is also noteworthy, but efforts are needed to maintain its international role.
Innovation vs. imitation vs. regulation
Sixth, the EU is a regulatory power and standard setter that benefits from the so-called 'Brussels effect'. This gives the EU a first-mover advantage, so other major jurisdictions often take inspiration from EU-approved legislation when considering regulations.
Nevertheless, the EU should embody the adage “US innovates, China imitates, EU regulates” and strive not only to maintain its position as a regulator, but also to become a place for innovation. be.
Finally, the EU and the Eurozone are strong because they are very aware of their weaknesses and gaps. All parties around the table agreed on the importance of enlarging the EU, the need to complete the Banking and Capital Markets Union and introduce permanent fiscal capacity financed by common debt, and to ensure fiscal sustainability. We agree on the relevance of this and its appropriateness to promote public finances. The regulatory environment for research and development and investment promotion is in place.
Recognizing the gaps is critical, but the EU must not wait until the next crisis to act.
In fact, in recent years, economic and monetary union efforts have only deepened in response to the eurozone debt crisis, the launch of the Banking Union or the European Stability Mechanism, or in the face of major crises such as COVID-19. . A recovery fund was established for the -19 crisis.
Of course, in short, there is hope for the EU and the Eurozone. Although we face challenges, there are also many strengths to build on. All we need is the political will to move forward.
