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1、S E P T E M B E R 2 0 2 4The future of European competitivenessPart A|A competitiveness strategy for EuropeAcknowledgmentThis report would not exist without the generosity of many extraordinary people who have at heart the future of Europe.First,I would like to acknowledge the President of the Europ

2、ean Commission Ursula von der Leyen for her constant support,and to thank the President of the European Central Bank Christine Lagarde for lending valuable resources.Paolo DAprile and Pauline Rouch coordinated all the work contained in the report.Jonathan Yiangou drafted exten-sive parts of it.Witho

3、ut their dedication and hard work this report would not have been possible.The analysis and the policy advice contained in the report owes much to the contributions of:Philippe Aghion,Laurence Boone,Vittorio Colao,Francesco Decarolis,Robbert Dijkgraaf,Francesco Giavazzi,Luigi Guiso,Claudio Michelacc

4、i,Marco Pagano,Raffaella Sadun,Fabiano Schivardi,Fiona M.Scott Morton,Michael Spence,Per Strmberg,Jean Tirole,and John Van Reenen.I would like to thank the Commission team that followed and contributed to the report from beginning to end:Alessandra Falcinelli,Miguel Gil Tertre,Alexandr Hobza,Thomas

5、Hopkins,Sven Langedijk,Dimitri Lorenzani,Vukain Ostoji,Nria Subirats Rebull,Dirk Van den Steen,Lukas Vogel,and Yoshua Witteveen.I would also like to thank our graphic designer,Camille Palandjian for her work.The team could count on the precious support of Isabela Di Pietro and Maria Grazia Ciorra.I

6、am also grateful for the contributions of the following people and organisations,who were consulted in meetings and/or who sent written contributions.D.Acemoglu,Massachusetts Institute ofTechnology P.Antrs,Harvard University P.Beria,Politecnico di Milano O.Blanchard,Massachusetts Institute ofTechnol

7、ogy J.P.Bourguignon,Institut des Hautes tudes Scientifiques M.Dewatripont,Universit libre de Bruxelles F.Dudenhoeffer,University of Duisburg-Essen T.Duso,German Institute for Economic Research L.Garicano,London School of Economics F.Gianotti,CERN D.Helm,University of Oxford P.T.Jones,KU Leuven M.Lep

8、tin,European Research Council E.Marique,Radboud University Nijmegen A.Mas-Colell,Pompeu Fabra University J.J.Montero Pascual,Florence School ofRegulation E.Moretti,University of California,Berkeley M.Motta,Pompeu Fabra University M.Peitz,University of Mannheim L.H.Roeller,European School of Manageme

9、nt andTechnology Berlin A.Sapir,Universit libre de Bruxelles G.Siani,Banca dItalia N.Stern,London School of Economics01THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|ACKNOWLEDGMENTTHINK TANKS AND RESEARCH INSTITUTIONSBloombergNEF BruegelCEPS-Centre for European Policy Studies CERRE-Centre on Regulati

10、on in EuropeEPC-European Policy CentreEuropean Space Policy InstituteKoWi-Kooperationsstelle EU der WissenschaftsorganisationenIMEC-Interuniversitair Micro-Electronica CentrumI4CE-Institute for Climate EconomicsLERU-League of European Research Universities New Financial Zoe InstituteEU INSTITUTION/B

11、ODY/AGENCYCedefop-European Centre for the Development ofVocational Training ECB-European Central BankEC-European CommissionEIB-European Investment BankEIC-European Innovation CouncilEIF-European Investment FundEIOPA-European Insurance and Occupational Pensions AuthorityEIT Health EIT Inno Energy EIT

12、 KIC ERC-European Research CouncilESM-European Stability MechanismESMA-European Securities and Markets Authority Eurogroup(secretariat)European Committee of the Regions-CoR European Economic and Social Committee-EESC EUROPEAN COMMISSION EXPERT GROUPSESIR expert group-economic and societal impact ofr

13、esearch High level Group on the interim evaluation of Horizon Europe INTERNATIONAL ORGANISATIONSEBRD-European Bank for Reconstruction and Development EPO-European Patent OfficeESA-European Space Agency IEA-International Energy AgencyIMF-International Monetary FundOECD-Organisation for Economic Co-op

14、eration andDevelopment World BankCONSUMER ASSOCIATIONSBEUC-Bureau Europen des Unions de ConsommateursNATIONAL PROMOTIONAL BANKS AND INSTITUTIONSELTI-European Association of Long-Term InvestorsCENTRAL BANKSBanca dItaliaTRADE UNIONS REPRESENTATIVESETUC-European Trade Union ConfederationPATIENT ORGANIS

15、ATIONSEPF-European Patients ForumEurordis-European Organisation for Rare DiseasesNGOSBirdLife EuropeClientEarthClimate Action Network EuropeEuropean Environmental BureauE3G-Third Generation EnvironmentalismSandbag Climate CampaignTransport&EnvironmentWWF-World Wide Fund for Nature COMPANIES AND GROU

16、PSAirbusAir France-KLMAlstomAmazonAmundiAriston GroupArvedi GroupASMLBASFBayerBMW GroupBNP ParibasBoltBreakthrough Energy BUSINESSEUROPEChiesi FarmaceuticiClarios Deutsche TelekomDHL GroupDomp farmaceuticiEDF-Electricit de FranceEnel 02THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|ACKNOWLEDGMENTENGI

17、EENIEquinor ASAEricssonEuroclearEuronextExxonMobil Petroleum&ChemicalE.onFerrovieFINCANTIERIFlixGlencore GoogleHolosolis IberdrolaInfineon TechnologiesInvestor ABLeonardoLufthansa GroupLyondellBasell Industries N.V.LOralMaersk McPhy EnergyMercedes BenzMetaMeyer Burger Technology AGMicrosoftMistral A

18、INesteNexWafe NokiaNovoNordiskNXP SemiconductorsOrangerstedOVHcloudRenaultRepsolRolls RoyceRWE RyanairSafran SanofiSAPShellSiemensSobi-Swedish Orphan BiovitrumSpotifyStellantisSTMicroelectronicsStripeTelefnicaTenneTThyssenkrupp Steel Europe TotalEnergiesUberVodafoneVolvoWoltZFlevelsioTRADE AND BUSIN

19、ESS ASSOCIATIONSA4E-Airlines for Europe ACEA-European Automobile Manufacturers AssociationACI-Airports Council International Europe ADRA-CLAIRE-Confederation of Laboratories forArtificial Intelligence Research in Europe Affordable Medicines EuropeAFME-Association for Financial Markets in Europe APPL

20、iA-Home Appliance Europe ARM-Alliance for Regenerative Medicine ASD Aerospace,Security and Defence Industries Association of Europe ASD EurospaceBio Based Industries ConsortiumCefic-European Chemical Industry Council CER-Community of European Railways and Infrastructure Managers CLECAT-European Asso

21、ciation for Forwarding,Transport,Logistics and Customs Services CLEPA-European Association of Automotive Suppliers ConfcommercioCOCIR-European Coordination Committee of the Radiological,Electromedical and Healthcare IT Industry Digital SME allianceEARTO-European Association of Research and Technolog

22、y Organisations EASE-European Association for Storage of Energy EBF-European Banking FederationEBIC-European Banking Industry Committee 03THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|ACKNOWLEDGMENTECSA-European Community Shipowners Association ECTA-European Competitive Telecommunications Associatio

23、nEFA-European FinTech AssociationEFAMA-European fund and asset management industry EFPIA-European Federation of Pharmaceutical Industries EFR-European Financial Services Round Table EFSA-European Forum of Securities Associations EHPA-European Heat Pumps Association ERT-European Round Table of Indust

24、rialists ESPO-European Sea Ports OrganisationETNO-European Telecommunications Network Operators Association EUCOPE-European Confederation of Pharmaceutical EntrepreneursEUROBAT-Association of European Automotive andIndustrial Battery Manufacturers EUROFER-The European Steel Association EUROMETAUXEur

25、omines-European Association of Mining Industries,Metal Ores&Industrial Minerals EuropaBioEuropean Aluminium European council of young farmers-CEJA European Entrepreneurs CEA-PME European Venture Fund Investors Network EUTA-European Tech AllianceEU-ASE European Alliance to Save EnergyFrance Industrie

26、FSE-Federation of European Securities Exchanges GSMAHydrogen EuropeIE-Invest EuropeInternational Lithium AssociationIOGP Europe-International Association of Oil&Gas Producers Medicines for EuropeMedTech EuropeMETIMicromobility for Europenucleareurope-Forum Atomique EuropenPlastics EuropePlatform for

27、 Electromobility SEA Europe-Shipyards and Maritime Equipment Association of Europe SGI EuropeSMEunitedSME4SPACE SolarPower Europe The Guild of European Research Intensive Universities UNIFEVCI-Verband der Chemischen IndustrieWindEurope Young European Enterprises Syndicate for Space ZEP-Zero Emission

28、 Platform PROFESSIONAL CONSULTANCIESArthur D LittleBCG-The Boston Consulting Group EU StrategyForward GlobalRud Pedersen Public Affairs 04THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|ACKNOWLEDGMENTForewordEurope has been worrying about slowing growth since the start of this century.Various strategi

29、es to raise growth rates have come and gone,but the trend has remained unchanged.Across different metrics,a wide gap in GDP has opened up between the EU and the US,driven mainly by a more pronounced slowdown in productivity growth in Europe.Europes households have paid the price in foregone living s

30、tandards.On a per capita basis,real disposable income has grown almost twice as much in the US as in the EU since 2000.For most of this period,slowing growth has been seen as an inconvenience but not a calamity.Europes exporters managed to capture market shares in faster growing parts of the world,e

31、specially Asia.Many more women entered the workforce,lifting the labour contribution to growth.And,after the crises of 2008 to 2012,unemployment steadily fell across Europe,helping to reduce inequality and maintain social welfare.The EU also benefitted from a favourable global environment.World trad

32、e burgeoned under multilateral rules.The safety of the US security umbrella freed up defence budgets to spend on other priorities.In a world of stable geopol-itics,we had no reason to be concerned about rising dependencies on countries we expected to remain our friends.But the foundations on which w

