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The case for a Microeconomic European Policy Miguel Sebastián, Universidad Complutense de Madrid Policy Network meeting September 6, 2012 , London Stock Exchange The case for a Microeconomic European Policy • It is indubitable that a Macroeconomic European Policy is needed, at least for the euro area • It should include: • A Monetary Policy, with a real lender of last resort, a new governance and new goals for the ECB • A real Fiscal Policy coordination, including eurobonds • Financial Stability issues, including a banking union and an European regulator, to avoid asymmetric bubbles. 2 The case for a Microeconomic European Policy • But a Microeconomic Policy at the European level is also needed, not only because of the current global and euro crises, but for “structural reasons” as well. • Such a Policy should include: • An Energy and Raw materials European policy • A Tourism European Policy • An Industrial European Policy, including not only the Manufacturing sector, but the ICT sector as well. 3 The case for a Microeconomic European Policy The “structural reasons” for such an European Policy are: 1. The EU is steadily loosing weight in the world economy 2. The European energy dependence is worsening. And the raw materials dependence is dramatic 3. The EU share of world exports is shrinking, and so is the relative European manufacturing sector. 4. Tourism is a stronghold, but action is needed. 4 1. The EU is steadily loosing weight in the world economy Europe is shrinking at a faster pace than the US Share of World GDP EU USA BRICS Rest of the World 1980 32% 25% 12% 31% 1990 29% 25% 15% 31% 2000 25% 23% 18% 34% 2010 20% 19% 25% 36% ?? ?? 50% ?? 2040 (E) The BRICS (Brazil, Russia, China, India and South Africa) have more than doubled their share in world GDP in the last 30 years and, according to several forecasts, by 2040 they will become almost half the World's GDP. 5 2. The European energy dependence is worsening European Union Energy Dependence In the last ten years the EU’s energy dependence has increased almost 10 points. 60 58 Percentage 56 An increase of 30 € in oil prices (what the IEA expects for the next 10 years) will mean an additional annual transfer of 132.000 M€ to oil producing countries. 54 52 50 48 46 44 The EU annual budget sums up to 140.000 M€. 42 40 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 EU Net imports of primary energy 600.000 486.178 Million € 500.000 376.941 378.258 400.000 311.930 208.999 300.000 187.247 200.000 96.175 168.947 199.646 137.125 100.000 Energy dependence, together with rising oil prices, have multiplied the EU’s energy import bill by 5 in the last 10 years 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6 2… and the raw materials dependence is dramatic Critical raw materials According to a recent study, developed by a group of experts in the framework of the EU Raw Materials Initiative, Europe is on a critical position to ensure the supply of some raw materials. Antimony Display panels, micro capacitors China 91% Bolivia 2% Russia 2% South Africa 2% Indium Beryllium Military applications EEUU 85% China 14% Mozambique 1% Magnesium Cobalt Lithium-ion batteries, synthetic fuels D.R. Congo 41% Canada 11% Zambia 4% Fluorspar Lenses China 59% Mexico 18% Mongolia 6% Gallium Germanium Graphite Thin layer photovoltaic, Led N.A. Niobium Platinum Group Metals Rare Earths Displays, Thin layer photovoltaic China 58% Japan 11% South Korea 9% Canada 9% Space, manufacturing China 56% Turkey 12% Russia 7% Micro capacitors, ferroalloys Brazil 92% Canada 7% Fuel cells, catalysts, seawater desalination South Africa 79% Russia 11% Zimbabwe 3% Permanent magnets, laser technology China 97% India 2% Brazil 1% Fiber optic cable, IR optical technology China 72% Russia 4% EEUU 3% Tantalum Micro capacitors, medical technology Australia 48% Brazil 16% Ruanda 9% D.R. Congo 9% Steelmaking China 72% India 13% Brazil 7% Tungsten Drills, steelmaking China 78% Russia 5% Canada 4% The study considers 14 of 41 raw materials as critical. This is due to their high relative economic importance and to high relative supply risk. 7 3.The EU share of world exports is shrinking Global Trade of Goods The EU’s share in goods trade, as an approximation of industrial production, has decreased in the last years, mainly because of emerging economies growth Share in world trade of Goods EU excluding internal trade Percentage 19% 18% 17% 16% 15% 2003 2004 2005 2006 2007 2008 2009 8 3. ….and so is the relative European manufacturing sector. Example 1: Shipbuilding The global market for new ships has increased one and a half times in the last 10 years but the production in European shipyards has remained almost constant, reducing notably the EU share in the shipbuilding global market. Production Thousands CGT Shipbuilding Sector Evolution 50.000 45.000 40.000 35.000 30.000 25.000 20.000 15.000 10.000 5.000 Europe 0 1999 2000 Rest of the World World Total Europe 2001 2002 2003 2004 2005 2006 2007 2008 2009 9 3. ….and so is the relative European manufacturing sector. Example 2 : Automotive Sector In 1999 European factories produced 3 in 10 of all the cars and trucks built in the world. Ten years later they produce 2 in 10 and the tendency is a further decrease. 