
Is the Competitiveness of Europe in Jeopardy? A Question Regarding the Program of the Hungarian EU Presidency
Competitiveness as a core priority
Hungary published its EU presidency program on the 18th of June 2024, ahead of the start of its part of the presidency trio on the 1st of July 2024. The current trio is made up of Spain, Belgium, and Hungary, with the next one starting with Poland.
Every presidency has a key aspect that they would like to focus on during their 6 months of work. The first Belgian priority was defending the rule of law, democracy, and unity, while for Spain, it was the reindustrialization of the EU and guaranteeing strategic autonomy. For Hungary, interestingly, the competitiveness of Europe is the core priority of the program. Hungary is aiming to facilitate the adoption of a New European Competitiveness Pact, to support economic growth in the EU, to help the Green and digital transition and the stability of workplaces. Furthermore, the strengthening of the EU defense policy, the future of cohesion policy, agricultural policy, and questions of demography, basically all fields are viewed from a competitiveness perspective. All three presidencies from this trio mentioned competitiveness but from different angles.
The presidency programs were not the only ones focusing on the question of competitiveness. Ursula von der Leyen mentioned competitiveness in her political guidelines in 2019 of the EU on 5 occasions, in close relation to social policy, green and digital transition, and economic growth. The Council adopted conclusions on the competitiveness of the European industry, the European Council decided in April that further steps are needed to improve the single market and the competitiveness of the EU, while the European Commission has dealt with this issue on multiple occasions during the 2019-2024 legislative cycle as well. The recently published report of former Italian prime minister Enrico Letta also stated that Europe’s competitiveness is declining, and there is a need to strengthen the Single Market dimension of energy, financial services, and electronic communications. Mario Draghi will also publish a report in the near future on European competitiveness.
This brings up an important question: is the situation of the competitiveness of the EU in the world so dire? What is the position of stakeholders on this issue from the Economy? This post will try to assess what the leaders of industrial umbrella organizations uniting many companies think regarding the future of the EU’s competitiveness, analyzing the perspective of the industrial players on this important issue.
The position of some European industry umbrella organizations on the competitiveness of the European Union
The organizations representing a wide range of companies from the EU issued a joint statement on the situation of the EU single market and the competitiveness of the EU in February 2024. Among them were different players from different parts of the industry, like the European Automobile Manufacturers’ Association (ACEA) and European Association of Automotive Suppliers (CLEPA) from mobility, DigitalEurope focusing on digital development, European Public Telecommunications Network Operators Association (ETNO) representing telecommunications agencies and horizontal organizations like the European Round Table for Industry (ERT) as well.
The organizations sound the alarm stating that “Europe has dramatically lost its edge”. The growth of China and the USA is faster, they create more prosperity and a greener, more digital future, while the EU’s competitiveness is fading. They argue that one of the main problems is that the EU’s common market is fragmented, clear rules, systematic enforcement, and a fully harmonized regulatory framework are missing in many areas, including environment, energy, the digital sector, banking, health, etc. The obstacles in front of EU companies within the single market take a great toll on the European economy. The complex regulatory environment makes the single market less attractive for investments and slows down growth, which has a direct effect on the cost of living of the citizens. Social security, education policy, employment, and green policies all need a strong economic basis.
The European Round Table for Industry (ERT) released a Benchmarking Report in 2024, with some relevant parts to the question of the competitiveness of European industry. According to Martin Brudermüller, Chair of the ERT Competitiveness Innovation Committee, Europe needs an urgent turnaround. Stakeholders and investors are concerned, there are many worrying trends around the world in the field of economy as well. “If Europe was a company”, it would be on the verge of bankruptcy. The EU is in a unique position, the single market is a great asset, however, there is not enough focus on innovation, supporting research and development—while there is a new industrial revolution going on.
The European Union is losing market share in its export markets, there is pressure in the home market, while the strength of the European economy is based on export strength. Trade is even more vital for us than for our competitors. The geopolitical shifts strongly affect energy pricing and access to critical raw materials and key components. Meanwhile, the defense industry needs a much stronger focus due to the war going on in Europe. The companies in Europe face important, but very ambitious climate targets, new regulations, energy transition, etc. The rules are bureaucratic and fragmented, slowing down investment into European markets and providing a great obstacle for the companies. There is a need to address weaknesses, such as an overburdened regulatory environment, the small ratio of investments in digital and other new technologies, innovation, finding a solution to the energy transition that is not overburdening the participants of the market, and, perhaps most importantly, strengthening the single market by removing the still existing barriers on trade inside the EU. The report also provides numbers to its analysis. The EU industry’s market share on global markets is declining, in 2001, China had a global gross value added in mining, manufacturing, and utilities of 10%, while the EU had 21% and the US had around the same ratio. In 2021, China has a percentage of 28,3%, the US 16%, and the EU 14,5%. If we regard the situation of revenues, the share of companies in the Fortune Global 500 shows that in 2023 the US has 31,8%; China has 27,5%; while the EU only has 15,5%. The EU has a 50,9% share of trade in goods and services of the GDP, while China 38,1%, and the US 27,4%. This means that the EU is much more reliant on trade when it comes to the performance of its economy, thus a decline in trade will lead to a greater decline in economic growth in the case of the market of the EU.