33、e built are now being shaken.The previous global paradigm is fading.The era of rapid world trade growth looks to have passed,with EU companies facing both greater competition from abroad and lower access to overseas markets.Europe has abruptly lost its most important supplier of energy,Russia.All th

34、e while,geopolitical stability is waning,and our dependencies have turned out to be vulnerabilities.Technological change is accelerating rapidly.Europe largely missed out on the digital revolution led by the internet and the productivity gains it brought:in fact,the productivity gap between the EU a

35、nd the US is largely explained by the tech sector.The EU is weak in the emerging technologies that will drive future growth.Only four of the worlds top 50 tech companies are European.Yet,Europes need for growth is rising.The EU is entering the first period in its recent history in which growth will

36、not be supported by rising populations.By 2040,the workforce is projected to shrink by close to 2 million workers each year.We will have to lean more on productivity to drive growth.If the EU were to maintain its average productivity growth rate since 2015,it would only be enough to keep GDP constan

37、t until 2050 at a time when the EU is facing a series of new investment needs that will have to be financed through higher growth.To digitalise and decarbonise the economy and increase our defence capacity,the investment share in Europe will have to rise by around 5 percentage points of GDP to level

38、s last seen in the 1960s and 70s.This is unprecedented:for comparison,the additional investments provided by the Marshall Plan between 1948-51 amounted to around 1-2%of GDP annually.If Europe cannot become more productive,we will be forced to choose.We will not be able to become,at once,a leader in

39、new technologies,a beacon of climate responsibility and an independent player on the world stage.We will not be able to finance our social model.We will have to scale back some,if not all,of our ambitions.This is an existential challenge.Europes fundamental values are prosperity,equity,freedom,peace

40、 and democracy in a sustainable environment.The EU exists to ensure that Europeans can always benefit from these fundamental rights.If Europe can no longer provide them to its people or has to trade off one against the other it will have lost its reason for being.The only way to meet this challenge

41、is to grow and become more productive,preserving our values of equity and social inclusion.And the only way to become more productive is for Europe to radically change.05THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|FOREWORDThree areas for action to reignite growthThis report identifies three main a

42、reas for action to reignite sustainable growth.In each area,we are not starting from zero.The EU still has general strengths such as strong education and health systems and robust welfare states and specific strengths on which to build.But we are collectively failing to convert these strengths into

43、productive and competitive industries on the global stage.First and most importantly Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China,especially in advanced technologies.Europe is stuck in a static industrial structure with few new companies r

44、ising up to disrupt existing industries or develop new growth engines.In fact,there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years,while all six US companies with a valuation above EUR 1 trillion have been created in this

45、period.This lack of dynamism is self-fulfilling.As EU companies are specialised in mature technologies where the potential for breakthroughs is limited,they spend less on research and innovation(R&I)EUR 270 billion less than their US counterparts in 2021.The top 3 investors in R&I in Europe have bee

46、n dominated by automotive companies for the past twenty years.It was the same in the US in the early 2000s,with autos and pharma leading,but now the top 3 are all in tech.The problem is not that Europe lacks ideas or ambition.We have many talented researchers and entrepreneurs filing patents.But inn

47、ovation is blocked at the next stage:we are failing to translate innovation into commercialisation,and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations.As a result,many European entrepreneurs prefer to seek financing from US

48、 venture capitalists and scale up in the US market.Between 2008 and 2021,close to 30%of the“unicorns”founded in Europe startups that went on the be valued over USD 1 billion relocated their headquarters abroad,with the vast majority moving to the US.With the world on the cusp of an AI revolution,Eur

49、ope cannot afford to remain stuck in the“middle technologies and industries”of the previous century.We must unlock our innovative potential.This will be key not only to lead in new technologies,but also to integrate AI into our existing industries so that they can stay at the front.A central part of

50、 this agenda will be giving Europeans the skills they need to benefit from new technologies,so that technology and social inclusion go together.While Europe should aim to match the US in terms of innovation,we should aim to exceed the US in providing opportunities for education and adult learning an

51、d good jobs for all throughout their lifetimes.The second area for action is a joint plan for decarbonisation and competitiveness.If Europes ambitious climate targets are matched by a coherent plan to achieve them,decarbonisation will be an opportunity for Europe.But if we fail to coordinate our pol

52、icies,there is a risk that decarbonisation could run contrary to competitiveness and growth.Even though energy prices have fallen considerably from their peaks,EU companies still face electricity prices that are 2-3 times those in the US.Natural gas prices paid are 4-5 times higher.This price gap is

53、 primarily driven by Europes lack of natural resources,but also by fundamental issues with our common energy market.Market rules prevent industries and households from capturing the full benefits of clean energy in their bills.High taxes and rents captured by financial traders raise energy costs for

54、 our economy.Over the medium term,decarbonisation will help shift power generation towards secure,low-cost clean energy sources.But fossil fuels will continue to play a central role in energy pricing at least for the remainder of this decade.Without a plan to transfer the benefits of decarbonisation

55、 to end-users,energy prices will continue to weigh on growth.06THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|FOREWORDThe global decarbonisation drive is also a growth opportunity for EU industry.The EU is a world leader in clean technologies like wind turbines,electrolysers and low-carbon fuels,and

56、more than one-fifth of clean and sustainable technologies worldwide are developed here.Yet it is not guaranteed that Europe will seize this opportunity.Chinese competition is becoming acute in industries like clean tech and electric vehicles,driven by a powerful combination of massive industrial pol

57、icy and subsidises,rapid innovation,control of raw materials and ability to produce at continent-wide scale.The EU faces a possible trade-off.Increasing reliance on China may offer the cheapest and most efficient route to meeting our decarbonisation targets.But Chinas state-sponsored competition als

58、o represents a threat to our productive clean tech and automotive industries.Decarbonisation must happen for the sake of our planet.But for it also to become a source of growth for Europe,we will need a joint plan spanning industries that produce energy and those that enable decarbonisation such as

59、clean tech and automotives.The third area for action is increasing security and reducing dependencies.Security is a precondition for sustainable growth.Rising geopolitical risks can increase uncertainty and dampen investment,while major geopolitical shocks or sudden stops in trade can be extremely d

60、isruptive.As the era of geopolitical stability fades,the risk of rising insecurity becoming a threat to growth and freedom is rising.Europe is particularly exposed.We rely on a handful of suppliers for critical raw materials,especially China,even as global demand for those materials is exploding owi

61、ng to the clean energy transition.We are also hugely reliant on imports of digital technology.For chips production,75-90%of global wafer fabrication capacity is in Asia.These dependencies are often two-way for example,China relies on the EU to absorb its industrial overcapacity but other major econo

62、mies like the US are actively trying to disentangle themselves.If the EU does not act,we risk being vulnerable to coercion.In this setting,we will need a genuine EU“foreign economic policy”to retain our freedom a so-called statecraft.The EU will need to coordinate preferential trade agreements and d

63、irect investment with resource-rich nations,build up stockpiles in selected critical areas,and create industrial partnerships to secure the supply chain of key technologies.Only together can we create the necessary market leverage to do all this.Peace is the first and foremost objective of Europe.Bu

64、t physical security threats are rising and we must prepare.The EU is collectively the worlds second largest military spender,but it is not reflected in the strength of our defence industrial capacity.The defence industry is too fragmented,hindering its ability to produce at scale,and it suffers from

65、 a lack of stan-dardisation and interoperability of equipment,weakening Europes ability to act as a cohesive power.For example,twelve different types of battle tanks are operated in Europe,whereas the US produces only one.07THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|FOREWORDWhat is standing in th

66、e way?In many of these areas,Member States are already acting individually and industrial policies are on the rise.But it is evident that Europe is falling short of what we could achieve if we acted as a community.Three barriers are standing in our way.First,Europe is lacking focus.We articulate com

67、mon objectives,but we do not back them by setting clear priorities or following up with joined-up policy actions.For example,we claim to favour innovation,but we continue to add regulatory burdens onto European companies,which are especially costly for SMEs and self-defeating for those in the digita

68、l sectors.More than half of SMEs in Europe flag regulatory obstacles and the administrative burden as their greatest challenge.We have also left our Single Market fragmented for decades,which has a cascading effect on our competitiveness.It drives high-growth companies overseas,in turn reducing the

69、pool of projects to be financed and hindering the development of Europes capital markets.And without high-growth projects to invest in and capital markets to finance them,Europeans lose opportunities to become wealthier.Even though EU households save more than their US counterparts,their wealth has

70、grown by only a third as much since 2009.Second,Europe is wasting its common resources.We have large collective spending power,but we dilute it across multiple different national and EU instruments.For instance,we are still not joining forces in the defence industry to help our companies to integrat

71、e and reach scale.European collaborative procurement accounted for less than a fifth of spending on defence equipment procurement in 2022.We also do not favour competitive European defence companies.Between mid-2022 and mid-2023,78%of total procurement spending went to non-EU suppliers,out of which

72、63%went to the US.Likewise,we do not collaborate enough on innovation,even though public investments in breakthrough technolo-gies require large capital pools and the spillovers for everyone are substantial.The public sector in the EU spends about as much on R&I as the US as a share of GDP,but just

73、one-tenth of this spending takes place at the EU level.Third,Europe does not coordinate where it matters.Industrial strategies today as seen in the US and China combine multiple policies,ranging from fiscal policies to encourage domestic production,to trade policies to penalise anti-competitive beha

74、viour,to foreign economic policies to secure supply chains.In the EU context,linking policies in this way requires a high degree of coordination between national and EU efforts.But owing to its slow and disaggregated policymaking process,the EU is less able to produce such a response.Europes decisio

75、n-making rules have not substantially evolved as the EU has enlarged and as the global environ-ment we face has become more hostile and complex.Decisions are typically made issue-by-issue with multiple veto players along the way.The outcome is a legislative process with an average time of 19 months

76、to agree new laws,from the Commissions proposal to the signing of the adopted act and before new laws are even implemented across Member States.The objective of this report is to lay out a new industrial strategy for Europe to overcome these barriers.We identify the root causes of the EUs weakening

77、position in key strategic sectors and lay out a series of proposals to restore the EUs competitive strength.For each sector we analyse,we identify priority proposals for the short and medium term.In other words,these proposals are not intended to be aspirations:most of them are designed to be implem

