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European Commission calls for a focus on industry

31 January, 2014

The European Commission is urging EU member states to recognise the importance of industry for creating jobs and growth in Europe. In a communication called For a European Industrial Renaissance, the EC calls for industrial modernisation by investing in innovation, resource efficiency, new technologies, skills and access to finance, accelerated by the use of EU funds.

The EC points out that industry accounts for more than 80% of Europe’s exports and private research and innovation. Almost every fourth job in the private sector is in industry, often highly skilled, while each new job in manufacturing creates 0.5–2 jobs in other sectors.

European industry also delivers a €365bn surplus in the trade of manufactured goods – generated mainly by a few high-end sectors such as automotive, machinery, pharmaceuticals, chemicals and aerospace.

But the contribution of manufacturing to EU GDP has dropped from 15.4% in 2008 to 15.1% last year, falling far short of the 20% target for 2020 that the EC called for in 2012. Since 2008, 3.5 million jobs have been lost in European manufacturing, and the EU’s productivity is declining, compared to its competitors.

“Europe is still far from the 20% target of industry’s share in Europe’s GDP by 2020,” says Antonio Tajani, the EC’s vice-president with responsibility for industry and entrepreneurship. “That is why industrial competitiveness has to be at the heart of the March 2014 European Council political agenda.

“With today's initiative, the Commission sends a clear signal that urgent re-industrialisation and modernisation of our economy is indispensable if we are to create new jobs,” he adds. “We need a strong commitment at the EU and national level to ensure coherence and prioritisation of all instruments at our disposal. An industrial strategy must encompass many other sectors, as they are increasingly inter-connected and have a major impact on industrial success.”

Two recent EC reports have identified several weaknesses hampering the growth of EU industry:

•  Internal demand remains weak, undermining European companies’ home base and limiting intra-EU trade.

•  Although the EU business environment has improved, progress is uneven with inflexible administrative and regulatory environments, rigidities in some labour markets, and weak integration in the internal market, still holding back the growth potential of firms, especially SMEs.

•  Innovation and investment levels remain low, holding back the modernisation of the EU’s industrial base.

•  EU firms face higher energy prices than most of their competitors and experience difficulties accessing affordable materials, skilled labour and capital.

To alleviate this situation, the EC has announced a series of priorities, which include:

•  Placing industrial competitiveness at the centre of policy-making.

•  Providing access to financial resources to boost industry. A new financial framework running from 2014­ to 2020 will put at least €100bn of European Structural and Investment Funds at the disposal of regions to finance support for industry and SMEs. This includes investments in six strategic areas for industrial competitiveness, including advanced manufacturing, clean vehicles and transport, bio-based products, and smart grids.

•  Implementing a more business-friendly framework that will help European SMEs to overcome the barriers that limit their growth, such as the fact that EU SMEs tend to be smaller than those in the US and thus find it more difficult to invest in innovation and exporting.

Tajani: urgent re-industrialisation is essential

•  Easing access to critical production inputs, such as capital, energy and raw materials. The EC points out that EU industrial electricity prices are twice as high as in the US and Russia, and 20% higher than in China, while EU gas is 3–4 times more expensive than in the US, Russia and India.

•  Maximising the potential of the single internal market which, the EC says, provides EU companies with a large home market, makes productivity improvements easier by cutting costs, fosters the uptake of more efficient business processes, and increases returns on innovation. But it adds that there is potential to further deepen the single market to bring about faster technological change.

• The internationalisation and the integration of EU firms in global value chains to increase their competitiveness and ensure access to global markets under more favourable competitive conditions.

Skills mismatches are likely to remain a key challenge for EU industry in the coming years, the EC reports, especially as progress in manufacturing technologies will increase demand for specific skill sets. The Commission is developing several programmes for entrepreneurs, apprentices and cross-country traineeships.

The EC says that the recent recession – the longest ever in Europe ­ – has underlined the importance of a strong industrial sector for economic resilience. Industry’s role in Europe extends far beyond manufacturing, it adds, ranging from raw materials and energy to business and consumer services.

The Commission believes that the importance of the challenges ahead calls for attention and policy guidance from the European Council.

It also says that the European Investment Bank should play a more strategic role by targeting more lending to innovation and industrial projects. The EU should address the bottlenecks created by the fragmentation of the financial markets and create the conditions for developing alternative sources of financing.

•  Cecimo, the trade association that represents Europe’s machine tool industry, has welcomed the European Commission’s statement, saying that having concrete targets for manufacturing set at the EC level gives the EU’s industrial policy strategy credibility in the eyes of businesses. But it adds that the industrial upturn is not here yet.

“The next logical step should be to set up an agreement between member states to guide, monitor and benchmark national measures in a more systematic manner against European targets,” suggests Cecimo director-general, Filip Geerts. “Therefore, we fully support the Commission’s call to the European Council to pay more attention to industrial policy and drive it forward.

“Over the last two years,” he adds, “our industry has shown phenomenal export performance outside Europe contributing to industrialization across the globe, but more should be done to ensure the transfer of new production technologies to industrial users in the EU.”

Machine tool sales in Europe were hit badly by the 2008-09 economic meltdown and are still 30% below pre-crisis levels. Some factories have disappeared while others have suspended equipment investments. “More than ever, it is urgent to invest in manufacturing if Europe wants to get serious about achieving re-industrialisation,” Geerts concludes. 

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