According to the BusinessEurope Spring Economy Outlook 2024, the EU’s Economy is expected to grow by 1,2%, which will increase to 1,8% in 2025, which is a 0,4 pp downward revision for 2024 in comparison to the previous, autumn outlook of BusinessEurope. The EU industry is still facing strong challenges, which result in the lowest level of capacity utilization in 11 years. The umbrella organization calls on policymakers to urgently address the structural challenges that the industry is facing in the EU in comparison to global competitors. The high energy prices and the regulatory burden are among the most serious issues in their consideration. They reference the Letta and the upcoming Draghi reports to develop a long-term European growth strategy, strengthen the single market, deepen capital markets, and support structural reforms in Member States. Industry needs to be in focus during the next legislative cycle. European businesses face high borrowing costs, while they need to make massive investments to stay competitive on the global scale and to comply with the obligations from the green and digital transitions. The members of the umbrella organization are pessimistic about the future of the European industry. To the question, “How do you view the overall business climate in your country compared to 6 months ago?”, 42% of the industry and 30% of the services-related companies answered with “negatively”, while about 30% and 26% did not give a clear answer on the matter (“neither”). Global trade declined 3% last year, trade in goods dropped by 4%, and services by 8%. The forecast of BusinessEurope is an overall 1,4% growth in 2024. The situation of trade is crucial for the European economy.
Eurochambres summarized its views regarding the lapsing legislative term in its report “The Good, the Bad and the Ugly of the 2019-2024 EU Term”. The report,—among others—welcomed that the enlargement is back on the EU agenda, as the business community sees that it will mainly have positive economic impacts on the EU. The report also welcomes the Critical Raw Material Act, as it takes a step forward to enhance the security of the supply of such materials. The next named some “bad” examples as well, like the corporate sustainability due diligence directive, which, in its opinion, was poorly designed and imposed a substantial administrative burden on companies with great liability risks. Under “the ugly”, it names the most significant problems that the industry is facing today, such as the fragmentation of the single market, which is still far from being complete as the companies face many non-tariff-based obstacles. The regulatory environment is “suffocating” for European companies as there is a great overregulation present, and the legislation is often too hasty, excessive, and incoherent. Eurochambres also regrets that there was no real progress on the Capital Markets Union package (2021), which would help to provide the necessary conditions to unlock financing for the digital and green transition and to remove the obstacles in front of the single market. The report names many other problems that the industry faces due to hasty and politically motivated legislation.
The length of a blog post only allows to present the opinions of so many European industrial and economic umbrella organizations, but one thing becomes clear after reading their positions: they all claim the competitiveness of Europe is in bad shape, the single market needs to be reinforced and European economy is heading downhill currently. Other sources deal with this problem as well. The European Commission’s European Competitiveness Report (2024), although not as frankly, but does highlight the problems as well. It states that the EU has very strong assets to build on and has one of the world’s largest integrated market areas, nonetheless, the European economy faces challenges due to climate change, geopolitical shifts, technological acceleration, energy prices, labor shortages, demography, dependencies, and unfair competition. Also, the European Commission and the Member States addressed the topic of obstacles in front of the single market.
The Centre for European Policy Studies (CEPS) stated that improving competitiveness is a condition for implementing the green and digital transition and preserving the European way of life. An interesting point they made was that civil law is a hidden treasure in terms of improving European competitiveness. Corporate law in the EU is flexible enough to develop new approaches to corporate governance and management, and more traditional approaches rooted in public law (e.g. competition regulation, administrative and financial law) might not be the answer we seek to the questions presented.
Conclusions
Reading the reports of European industrial and economic umbrella organizations, the European Commission and think tanks we can establish that the position of the industry is that the competitiveness of Europe is in decline. The EU is losing ground to other major players in the global field, such as China or the USA, where the lack of “EU-type” regulation (or a “Brussels effect”) in certain key or strategic areas might be the key to increased competitiveness. Most of these companies and organizations see overregulation, bureaucracy, too many administrative burdens, not enough support for innovation and incentives for investments as a great part of the reason why the alarm bell needs to sound immediately. Perhaps the Draghi report will shed more light on these problematic and worrying tendencies. In light of all of the above, it is understandable why the Hungarian presidency is focusing on European competitiveness in its program and why other presidencies dealt with similar questions in this trio as well. Is the competitiveness of Europe in jeopardy? It seems like it is, and steps need to be taken before we all feel its downfall in our standard of living and way of life, in our everyday lives as well.
Árpád Lapu is an adviser at the Minister’s Cabinet of the Ministry of European Affairs of Hungary and an assistant research fellow at the Károli Gáspár University of the Reformed Church in Hungary. He was a policy adviser on constitutional issues at the European Parliament between 2019-2024. In the years 2017-2019, he worked as an adviser at the Cabinet of the Minister of Justice of Hungary, conducting comparative constitutional analyses. He has earned his JD at the Pázmány Péter Catholic University in Hungary, has a BA in international relations from the University of Szeged and an MA in European and international administration from Andrássy Gyula German Speaking University in Budapest. He has completed an Edx MicroMaster in cooperation with the Catholic University of Louvain (UCLouvain) in international law. His field of research is neutrality and non-participation in armed conflicts in international law and constitutional norms regarding permanent neutrality. He has written publications regarding the future of the EU ETS system of the European Union, institutional reform proposals of the Union, and research in the field of social sciences.