78、ented quickly and to make a tangible difference to the EUs prospects.In many areas,the EU can achieve a lot by taking a large number of smaller steps,but doing so in a coordinated way that aligns all policies behind the common goal.In other areas,a small number of larger steps are needed dele-gating

79、 tasks to the EU level that can only be performed there.In still other areas,the EU should step back,applying the subsidiarity principle more rigorously and reducing the regulatory burden it imposes on EU companies.08THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|FOREWORDA key question that arises is

80、 how the EU should finance the massive investments needs that transforming the economy will entail.We present simulations in this report to address this question.Two key conclusions can be drawn for the EU.First,while Europe must advance with its Capital Markets Union,the private sector will not be

81、able to bear the lions share of financing investment without public sector support.Second,the more willing the EU is to reform itself to generate an increase in productivity,the more fiscal space will increase,and the easier it will be for the public sector to provide this support.This connection un

82、derscores why raising productivity is fundamental.It also has implications for the issuance of common safe assets.To maximise productivity,some joint funding for investment in key European public goods,such as breakthrough innovation,will be necessary.At the same time,there are other public goods id

83、entified in this report such as defence procurement or cross-border grids that will be undersupplied without common action.If the political and institutional conditions are met,these projects would also call for common funding.This report is coming out at a difficult time for our continent.We should

84、 abandon the illusion that only procrastination can preserve consensus.In fact,procrastination has only produced slower growth,and it has certainly achieved no more consensus.We have reached the point where,without action,we will have to either compromise our welfare,our environment or our freedom.F

85、or the strategy outlined in this report to succeed,we must begin with a common assessment of where we stand,the goals we want to prioritise,the risks we want to avoid and the trade-offs we are prepared to make.We must ensure that our democratically elected institutions are at the centre of these deb

86、ates.Reforms can only be truly ambitious and sustainable if they enjoy democratic backing.And we must take a new stance towards cooperation:in removing obstacles,harmonising rules and laws,and coor-dinating policies.There are different constellations in which we can move forward.But what we cannot d

87、o is fail to move forward at all.Our confidence that we will succeed in moving forward should be strong.Never in the past has the scale of our coun-tries appeared so small and inadequate relative to the size of the challenges.And it is long since self-preservation has been such a common concern.The

88、reasons for a unified response have never been so compelling and in our unity we will find the strength to reform.09THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|FOREWORD1.The starting point:anewlandscape for Europe .07Three transformations ahead for Europe.10Towards a European response.13Preserving

89、 social inclusion .152.Closing the innovation gap .19Europes productivity challenge.19Key barriers to innovation in Europe.243.A joint decarbonisation and competitiveness plan .35The root cause of high energy prices.39The threat to Europes clean tech sector.42The challenges of asymmetric decarbonisa

90、tion .44A joint plan for decarbonisation and competitiveness.464.Increasing security and reducing dependencies.50Reducing external vulnerabilities .52Strengthening industrial capacity fordefenceandspace.555.Financing investments.596.Strengthening governance .63Contents10THE FUTURE OF EUROPEAN COMPET

91、ITIVENESS PART A|CHAPTER 1.The starting point:anewlandscape for EuropeEurope has the foundations in place to be a highly competitive economy.The European model combines an open economy,a high degree of market competition and a strong legal framework and active policies to fight poverty and redistrib

92、ute wealth.This model has allowed the EU to marry high levels of economic integration and human development with low levels of inequality.Europe has built a Single Market of 440 million consumers and 23 million companies,accounting for around 17%of global GDP see Figure 1,while achieving rates of in

93、come inequality that are around 10 percentage points below those seen in the United States(US)and China,according to some measures see Figure 2.At the same time,the EUs approach has delivered outstanding outcomes in terms of governance,health,education and environmental protection.Of the worlds ten

94、top-scoring countries for the application of the rule of law,eight are EU Member Statesi.Europe leads the US and China in terms of life expectancy at birth and low infant mortalityii.Europes education and training systems deliver strong educational attainment,with a third of adults having completed

95、higher educationiii.The EU is also the world leader in sustainability and environmental standards and progress towards the circular economy,backed by the most ambitious global targets for decarbonisation,and can benefit from the largest exclusive economic zone in the world,covering 17 million square

96、 kilometres,4 times the EUs land surface01.FIGURE 1Share of World GDP GDP at current prices,2023Source:IMF,202401.The Exclusive Economic Zones(EEZs)are sea zones prescribed by the United Nations Convention on the Law of the Sea,extending up to 200 nautical miles from the coast of a country,within wh

97、ich the state has the rights to explore and exploit maritime resources.Leveraging this vast maritime area will contribute to competitiveness,security and sustainability.11THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1FIGURE 2Income and wage inequality in world regionsSource:World Inequality

98、 Database(WID),2024Yet growth in the EU has been slowing,driven by weakening productivity growth,calling into question Europes ability to meet its ambitions.The EU has set out a range of ambitions such as achieving high levels of social inclusion,delivering carbon neutrality and increasing geopoliti

99、cal relevance which depend on maintaining solid rates of economic growth.However,EU economic growth has been persistently slower than in the US over the past two decades,while China has been rapidly catching up.The EU-US gap in the level of GDP at 2015 prices02 has gradually widened from slightly mo

100、re than 15%in 2002 to 30%in 2023,while on a purchasing power parity(PPP)basis a gap of 12%has emerged see Figure 3.The gap has widened less on per capita basis as the US has seen faster population growth,but it is still significant:in PPP terms,it has risen from 31%in 2002 to 34%today.The main drive

101、r of these diverging developments has been productivity.Around 70%of the gap in per capita GDP with US at PPP is explained by lower productivity in the EU see Figure 4.Slower productivity growth has in turn been asso-ciated with slower income growth and weaker domestic demand in Europe:on a per capi

102、ta basis,real disposable income has grown almost twice as much in the US as in the EU since 2000.FIGURE 3GDP evolution 2015 reference levels,in EUR trillionSource:OECD,2024.02.The value of the gap in GDP in any given year is only indicative.It should not be viewed as an exact estimate as price defla

103、tors and purchasing power adjustments are imperfect.When comparing GDP developments across countries,the price deflator and exchange rate have an important effect on results.Depending on the objective of the comparison,one or the other indicator may be more relevant.GDP at current prices offers insi

104、ghts into market value,GDP at constant prices into volume growth,while purchasing power adjustment allows a comparison from the consumer perspective.12THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1FIGURE 4GDP per capita gap GDP per capita,2023,constant PPP prices(EUR)Source:AMECO,2024.At th

105、e same time,three external conditions in trade,energy and defence that supported growth in Europe after the end of the Cold War have been fading.First,even as domestic growth slowed,the EU benefitted significantly from burgeoning world trade under multilateral rules.Between 2000 and 2019,internation

106、al trade as a share of GDP rose from 30%to 43%in the EU,whereas in the US it rose from 25%to 26%.Trade openness ensured that Europe could import freely goods and services it lacked,ranging from raw materials to advanced technologies,while exporting manufactured goods in which it specialised,particul

107、arly to the growing markets of Asia.However,the multilateral trading order is now in deep crisis and the era of rapid world trade growth looks to have passed:the IMF projects world trade to grow at 3.2%over the medium term,a pace well below its annual average from 2000-19 of 4.9%iv.Second,as relatio

108、ns normalised with Russia,Europe was able to satisfy its demand for imported energy by procuring ample pipeline gas,which accounted for around 45%of the EUs natural gas imports in 2021.But this source of relatively cheap energy has now disappeared at huge cost to Europe.The EU has lost more than a y

109、ear of GDP growth while having to re-direct massive fiscal resources to energy subsidies and building new infrastructure for importing liquefied natural gas.Third,the era of geopolitical stability under US hegemony allowed the EU largely to separate economic policy from security considerations,as we

110、ll as to use the“peace dividend”from lower defence spending to support its domestic goals.The geopolitical environment is however now in flux owing to Russias unwar-ranted aggression against Ukraine,deteriorating US-China relations and rising instability in Africa,which is a source of many commoditi

111、es that are critical to the world economy.Raising the EUs competitiveness is necessary to reignite productivity and sustain growth in this changing world.The core focus of a competitiveness agenda should be to raise productivity growth,which is the most important driver of long-term growth and leads

112、 to rising standards of living over time.Promoting competitiveness should not be seen in a narrow sense of a zero-sum game focused on conquering global market shares and raising trade surpluses.It should also not lead to policies of defending“national champions”that can stifle competition and innova

113、tion,or using wage repression to lower relative costs.Competitiveness today is less about relative labour costs and more about knowledge and skills embodied in the labour force.Beyond this broad objective,a focus on sectoral or industrial competitiveness can be particularly useful in situations wher

114、e otherwise productive companies are disadvantaged by an unlevel global playing field,be it asymmetries in regulation or large subsidies abroad.In such scenarios,levelling the playing field may be necessary for continued productivity growth.Finally,a modern competitiveness agenda must also encompass

115、 security.Security is a precondition for sustainable growth,as rising geopolitical risks can increase uncertainty and dampen investment,while major geopolitical shocks or sudden stops in trade can be extremely disruptive.13THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1Three transformations

116、ahead for EuropeEurope now faces three major transformations,the first of which is the need to accelerate innovation and find new growth engines.The EUs competitiveness is currently being squeezed from two sides.On the one side,EU companies are facing weaker foreign demand especially from China and

117、rising competitive pressures from Chinese companies.The ECB finds that the share of sectors in which China is directly competing with the euro area exporters03 is now close to 40%,up from 25%in 2002v.The EUs share in world trade is declining,with a notable fall since the onset of the pandemic04 see

118、Figure 5.On the other side,Europes position in the advanced technologies that will drive future growth is declining.Only four of the worlds top 50 tech companies are European and the EUs global position in tech is deteriorating:from 2013 to 2023,its share of global tech revenues dropped from 22%to 1

119、8%,while the US share rose from 30%to 38%.Europe urgently needs to accelerate its rate of innovation both to maintain its manufacturing leadership and to develop new breakthrough technologies.Faster innovation will,in turn,help raise the EUs productivity growth,leading to stronger growth in househol

