Dark clouds are looming over European industry. More experts are sounding alarms about the EU’s economic transition. A worrying signal came this week with the quarterly figures of Germany’s biggest carmaker, Volkswagen.
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“If we do nothing, in fifty years, Europe will be just an open-air museum for American tourists,” warned former European Central Bank president Mario Draghi in a recent report on the EU’s economic future.
Most countries agree that action is needed. But what should Europe do to remain a global financial power alongside China and the United States? Economists say clear goals must be set and significant investment made over the coming years.
In Europe, much thought is being given to this. The EU remains a global player but risks being overtaken by emerging economies in the coming years. China has invested heavily in the green industry for years. Over the past ten to fifteen years, the country has become a major producer of solar panels, everyday semiconductors, and batteries.
Now, China is also making significant strides in the production of electric cars, putting pressure on European automakers from their East Asian competitors.
Europe is also increasingly struggling to keep pace with the United States. Of the fifty largest tech companies, only four are from the EU. Over the past decades, numerous startups in the U.S. have grown into major companies with trillion-dollar valuations.
Everyone in Europe agrees that something must be done, but what? “If we Europeans think we can build major companies from the ground up in just a few years, we are mistaken,” says Samuele Murtinu, professor of economics at Utrecht University. Competing with other global economies will require a lot of time and money.
Should European industrial companies collaborate more closely?
This happened with General Motors in the United States, now one of the world’s largest car companies. A successful European example is Airbus, which began in the 1960s as a collaboration between British, French, and German aircraft manufacturers.
However, economists see little support for this idea. Market competition leads to lower prices. “There was an idea to merge large European companies, but this was ultimately prohibited due to monopoly concerns,” says Niclas Poitiers, an economist at the EU think tank Breugel. “It would be a death knell for other existing European companies.”
Alarm
What everyone does agree on is that significantly more money needs to be invested in the European economy soon. The United States is investing $700 billion in the green transition. Estimates suggest China is doing the same, but Europe does not yet have a unified plan.
Former ECB chief Draghi also proposed such an amount for the EU. Some may be alarmed by this, but economists warn that if Europe is not willing to invest in the new economy, the price could become even higher. Without a long-term view, it may soon be too late to catch up.
Five Tips for the EU from Economists
Be bold in investing heavily in sustainability over the coming years.
Collaborate, even with companies outside the EU.
Gain control over the supply of essential raw materials.
Set clear political objectives.
Countries must come together for more unified policies.
Besides funding, having a clear plan is crucial for Europe. Although the 27 EU member states form a union, they often do not align their national policies. The member states also seem divided on their priorities.
What is more important: accelerating sustainability or maintaining major European companies and thus preserving jobs? Opinions on this choice currently differ significantly.
Nevertheless, it is not an impossible task. Europe has faced bigger challenges in the past. “The closure of coal mines was actually the last major transition,” says Poitiers. “A huge number of jobs were lost back then. I estimate this green transition to be smaller. I don’t expect as many jobs to be at risk.”
European tech sector lags behind the U.S. Market value of companies in billions of euros:
European Union:
NXP Semiconductors: 59, Spotify: 72, ASML: 255.
US:
Amazon: 1,870, Alphabet (Google): 2,040, Microsoft: 2,980, Apple: 3,250.