120、d incomes and stronger domestic demand.Europe still has an opportunity to change track.With the world now on the cusp of another digital revolu-tion,triggered by the spread of artificial intelligence(AI),a window has opened for Europe to redress its failings in innovation and productivity and to res

121、tore its manufacturing potential.FIGURE 5Share in world trade in goods and services%of global trade,excluding intra-EU tradeNote:The data refers to goods trade(lhs)and services trade(rhs),excluding intra-EU.The global total is the net of intra-EU trade.Source:European Commission(JRC).Based on WTO.Se

122、cond,Europe must bring down high energy prices while continuing to decarbonise and shift to a circular economy.The energy landscape has changed irreversibly with the Russian invasion of Ukraine and the resulting loss of pipeline natural gas.While energy prices have fallen considerably from their pea

123、ks,EU companies still face electricity prices that are 2-3 times those in the US and natural gas prices paid are 4-5 times higher see Figure 6.Decarbonisation could be an opportunity for Europe,both to take the lead in new clean technologies and circu-larity solutions,and to shift power generation t

124、owards secure,low-cost clean energy sources in which the EU has generous natural endowments.However,whether Europe can seize this opportunity will depend on all policies being in sync with the EUs decarbonisation objectives.The energy transition will be gradual and fossil fuels will continue to play

125、 a central role in energy pricing for the remainder of this decade,threatening continued price volatility for end users.EU industries that use energy intensively face higher investment costs than their competitors to meet decarbonisation targets.At the same time,Chinese competition is becoming parti

126、cularly acute in the key industries that will drive decarbonisation such as clean tech and electric vehicles driven by a powerful combination of 03.Based on analysis of revealed comparative advantage.04.EU firms have also been experiencing competitiveness losses owing to increased input costs,exacer

127、bated by elevated energy prices in Europe compared to other regions.14THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1massive industrial policy,rapid innovation,control of raw materials and the ability to produce at continent-wide scale.For the EU to succeed,it will therefore need to engineer

128、 a coherent strategy for all aspects of decarbonisation,from energy to industry.FIGURE 6Gas and retail price gap for industrySource:European Commission,2024.Based on Eurostat(EU),EIA(US)and CEIC(China),2024.Third,Europe must react to a world of less stable geopolitics,where dependencies are becoming

129、 vulner-abilities and it can no longer rely on others for its security.Decades of globalisation have produced a high level of“strategic interdependence”between major economies,raising the costs of any rapid disentanglementvi.For example,while the EU largely depends on China for critical minerals,Chi

130、na depends on the EU to absorb its industrial overcapacity.But this global equilibrium is shifting:all major economies are actively seeking to reduce their dependency and increase their scope for independent action.The US is investing in domestic capacity for semiconductor and clean tech production,

131、while aiming to re-route critical supply chains through its allies.China is striving for technological autarchy and vertical supply chain integration,from mining of raw materials to processing and from manufacturing to shipping.While there is little evidence yet that these measures are leading to de

132、-global-isationvii,trade policy interventions are on the rise see Figure 7.Given its high trade openness,Europe is especially exposed should these trends accelerate.The EU must also respond to a radically changed security environment at its borders.Aggregate EU defence spending is currently one thir

133、d of US levels and the European defence industry is suffering from decades of underinvestment and depleted stocks.To achieve genuine strategic independence and increase its global geopolitical influence,Europe needs a plan to manage these dependencies and strengthen defence investment.15THE FUTURE O

134、F EUROPEAN COMPETITIVENESS PART A|CHAPTER 1FIGURE 7Trade policy interventionsNote:Measures include tariffs,export-related measures,subsidies,contingent trade-protective measures,and trade-related investment measures.Source:Global Trade Alert,2024.EU countries are already responding to this new envir

135、onment with more assertive policies,but they are doing so in a fragmented way that undermines collective effectiveness.The use of industrial policy interven-tions is on the rise across advanced economiesviii.But the effectiveness of these policies in Europe is hindered by three main coordination pro

136、blems.First,there is a lack of coordination between Member States.Uncoordinated national policies often lead to considerable duplication,incompatible standards and failure to consider externalities.One particularly damaging externality in the EU context is its adverse impact on the Single Market whe

137、n the largest countries with the most fiscal space can provide much more generous support than others see Figure 8.Second,there is a lack of coordination among financing instruments.While the EU collectively spends a large amount on its industrial goals,financing instruments are split along national

138、 lines and between Member States and the EU.This fragmentation hampers scale,preventing the creation of large capital pools in particular for investments in breakthrough innovation.It also hampers innovation by creating unnecessary complexity and bureaucracy for the private sector.Third,there is a l

139、ack of coordination across policies.Industrial policies today as seen in the US and China comprise multi-policy strategies,combining fiscal policies to incentivise domestic production,trade policies to penalise anti-competitive behaviour abroad and foreign economic policies to secure supply chains.I

140、n the EU context,linking policies in this way requires a high degree of coordination between national and EU policies.However,owing to its complex governance structure and slow and disaggregated policymaking process,the EU is less able to produce such a response.FIGURE 8Total State aid expenditure b

141、y Member State 2022,as%of GDP(top)and EUR billion(bottom)Breakdown between COVID-19,State aid in response to the Russian invasion of Ukraine,and other State aid measuresSource:European Commission,2024.16THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1Towards a European responseGOALSTo manage

142、these transformations,the report proposes a new industrial strategy for Europe.The three main areas for action outlined in the report correspond to the three main transformations with which Europe must contend.First,Europe needs to redress its slowing productivity growth by closing the innovation ga

143、p.This objective will entail accelerating significantly technological and scientific innovation,improving the pipeline from innovation to commercialisation,removing barriers that prevent innovative companies from growing and attracting finance,and undertaking concerted efforts to close skills gaps.S

144、econd,to lower energy prices and capture the industrial opportunities of decarbonisation,Europe needs a joint plan for decarbonisation and competitiveness.This plan will have to ensure that Europes ambitious demand for decarbonisation can be matched by leadership on the technol-ogies that will suppl

145、y it.It will have to span industries that produce energy,those that enable decarbonisation,such as clean tech and automotives,and industries that use energy intensively and are“hard-to-abate”.Third,Europe needs to increase security and reduce dependencies.Given its high trade openness and dependence

146、 on imports ranging from raw materials to advanced technology,the EU will need to develop a genuine“foreign economic policy”that coordinates preferential trade agreements and direct investment with resource-rich nations,the building up of stockpiles in selected critical areas,and the creation of ind

147、ustrial partnerships to secure the supply chain of key technologies.Europe will also need to develop a strong and independent defence industrial capacity that allows it to meet increasing demand for military assets and equipment and remain at the forefront of defence technology.BUILDING BLOCKSThe EU

148、s new industrial strategy rests on a series of building blocks,the first of which is full implementation of the Single Market.The Single Market is critical for all aspects of the strategy:for enabling scale for young,inno-vative companies and large industrials that compete on global markets;for crea

149、ting a deep and diversified common energy market,an integrated multimodal transport market and strong demand for decarbonisation solutions;for negotiating preferential trade deals and building more resilient supply chains;for mobilising greater volumes of private finance;and as a result,for unlockin

150、g higher domestic demand and investment.Remaining trade frictions in the EU mean that Europe is leaving around 10%of potential GDP on the table,according to one estimateix.Proposals to complete the Single Market for different sectors appear in many chapters of this report.However,as the Letta report

151、 has systematically analysed the key challenges facing the Single Market and provided recommendations,there is no chapter dedicated solely to the Single Market in this reportx.The next building blocks are industrial,competition and trade policies,which interact closely and must be aligned as part of

152、 an overall strategy.Evidence that industrial policies can be effective under certain circum-stances is growingxi.But to avoid the pitfalls of the past such as defending incumbent companies or picking winners these policies must be organised according to a set of key principles which embed best prac

153、tice.Among others,the focus of such policies should be on sectors rather than companies;public support should be contin-uously evaluated,underpinned by a rigorous monitoring exercise;and market failures should be clearly specified and public authorities should avoid duplicating what the private sect

154、or would already doxii.The interaction with competition authorities is also critical for successxiii.For priority sectors,the EU should aim as far as possible to be competitively neutral and regulation should be designed to facilitate market entry.The evidence is overwhelming that competition stimul

155、ates productivity,investment and innovationxiv.At the same time,competition policy should continue to adapt to changes in the economy so that it does not become a barrier to Europes goals see the chapter on competition policy.For example,since innovation in the tech sector is rapid and requires larg

156、e budgets,merger evaluations should assess how the proposed concentration will affect future innovation potential in critical innova-tion areas.Important Projects of Common Interest(IPCEIs)should be expanded to all forms of innovation that could effectively push Europe to the frontier in strategical

157、ly important sectors and benefit from EU financing.There are also sectors,such as defence,where security and resilience criteria should receive increasing weight considering geopolitical changes for trade policy.A pragmatic,cautious and consistent approach should be applied according to the needs of

158、 different sectors see Box 1.17THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1The third block is financing the main areas for action,which entail massive investment needs unseen for half a century in Europe.To digitalise and decarbonise the economy and increase the EUs defence capacity,the t

159、otal investment-to-GDP rate will have to rise by around 5 percentage points of EU GDP per year to levels last seen in the 1960s and 70s.For comparison,the additional investments provided by the Marshall Plan in 1948-51 amounted annually to around 1-2%of GDP in receiving countries.This report contain

160、s simulations from the European Commis-sion and the IMF which assess whether such a massive increase in investment is macroeconomically sustainable,and if so,how Europe can unlock investments of this size.The results suggest that the investment push can be carried out without the economy running int

161、o supply constraints,and that mobilising private financing will be critical in this respect.However,the private sector is unlikely to be able to finance the lions share of this investment05 without public sector support.Increasing productivity will be key to ease constraints on fiscal space for gove

162、rnments and enable this support.For example,a 2%increase in the level of total factor productivity within ten years could already be sufficient to cover up to one third of the required fiscal spending.There are two key implications for the EU.First,integrating Europes capital markets to better chann

163、el high household savings towards productive investments in the EU will be essential.Second,the more willing the EU is to reform itself to generate an increase in productivity,the easier it will be for the public sector to support the investment drive.This connection underscores why raising producti

164、vity is fundamental.It also has implications for the issuance of common safe assets.To maximise productivity,some joint funding for investment in key European public goods,such as breakthrough innovation,will be necessary.At the same time,there are other public goods identified in this report such a

165、s defence spending or cross-border grids that will be undersupplied without common action.If the political and institutional conditions are met,these projects would also call for common funding.The final building block is the will to reform the EUs governance,increasing the depth of coordination and

166、 reducing the regulatory burden.The“Community Method”has been a source of the EUs success,but it was established in a different era,when the Union was smaller and faced a different set of challenges.For much of the EUs history,the most important focus has been generating internal integration and coh

167、esion,which Member States could afford to address at their own pace.However,the EU is now much larger,creating more veto players,and the challenges it faces are now often imposed on it from outside.To move forward,Europe must act as a Union in a way it never has before,based around a renewed Europea

168、n partnership among Member States.It will require refocusing the work of the EU on the most pressing issues,ensuring efficient policy coordination behind common goals,and using existing governance procedures in a new way that allow Member States who want to move faster to do so.In many areas,the EU

169、can achieve a great deal by taking a large number of smaller steps,but doing so in a coherent way that aligns all policies behind the common goal.There are other areas,however,where a small number of larger steps are needed delegating to the EU level tasks that can only be performed there.The case f

170、or delegation applies most of all to the type of European public goods described above.Such goods may not have direct spillovers on all countries which are called to contribute,but they have large indirect spillovers for the whole EU.There are still other areas where the EU should do less,applying t

171、he subsidiarity principle more rigorously and showing more“self-re-straint”.It will also be crucial to reduce the regulatory burden on companies.Regulation is seen by more than 60%of EU companies as an obstacle to investment,with 55%of SMEs flagging regulatory obstacles and the administrative burden

172、 as their greatest challengexv.Kick-starting this partnership does not necessarily mean focusing all minds and energies on the long and burdensome process of a Treaty change from day one.To begin with,a small number of overarching,targeted institutional changes should be made without the need for Tr

173、eaty change.05.The historical private-public split for investment in the EU is around 4/5 to 1/5.18THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1Preserving social inclusionWhile the EU should aim to move closer to the US example in terms of productivity growth and innovation,it should do so

174、 without the drawbacks of the US social model.As outlined above,the US has pulled ahead of the EU owing to its stronger position in breakthrough technologies,yet it displays higher rates of inequality.A European approach must ensure that productivity growth and social inclusion go hand-in-hand.Europ

175、e is entering an unprecedented period in its history,where rapid technological change and sectoral transitions will combine with a shrinking working age population.In this setting,Europe will have to ensure the best use of its available skills while keeping the social fabric intact.Technological cha

176、nge can imply significant disruption for workers in previously dominant industries that are no longer so,as well as increasing inequality:from 1980 to 2016,automation is found to have accounted for 50-70%of the increase in wage inequality in the US between more and less educated workersxvi.The Europ

177、ean welfare state will therefore be critical to provide strong public services,social protection,housing,transport and childcare during this transition.At the same time,Europe will need a fundamentally new approach to skills.The EU must ensure that all workers have a right to education and retrainin

178、g,allowing them to move into new roles as their companies adopt technology,or into good jobs in new sectors.The EU will also have to ensure that its cohesion policy remains consistent with a push towards increasing innovation and completing the Single Market.Accelerating innovation and integrating t

179、he Single Market may have different effects on intra-EU convergence than in the past.Traditionally,increasing intra-EU trade in goods has acted as a“convergence engine”,spreading prosperity to poorer regions as supply chains relocate where produc-tion factors are cheaperxvii.However,much of the futu

180、re growth in intra-EU trade will be in services,which tend to cluster in large and rich cities.Innovation and its benefits also tend to agglomerate in a few metropolitan areas.In the US,for example,a small set of superstar cities has been thriving in recent years and pulling away from the rest of th

181、e country.In 1980,average earnings in the top three US cities were 8%higher than average earnings in the rest of the top 10 cities.By 2016,average earnings in the same top three cities were 25%higherxviii.While the EU has a longstanding tradition of programmes that foster convergence across regions,

182、these programmes should be updated to reflect the changing dynamics of trade and innovation.The EU must ensure that more cities and regions can participate in the sectors that will drive future growth,building on existing initiatives such as Innovation Valleys Net,Zero Acceleration Valleys and Hydro

183、gen Valleys.This will require new types of investments in cohesion and reforms at the subnational level in many Member States.Specifically,cohesion policies will need to be re-focused on areas such as education,transport,housing,digital connectivity and planning which can increase the attractiveness

184、 of a range of different cities and regions.Europe should learn from the mistakes that were made in the phase of“hyper-globalisation”and prepare for a fast-changing future.Globalisation brought many benefits for the European economy as well as lifting hundreds of millions out of poverty around the w

185、orld.But policymakers were arguably too insensitive to its perceived social consequences,especially its apparent effect on labour income.In G7 economies,total exports and imports of goods as a share of GDP increased by around 9 percentage points from the early 1980s to the great financial crisis,whi

186、le the labour share of income dropped around 6 percentage points in that time the steepest drop since data for these economies became available in 1950.While this relationship may have owed more to automation than it did to open tradexix,the notion that globalisation had exacerbated inequality infil

187、trated public perceptions,while governments were seen as indifferent.Policymakers should learn from this experience to reflect on how society will change in the future,and how they can ensure that the state is seen as on the side of citizens and attentive to their concerns.A key part of this process

188、 will be empowering people.Leaders and policymakers should engage with all actors within their respective societies to define objectives and actions for the transformation of Europes economy.More effective and proactive citizens involvement and social dialogue,combining trade unions,employers and ci

189、vil society actors,will be central in building the consensus needed to drive the changes.Transformation can best lead to prosperity for all when accompanied by a strong social contract.19THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1BOX 1Key principles for trade policy in a European industr

190、ial strategyThe era of open global trade governed by multilateral institutions looks to be passing,and the EUs trade policy is already adapting to this new reality.The global trading order based on multilateral institu-tions is in deep crisis,and it remains uncertain whether it can be brought back o

191、n track.While the EU should continue efforts to reform the WTO and especially to unlock the dispute settlement mechanism the EU must adapt its trade policy to a new reality.This process is already underway.In June 2023,the EU adopted a new Economic Security Strategy furnishing itself with a range of

192、 instruments to deal with dumping,respond to coercion and address distortions caused by foreign subsidies within the EU,as well as adopting tools to address technology leakage and enforce sanctions.The EU has also continued to expand its bilateral trade network negotiating over 40 individual trade a

193、greements with different countries and regions.Trade policy needs to be fully aligned with the European industrial strategy.Trade policy should be based on careful,case-by-case analysis rather than on generic stances toward trade.In some cases,the EU should use its trade policy arsenal to keep barri

194、ers low,in others to level the playing field and in others still to secure critical supply chains.Accelerating innovation and technological progress in Europe will require a high degree of trade openness towards countries that provide key technologies in which the EU is currently deficient.For examp

195、le,maintaining low trade barriers in digital goods,services and infrastructures with the US will be key to guarantee access to the latest AI models and processors.By contrast,a joint plan for decar-bonisation and competitiveness could entail,in specific circumstances,defensive trade measures to leve

196、l the playing field globally and offset state-sponsored competition abroad,in line with the new EU Economic Security Strategy.When it comes to increasing security and reducing dependencies,the EU must ensure access to critical resources and protect key value chains.This may require securing preferen

197、tial trade agree-ments with key partners and guaranteeing critical supplies,including through offtake agreements and direct investment in production facilities abroad.To avoid the pitfalls of protectionism,trade policy should be governed by a clear set of principles.First,the use of trade measures s

198、hould be pragmatic and aligned with the overarching goal of raising the EUs productivity growth.Unless there is an overriding geopolitical imperative,defensive measures should therefore not be applied systematically.Measures should aim to distinguish genuine innovation and produc-tivity improvements

199、 abroad,which are beneficial for Europe,from state-sponsored competition and demand suppression,which lead to lower employment for Europeans.Second,the EUs trade policy should be consis-tent.Tariffs should avoid creating perverse incentives that undermine European industry,and therefore need to be a

200、ssessed consistently across all stages of production.For example,imposing tariffs on imports of raw materials or intermediate goods,but not on final goods that use those materials intensively,could lead to de-localisation.Finally,trade measures must be balanced against consumer interests.Even in cas

201、es when the EU is the victim of foreign subsidies,there may be some industries where domestic producers have fallen so far behind,that making imports more expensive would only impose excessive deadweight costs on the economy.In these circumstances,it would be preferable for the EU to fund higher inv

202、estments in more advanced technologies while allowing foreign taxpayers to contribute to higher consumption by European consumers.There should be enhanced coordination in the EUs foreign direct investment(FDI)decisions.The US administration has recently imposed wide-ranging tariffs on Chinese import

203、s,coupled with progressive measures tightening inward FDI rules,to protect strategic sectors.As a result,the economies of the US and China have started to decouple06.So far,the EU has pursued a different strategy,with Member States encour-aging inward FDI from Chinese companies.Chinese greenfield in

204、vestment in the EU has increased substan-tially in recent years,particularly in Central and Eastern Europe.This strategy can leverage technological progress abroad and promote technological development in Europe,as well as the creation of high-quality jobs,but only if executed in a coordinated manne

205、r.Asymmetries arising from small Member States negotiating 06.Data from the Bureau of Economic Analysis indicate that exports from China to the US have declined since 2018,and inward net FDI from China has decreased from a peak inflow of USD 18 billion in 2016 to an outflow of around USD 2 billion i

206、n 2023.20THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1with large foreign investors could lead to unwelcome concessions being extracted by foreign countries,which is particularly concerning when a potential security threat and a geopolitical rival of the EU are involved.To counter these ris

207、ks,the EU should strengthen its Investment Screening Mechanism.At present,FDI screening is a national competence,with Member States only required to exchange notifications and information.This fragmentation prevents the EU from leveraging its collective power in FDI negotiations and complicates the

208、formulation of a common FDI policy.As outlined in chapter 3,coordination is important for the emergence of joint ventures in strategic sectors and ensuring that EU companies retain relevant know-how and can drive the next wave of innovation.21THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 1EN

209、DNOTESi World Justice Project,Rule of Law Index 2023,2023.ii World Bank,World Development Indicators 2023,2024.iii Eurostat,Educational attainment statistics 2023,2024.iv IMF,World Economic Outlook,April 2024.v ECB,Why competition with China is getting tougher than ever,The ECB Blog,3 September 2024

210、.vi McCaffrey,C.,&Poitiers,N.,Instruments of economic security,Working Paper 12/2024,Bruegel,2024,https:/www.bruegel.org/system/files/2024-05/WP%2012%202024_0.pdf.vii ECB,Deglobalisation:risk or reality?,The ECB Blog,12 July 2023.viii Juhsz,r.,Lane N.and Rodrik,D.,The new economics of industrial pol

211、icy,2023.ix in t Veld,J.,Quantifying the Economic Effects of the Single Market in a Structural Macromodel,Discussion Paper Series,No.94,European Commission,February 2019.x Letta,E.,Much more than a market Speed,Security,Solidarity.Empowering the Single Market to deliver a sustainable future and pros

212、perity for all EU Citizens,Report to the European Council,2024.xi For a review Rodrik,D.,The new economics of industrial policy,2023.xii Tirole,J.,Economics for the Common Good,Princeton University Press,2017.xiii OECD,Pro-competitive industrial policy,OECD Roundtables onCompetition Policy Papers,No

213、.309,OECD Publishing,2024.xiv European Commission,Protecting Competition in a Changing World:Evidence on the evolution of competition in the EU during the past 25 years,2024.xv European Investment Bank(EIB),EIB Report to the EC on Investment Barriers 2023,2023,https:/www.eib.org/attachments/lucalli/

214、20230330_investment_barriers_in_the_eu_2023_en.pdf.xvi Acemoglu,D.and Restrepo,P.,Tasks,automation and the rise in US wage inequality,Econometrica,Vol.90,No.5,September,2022.xvii Springford,J.,Tordoir,S.and Resende Carvalho,L.Why cities must drive growth in the EUs Single Market,Centre For European

215、Reform,Policy Brief,June 2024.xviii Gruber,J.,and Johnson,S.,Jump-starting America:How Breakthrough Science Can Revive Economic Growth and the American Dream,2019.xix Autor,D.,and Salomons,A.,Is Automation Labor-Displacing?Productivity Growth,Employment,and the Labor Share,National Bureau of Economi

216、c Research Working Paper No.24871,2018.22THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 12.Closing the innovation gapEuropes productivity challengeEurope needs faster productivity growth to maintain sustainable growth rates in the face of adverse demo-graphics.After the second world war,the E

217、U experienced strong catch-up growth driven by both rising productivity and a growing population.However,both drivers of growth are now slowing.EU labour productivity01 converged from 22%of the US level in 1945 to 95%in 1995 but labour productivity growth has subsequently slowed by more than in the

218、US and fallen back below 80%of the US level see Figure 1i.At the same time,Europe is entering the first period in modern history in which GDP growth will not be supported by sustained net growth of the labour force see Box 1.By 2040,the EUs workforce is projected to shrink by close to 2 million work

219、ers each year,while the ratio of working to retired people is expected to fall from around 3:1 to 2:1.On this trajectory,growth in Europe will stall.If the EU were to maintain its average labour productivity growth rate since 2015 of 0.7%,it would only be enough to keep GDP constant until 2050.In an

220、 environment of historically high public debt-to-GDP ratios,potentially higher real interest rates than seen in the last decade and rising spending needs for the decarbonisation,digitalisation and defence,stagnant GDP growth could eventually lead to public debt levels becoming unsustainable and Euro

221、pe being forced to give up one or more of these goals.FIGURE 1EU versus US labour productivity 1890-2022 Index(US=100)Note:The EU is proxied by backdating national accounting data from Germany,France,Italy,Spain,the Netherlands,Belgium,Ireland,Austria,Portugal,Finland and Greece.To build the labour

222、productivity data,five different series were used:GDP,capital stock,employment,average hours worked,and population.Capital stock is built using two series of investment construction and equipment.Investment and GDP are taken in volume and in national currency of 2010,they are then turned into$2010 u

223、sing a ppp conversion rate.Source:Bergeaud,A.,Cette,G.,&Lecat,R.,Productivity Trends in Advanced Countries between 1890 and 2012,Review of Income and Wealth,Vol.62,No.3,2016,pp.420-44401.Measured in 2010 constant PPP prices.23THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2The key driver of t

224、he rising productivity gap between the EU and the US has been digital technology(“tech”)and Europe currently looks set to fall further behind.The main reason EU productivity diverged from the US in the mid-1990s was Europes failure to capitalise on the first digital revolution led by the internet bo

225、th in terms of generating new tech companies and diffusing digital tech into the economy.In fact,if we exclude the tech sector,EU productivity growth over the past twenty years would be broadly at par with the US see Figure 2 and Box 2.Europe is lagging in the breakthrough digital technologies that

226、will drive growth in the future.Around 70%of foundational AI models have been developed in the US since 2017 and just three US“hyperscalers”account for over 65%of the global as well as of the European cloud market.The largest European cloud operator accounts for just 2%of the EU market.Quantum compu

227、ting is poised to be the next major innovation,but five of the top ten tech companies globally in terms of quantum investment are based in the US and four in China.None are based in the EU.FIGURE 2Decomposition of average annual labour productivity growth Selected sectors,US and EU(pp,2000-2019)Note

228、:EU is the GDP-weighted average of AT,BE,DE,DK,ES,FI,FR,IT,NL,SE.The values are the average annual labour productivity(GVA per hour worked)growth contributions over the period 2000-2019.Source:Nikolov,P.,Simons,W.,Turrini,A.Voigt,P.,forthcoming.While some digital sectors are likely already“lost”,Eur

229、ope still has an opportunity to capitalise on future waves of digital innovation.The EUs competitive disadvantage will likely widen in cloud computing,as the market is characterised by continuous massive investments,economies of scale and multiple services offered by a single provider.However,there

230、are multiple reasons why Europe should not give up on developing its domestic tech sector.First,it is important that EU companies maintain a foothold in areas where technological sovereignty is required,such as security and encryption(“sovereign cloud”solutions).Second,a weak tech sector will hinder

231、 innovation performance in a wide range of adjacent fields,such as pharma,energy,materials and defence.Third,AI and particularly generative AI is an evolving technology in which EU companies still have an opportunity to carve out a leading position in selected segments.Europe holds a strong position

232、 in autonomous robotics,hosting around 22%of worldwide activity,and in AI services,hosting around 17%of activity02.But innovative digital companies are generally failing to scale up in Europe and attract finance,reflected in a huge gap in later-stage financing between the EU and the US see Figure 3.

233、In fact,there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years,while in the US all six companies with a valuation above EUR 1 trillion have been created over this period03.02.JRC,Examples of AI services,Policy Brief,2024.Exa

234、mples of AI services include the use of any AI technology,such as machine learning,computer vision,natural language processing,to perform high level applications such as business intelligence,predictive analytics,forecasting,optimisation,failure detection,applied to different business functions.03.“

235、From scratch”refers to starting a company from its inception as a new entity,rather than through mergers,acquisitions or spinoffs from established firms.24THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2FIGURE 3Venture capital investment by development stage USD billion,2023Source:Pitchbook d

236、ata.Accessed 20 November,2023.Integrating AI vertically into European industry will be a critical factor in unlocking higher productivity see the Boxes on AI use cases in the thematic chapters.Quantitative estimates of the effects of AI on aggregate produc-tivity are still uncertainii.However,there

237、are already clear signs that AI will revolutionise several industries in which Europe specialises and will be crucial for EU companies ability to remain leaders in their sector.For example,AI will radically change the pharma sector via so-called“combination products”therapeutic and diagnostic produc

238、ts combining drugs,devices and biological components which integrate medicine delivery systems with AI algo-rithms and process feedback data in real time.Gains of USD 60-110 billion per year are estimated from the use cases of AI in the pharma and medical device industries.AI will likewise transform

239、 the automotive sector,as AI-powered(generative)algorithms enhance vehicle design by optimising structures and components,improve performance and reduce material use,and optimise supply chains by predicting demand and streamlining logistics operations.AI is expected to reduce inventories in the auto

240、motive sector,accelerate the time to market from R&I and increase labour productivity.AI uptake in freight and passenger transport will enable increasingly automated functions to deliver safety and quality,navigation and route optimisation,predictive maintenance and fuel or power reduction.The energ

241、y sector is already heavily deploying AI,with more than 50 use cases today ranging from grid maintenance to load forecasting.Large gains are however still available:estimates of the market value for future AI applications in the sector reach USD 13 billion.Although technology is crucial to protect E

242、uropes social model,AI could also undermine it without a strong focus on skills.AI is already a source of anxiety for European workers:almost 70%of respondents in a recent survey favoured government restrictions on AI to protect jobsiii.The impact of AI in Europe has so far been labour-enhancing rat

243、her than labour-replacing:there is a positive association between AI exposure and the sector-occupation employ-ment shareiv.However,this association may be transitory as businesses are still in the early stage of understanding how to deploy these technologies.Research from the US finds that around 8

244、0%of the workforce could have at least 10%of their work tasks affected by the introduction of the large language modules,while almost 20%of workers could see at least 50%of their tasks affectedv.Unlike previous waves of computerisation,the jobs of higher-skilled workers are likely to be more exposed

245、.Providing workers with adequate skills and training to make use of AI can nevertheless help to make the benefits of AI more inclusive.In one recent study,access to AI assistance was found to increase productivity for all workers,but less experienced or low-skilled staff benefitted the mostvi.While

246、Europe should strive to match the US in innovative potential,it should aim to exceed it in providing opportunities for educa-tion and lifelong learning ensuring that the benefits of AI are widely shared and any negative impacts on social inclusion are minimised.25THE FUTURE OF EUROPEAN COMPETITIVENE

247、SS PART A|CHAPTER 2BOX 1Demographic developments and the labour forceHistorically,labour force growth was a significant driver of GDP growth across all major economies as the working age population increased steadily.In the EU,however,growth of the working age population has slowed since the 1990s a

248、nd has started declining on aggregate over the past decade,mainly owing to declining birth rates.Positive net inward migration does not compensate for the EUs population decline.Long-term population projections suggest a further continued decline of the EUs population.This decline stands in contrast

249、 to the US,whose population is expected to continue to grow during the next decades,albeit at a slowing pace.FIGURE 4Long-term population developments and projects Population,millionNote:The population projections are based on the probabilistic projections of total fertility and life expectancy at b

250、irth.These projections were made using a Bayesian Hierarchical Model.The figures display the median projections.The projections reflect a contribution of historical migration patterns.Paper on methodology.Source:United Nations World Population Prospects,2022.Projected overall population dynamics are

251、 also reflected in the growth of the European working age popu-lation,which started to decline around 2010.The projected decline in the Chinese working age population exceeds that of the EU.It is expected to drop from about 1 billion people aged 15-64 years to around 600 million in the next 40 years

252、.26THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2BOX 2A closer look at the role of the ICT sector in the EU-US labour productivity gapThe EUs aggregate gap in labour productivity growth compared with the US reflects differences in industry composition,sectoral innovation and technology diff

253、usion.The EU economy has traditionally been strong in all mid-technology sectors that are not at the centre of radical technological advances.The EU has less activity in sectors in which much of the productivity growth has originated in recent years,notably the ICT sector and the exploitation of lar

254、ge-scale digital services.Due to slow technology diffusion within industries,the EUs productivity growth gap compared to the US was particularly pronounced in these industries with very high productivity growth.Excluding the main ICT sectors(the manufacturing of computers and electronics and informa

255、tion and communication activities)from the analysis,EU productivity has been broadly at par with the US in the period 2000-2019.The remaining disadvantage in productivity growth versus the US is significantly reduced to 0.2 percentage points(0.8%productivity growth for the US versus 0.6%for the EU).

256、The actual EU-US gap can be considered close to zero as EU 27 productivity growth is 0.2 to 0.3percentage points higher than the EU10 selection(for which EU KLEMS data is available).For 2013-2019 the role of ICT is even more striking,as the EU productivity growth excluding the main ICT sectors excee

257、ded that of the US by some margin.This analysis may underestimate the total impact of ICT developments on the productivity gap.In addition to ICT sectors,the US also has high productivity growth in professional services and finance and insurance,reflecting strong ICT technology diffusion effects.The

258、se sectors are amongst the biggest contributors to intangible investment in the total economy in the US.Also,some part of fintech is in the sector Finance and Insurance.On the other hand,the EU outperforms the US in mid-technology sectors like manufacturing of transport equipment,agriculture and in

259、the wholesale and retail sectors.The latter reflects catching up effects to key innovations that had been introduced in the US in the previous decade such as in e-commerce and online retail reaching larger customer bases,implementation of advanced inventory management systems,digital payment systems

260、,data analytics and robotics,and automation.27THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2Key barriers to innovation in EuropeAt the root of Europes weak position in digital tech is a static industrial structure which produces a vicious circle of low investment and low innovation see the

261、chapter on innovation.Over the past two decades,the top-three US companies for spending on Research and Innovation(R&I)have shifted from the automotive and pharma industries in the 2000s,to software and hardware companies in the 2010s,and then to the digital sector in the 2020s.In contrast,Europes i

262、ndustrial structure has remained static,with automotive companies consistently dominating the top 3 R&I spenders.In other words,the US economy has nurtured new,innovative technologies and investment has followed,redirecting resources towards sectors with high potential for productivity growth;in Eur

263、ope investment has remained concentrated on mature technologies and in sectors where productivity growth rates of frontier companies are slowing.In 2021,EU companies spent about half as much on R&I as share of GDP as US companies around EUR 270 billion a gap driven by much higher investment rates in

264、 the US tech sector.This innovation gap also translates into a gap in overall productive investment between the two economies,which is driven mainly by lower investment in tangible ICT assets and in software,databases and intellectual property see Figure 5vii.The resulting cycle of low industrial dy

265、namism,low innovation,low investment and low productivity growth in Europe has been termed“the middle technology trap”viii.FIGURE 5Productive investment Real gross fixed capital formation excluding residential investment,%of GDPSource:EIB,2024.Europes lack of industrial dynamism owes in large part t

266、o weaknesses along the“innovation lifecycle”that prevent new sectors and challengers from emerging.These weaknesses begin with obstacles in the pipeline from innovation to commercialisation.Public sector support for R&I is inefficient due to a lack of focus on disruptive innovation and fragmented fi

267、nancing,limiting the EUs potential to reach scale in high-risk breakthrough technol-ogies.Once companies reach the growth stage,they encounter regulatory and jurisdictional hurdles that prevent them from scaling-up into mature,profitable companies in Europe.As a result,many innovative companies end

268、up seeking out financing from US venture capitalists(VCs)and see expanding in the large US market as a more rewarding option than tackling fragmented EU markets.Finally,the EU is falling behind in providing state-of-the-art infrastructures necessary to enable the digitalisation of the economy.There

269、are not enough academic institutions achieving top levels of excellence and the pipeline from inno-vation into commercialisation is weak see the chapter on innovation.Universities and other research institutions are central actors in early-stage innovation,generating breakthrough research and produc

270、ing new skills profiles for the workforce.Europe has a strong position in fundamental research and patenting:in 2021,it accounted for 17%of global patent applications versus 21%for the US and 25%for China.However,while the EU boasts a strong university system on average,not enough universities and r

271、esearch institutions are at the top.Using volume of publications in top academic science journals as an indicative metric,the EU has only three research institutions ranked among 28THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2the top 50 globally,whereas the US has 21 and China 15.The innov

272、ation pipeline in the EU is also weaker at the next stage of commercialising fundamental research.Much of the knowledge generated by European researchers remains commercially unexploited.According to the European Patent Office,only about one-third of the patented inventions registered by European un

273、iversities or research institutions are commercially exploited.A key reason for this failure is that researchers in Europe are less well integrated into innovation“clusters”networks of universities,start-ups,large companies and venture capitalists(VCs)which account for a large share of successful co

274、mmer-cialisations in high-tech sectors.Such clusters have been critical to the more dynamic industrial structure seen in the US.Europe has no innovation“clusters”in the top 10 globally,while the US has 4 and China has 3.Public spending on R&I in Europe lacks scale and is insufficiently focused on br

275、eakthrough innovation.In the US,the vast majority of public R&I spending is carried out at the federal level.In the EU,governments overall spend a similar amount to the US on R&I as a share of GDP,but only one tenth of spending takes place at the EU level,despite the large spillovers from public R&I

276、 investment to the private sectorix see Figure 6.The EU has an important programme for R&I Horizon Europe with a budget of close to EUR 100 billion.But it is spread across too many fields and access is excessively complex and bureaucratic.It is also insufficiently focused on disruptive innovation.Th

277、e EUs key instrument to support radically new technologies at low readiness levels the European Innovation Councils(EIC)Pathfinder instrument has a budget of EUR 256 million for 2024,compared with USD 4.1 billion for US Defence Advanced Research Projects Agency(DARPA)and USD 2 billion for the other“

278、ARPA”agencies.It is also mostly led by EU officials rather than top scientists and innovation experts.Lack of intra-EU coordination affects the wider innovation ecosystem as well.Most Member States cannot achieve the necessary scale to deliver world-leading research and technological infrastructures

279、,in turn constraining R&I capacity.By contrast,the examples of CERN and the European High-Performance Computing Joint Undertaking(EuroHPC)showcase the importance of coordination when developing large R&I infrastructure projects.FIGURE 6State versus federal source of R&D funding in the EU and USSourc

280、e:European Commission,2024.Based on Eurostat and OECD.Fragmentation of the Single Market hinders innovative companies that reach the growth stage from scaling up in the EU,which in turn reduces demand for financing.The huge gap in scale-up financing in the EU relative to the US see Figure 3 is often

281、 attributed to a smaller capital market in Europe and a less developed VC sector.The share of global VC funds raised in the EU is just 5%,compared to 52%in the US and 40%in China.However,the causality is likely more complex:lower levels of VC finance in Europe reflect lower levels of demand.As the S

282、ingle Market is fragmented and incomplete in the areas that matter for innovative companies,scaling up in the EU offers weaker growth prospects and requires lower financing.Many EU companies with high growth-potential prefer to seek financing from US VCs and to scale up in the US market where they c

283、an more easily generate wide market reach and achieve profitability faster.Between 2008 and 2021,147“unicorns”were founded in Europe startups that went on the be valued over USD 1 billion.40 of these have relocated their headquarters abroad,with the vast majority moving 29THE FUTURE OF EUROPEAN COMP

284、ETITIVENESS PART A|CHAPTER 2to the USx.The lack of growth potential in Europe is particularly relevant for tech-based innovative ventures,and even more so for deep tech ones.For example,61%of total global funding for AI start-ups goes to US companies,17%to those in China and just 6%to those in the E

285、U.For quantum computing,EU companies attract only 5%of global private funding compared with a 50%share attracted by US companies.Regulatory barriers to scaling up are particularly onerous in the tech sector,especially for young companies see the chapters on innovation,and digitalisation and advanced

286、 technologies.Regulatory barriers constrain growth in several ways.First,complex and costly procedures across fragmented national systems discourage inventors from filing Intellectual Property Rights(IPRs),hindering young companies from leveraging the Single Market.Second,the EUs regulatory stance t

287、owards tech companies hampers innovation:the EU now has around 100 tech-focused lawsxi and over 270 regulators active in digital networks across all Member States.Many EU laws take a precau-tionary approach,dictating specific business practices ex ante to avert potential risks ex post.For example,th

288、e AI Act imposes additional regulatory requirements on general purpose AI models that exceed a pre-defined threshold of computational power a threshold which some state-of-the-art models already exceed.Third,digital compa-nies are deterred from doing business across the EU via subsidiaries,as they f

289、ace heterogeneous requirements,a proliferation of regulatory agencies and“gold plating”04 of EU legislation by national authorities.Fourth,limitations on data storing and processing create high compliance costs and hinder the creation of large,integrated data sets for training AI models.This fragmen

290、tation puts EU companies at a disadvantage relative to the US,which relies on the private sector to build vast data sets,and China,which can leverage its central institutions for data aggregation.This problem is compounded by EU competition enforcement possibly inhibiting intra-industry cooperation.

291、Finally,multiple different national rules in public procurement generate high ongoing costs for cloud providers.The net effect of this burden of regulation is that only larger companies which are often non-EU based have the financial capacity and incentive to bear the costs of complying.Young innova

292、tive tech companies may choose not to operate in the EU at all.The lack of a true Single Market also prevents enough companies in the wider economy from reaching sufficient size to accelerate adoption of advanced technologies.There are many barriers that lead to compa-nies in Europe to“stay small”an

293、d neglect the opportunities of the Single Market.These include the high cost of adhering to heterogenous national regulations,the high cost of tax compliance,and the high cost of complying with regulations that apply once companies reach a particular size.As a result,the EU has proportionally fewer

294、small and medium-sized companies than the US and proportionally more micro companies see Figure 7.However,there is a close link between the size of companies and technology adoption.Evidence from the US show that adoption rises with firm size for all advanced technologiesxii.Likewise,while in 2023 3

295、0%of large businesses in the EU had adopted AI,only 7%of SMEs had done the samexiii.Size enables adoption because larger companies can spread the high fixed costs of AI investment over greater revenues,they can count on more skilled management to make the necessary organisational changes,and they ca

296、n deploy AI more productively owing to larger data sets.In other words,a fragmented Single Market puts EU companies at a disadvantage in terms of the speed of adoption and diffusion of new AI applications.04.Regulatory gold-plating refers tothe practice wherenational governments orauthorities gobeyo

297、nd the minimumrequirements set by EuropeanUnion legislationwhen implementingit into domesticlaw.30THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2FIGURE 7Size distribution of firms in EU and US 2021Note:Does not include the self-employed.EU data refer to the following sectors:industry,constru

298、ction and market services(except public administration and defence;compulsory social security;activities of membership organizations).For the EU,to discount the self-employed,data on businesses with 0 employees has been used as a proxy.US data refers to the private sector,which includes agriculture

299、but represents around 1%of the total firms.Data for the US is based on the 1st quarter of the year.Source:ECB calculations based on Eurostat and Bureau of Labour Statistics dataCompetition for computing power and lack of investment in connectivity could soon translate into digital bottlenecks see th

300、e chapter on digitalisation and advanced technologies.Training new foundation models and building vertically integrated AI applications requires massive increases in computing power,which is triggering an ongoing global“AI chip race”at huge expense.This is a race in which smaller and less well-funde

301、d EU companies may struggle to compete.Mainly due to the computational power required,the cost of training frontier AI models is estimated to have grown by a factor of 2 to 3 per year for the past eight years,suggesting that training next-genera-tion AI systems could soon be as expensive as USD 1 bi

302、llion and reach USD 10 billion by the end of the decadexiv.At the same time,deploying AI will require faster,lower latency and more secure connections.Yet,the EU is behind its 2030 Digital Decade targets for fibre and 5G deployment.The investment levels required to support EU networks are estimated

303、at around EUR 200 billion to ensure full gigabit and 5G coverage across the EU.But Europes per capita investment is markedly lower than other major economies see Figure 9.A key reason for lower rates of investment is Europes fragmented market.For example,there are 34 mobile network operator groups i

304、n the EU and only a handful in the US or China,in part because the EU and Member States have tended to view mergers in the sector negatively.This fragmentation makes the fixed costs of investing in networks relatively more onerous for EU operators than for continent-scale companies in the US or Chin

305、a.Fragmentation also makes it harder to capitalise on new technolo-gies.Europe currently has virtually no presence in edge computing05,while opening network services to third-party developers and innovators using Application Programming Interfaces(APIs)is hindered by lack of coordination of standard

306、s.05.Edge computing refers to the distribution of computational tasks across smaller nodes closer to customers,reducing data transport to smaller distances.As the EU builds highly automated manufacturing plants requiring low latency and significant data volumes steered by AI,edge computing for indus

307、trial applications could better enable performance and reduce latency for industrial connected robotics,keeping data transfers more secure.While the Digital Decade sets the goal of deploying at least 10,000 climate-neutral,secure edge nodes by 2030,there are today only three commercially deployed ed

308、ge computing nodes in the EU.31THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2FIGURE 8Average monthly revenue per unit and CAPEX per capitaSource:ETNO,2023The EUs position in other innovative sectors like pharma is declining due to the same challenges of low investment in R&I and regulatory

309、fragmentation see the chapter on pharma.While the EUs pharma sector still leads globally in trade measured by value,it is falling behind in the most dynamic market segments and losing market share to US-based companies.Of the top ten best-selling biological medicines in Europe in 2022,just two were

310、marketed by EU companies while six were marketed by US-based companies see Figure 9.The EU is struggling in particular to establish its position in products with market exclusivity as orphan medicines06 and advanced therapy medicinal products07.At the root of this emerging gap is lower spending on i

311、nnovation.Total EU public sector R&I spending on pharma stands at less than half the level of the US,while total EU private R&I investment is about a quarter as large as the US.Innovation in the EU is also hindered by a slow and complex regulatory framework,which is currently under review.In 2022,th

312、e median approval time for new medicines by regulatory agencies in Europe was 430 days compared with 334 days in the US.Moreover,access to health data is one of the preconditions for the development of AI in the pharma industry but is constrained by fragmentation.In particular,although GDPR contains

313、 options to use patient data for health research,take up has been uneven across Member States,preventing the industry from tapping into a wealth of available electronic data.FIGURE 9Market share erosion in the key segment of biologicsNote:Based on IQVIA MIDAS quarterly volume sales data for period 2

314、012 2022 reflecting estimates of real-world activity.Copyright IQVIA.All rights reserved.Data for EEA markets(no data for CY,MT,IS and LI;retail data only for DK,EE,EL,LU,SI)and EC data(JRC R&D scoreboard)for regional allocation of companies.Source:European Commission.06.Orphan medicines are pharmac

315、eutical products developed specifically to treat,prevent,or diagnose rare diseases or conditions.These medications are called“orphan”because,under normal market conditions,pharmaceutical companies have little financial incentive to develop and market products intended for only a small number of pati

316、ents.Currently,55%of orphan medicines are biologicals.07.Advanced Therapy Medicinal Products(ATMPs)are innovative medicines for human use that are based on genes,tissues,or cells.Many ATMPs are orphan medicines.32THE FUTURE OF EUROPEAN COMPETITIVENESS PART A|CHAPTER 2A programme to tackle the innova

317、tion deficitEurope must improve the conditions for breakthrough innovation by addressing the weaknesses in its common programmes for R&I see the chapter on innovation.The report recommends reforming the EUs next Framework Programme for R&I in terms of its focus,budget allocation,governance and finan

318、cial capacity.First,the programme should be refocused on a smaller number on commonly agreed priorities.Second,an increased share of the budget allocation should be allocated towards financing disruptive innovation and,to make efficient use of this funding,the EIC should be reformed to become a genu

319、ine“ARPA-type agency”,supporting high-risk projects with the potential of delivering breakthrough technological advances.Third,the governance of the programme should be managed by project managers and by people with proven track record at the frontier of innovation and to maximise access for young,i

320、nnovative companies application processes should be faster and less bureaucratic.The organisation of the programme should be redesigned and streamlined to become more outcome-based and efficient.Finally,conditional on reforms,the budget of the new Framework Programme should be doubled to EUR 200 bil

321、lion per 7 years.In parallel,better coordination of public R&I across Member States is necessary.A Research and Innova-tion Union should be established and lead to a joint formulation of a common European R&I strategy and policy.To improve coordination,the EU could promote a“European Research and In

322、novation Action Plan”,designed by Member States,together with the Commission,the research community,and stakeholders from the private sector.It is also essential to establish and consolidate European academic institutions at the forefront of global research.The European Research Council(ERC)has been

323、 crucial to the competitiveness of European science but many promising proposals remain unfunded owing to a lack of financial resources.The report recommends doubling the support for fundamental research through the ERC,significantly increasing the number of grant recip-ients without diluting the am

324、ount they receive.In parallel,the EU should introduce an excellence-based,highly competitive“ERC for Institutions”programme to provide the required resources for academic institutions.A new regime for world-class researchers(“EU Chair”position)is also proposed,to attract and retain the best academic

325、 scholars by hiring them as European officials.This regime should be supported by a new EU framework for private funding to enable public universities and research centres to design more competitive compensation policies for top talents and to provide additional support for research.Beyond academic

326、institutions,increased funding and stronger coordination is required to develop world-leading research and technological infrastructures,when scale is needed.Europe needs to make it easier for“inventors to become investors”and facilitate scaling up of successful ventures.The EU should become as attr

327、active for inventors as other leading regions for innovation.The report recommends a number of measures to support the transition from invention to commercialisation in Europe.First,to overcome bureaucratic barriers in universities and research institutions to managing intellectual property rights w

328、ith their researchers,a new blueprint for fair and transparent royalty sharing is recommended.Second,to lower application costs for young companies and to offer uniform protection of intellectual property,it is proposed to adopt the Unitary Patent in all EU Member States.Third,the EU should carry ou

329、t a thorough impact assessment of the effect of digital and other regulation on small companies,with the aim of excluding SMEs from regulations that only large companies are able to comply with.Finally,the EU should support rapid growth within the European market by giving innovative start-ups the o

330、pportunity to adopt a new EU-wide legal statute(the“Innovative European Company”).This status would provide companies with a single digital identity valid throughout the EU and recognised by all Member States.These companies would have access to harmonised legislation concerning corporate law and in

331、sol-vency,as well as a few key aspects of labour law and taxation,to be made progressively more ambitious,and they would be entitled to establish subsidiaries across the EU without incorporating separately in each Member State.A better financing environment for disruptive innovation,start-ups and sc

332、ale-ups is needed as barriers to growth within the European markets are removed see the chapters on innovation,and investment.While high-growth companies can typically obtain finance from international investors,there are good reasons to further develop the financing ecosystem within Europe.Very ear

333、ly-stage innovation would benefit from a deeper pool of angel investors.Ensuring sufficient local capital to fund scale-ups would concentrate the spillovers of innovation within Europe.Increasing the appeal of European stock markets for IPOs would improve funding options for founders,encouraging more start-up activity in the EU.To generate a significant increase in equity and debt funding availabl