1999 Automotive Production Rest of the world 66,7% China 3,3% 2009 Automotive Production Rest of the world 57,2% EU (15) 30,1% China 22,6% EU (15) 20,2% 10 3. ….and other technological sectors Example 3: the ITC Sector The EU shows a big gap between imports and exports in the ITC Sector. Its coverage ratio is just above 0,5. This difference is mainly due to hardware and semiconductors. Only 9,2% of the sales of the top 25 companies in this area come from Europe. ITC Imports and Exports (2008) Million US$ Hardware & Semiconductors Top 25 Enterprises. Sales 309 287 USA; 31,8% 174 159 ITC Exports 114 ITC Imports 115 Asia; 59,0% 84 58 EU USA Japan Europe; 9,2% Korea 11 4. Tourism is a stronghold in the EU But action is needed to keep such a position The EU is currently the main destination for World Tourism This year the number of tourists will reach 1 billion, for the first time ever By 2020 this number will climb to 1,5 billion (an additional half a trillion € ). The EU must act to preserve its leadership. Share in world tourism Africa+Mi ddle East, 11% Americas, 16% Asia+Pacif ic, 22% Source: UNWTO EU, 39% Other European, 12% 12 What should a Microeconomic European Policy consist of? • The EU micro policy should be complementary, not a substitute for domestic micro policies. • It is not a matter of spending more at the EU level, but spending better, shifting public investment and financing support towards EU exporting sectors • A higher coordination of policies is needed • We must improve EU regulation. • We should change the role of EU surveillance institutions: from chasing member states (and European companies) to building an EU productive industry. 13 What should a Microeconomic European Policy consist of? In particular, specific targets for EC authorities and EU institutions should be established regarding 3 measurable and accountable goals: 1. The EU share of world output (its decline should be stabilized). 2. The EU share of global exports (it should be held constant). 3. The EU current account (it should improve) 14 Some examples Energy Dependence United, Europe may better manage its uncertainties, thanks to a stronger negotiating position through: 7,2% 11 TWh • An EU single voice 15 TWh • More interconnections 2 TWh 13% 12 TWh • A common regulatory framework 35 TWh 8 TWh 20,9% 8,6% 1 TWh 18TWh 9 TWh 8 TWh 9,7% 41 TWh 15,2% 3% 1 TWh 1TWh key regional electric connections capacity in Europe X% % Cross-border electricity between regions The solution of the Russian-Ukraine gas crisis of 2009 is an example of our strength if we negotiate as one. The same strategy is needed when discussing with Northern African countries. 15 Some examples Tourism In order keep the EU leadership in World Tourism, we need to compete for the new markets: the Russian, Indian and Chinese outbound travel markets • Joint packages • Multiple visas, exchange of information • Joint promotion abroad Number of tourists worldwide (M) In 1980 there were only 270M tourists world wide. This year, 2012, we will reach 1000M. By the year 2030 there will be 1800M tourists. Each visitor spends 1000$ on average. So, we are talking about a 800b $ cake. 2000 1800 1600 1400 1200 950 800 400 530 270 0 1980 1995 2010 2020 (E) 2030 (E) Source: UNWTO 16 Some examples Single Digital Market In order to reach a real Single Digital Market we must accomplish: •Remove technical and legal barriers •Accessibility: 100% population covered with basic broad band •Infrastructure: Deploy of New Generation Networks •Promote intra EU e-commerce Single Digital Market Europe has a great potential in this area. In 2010 only 20% of European enterprises sold through internet to other European countries and only 7% of European citizens had bought something through internet from another European country. 80% 70% 60% 50% Only in their country 55% 40% In other European Countries 30% 20% 10% 24% 20% 7% 0% Enterprises that sell through internet Citizens that bought through internet 17 Some examples Industrial Policy Following the (unfortunate) years in which “the best industrial policy is no industrial policy”, the need for an active European industrial policy should be widely recognized. Why an European Industrial Policy? Although Industry only represents 18% of the EU GDP, it accounts for: • Internationalization: Industry produces almost 75% of all exports of goods and services from the EU. • Innovation: Industry is responsible from almost 80% of the R+D executed by the EU private sector. • Productivity: Industry productivity is 9% higher than the productivity of the whole economy. INDUSTRY = JOBS + EXPORTS 18 A final question for debate We want a strong and dynamic industrial sector and we also want to be leaders in: Climate change prevention Welfare system ¿? ¿? Fiscal discipline Monetary orthodoxy Can we make all these 5 goals compatible? 19 The case for a Microeconomic European Policy Miguel Sebastián, Universidad Complutense de Madrid Policy Network meeting September, 2012 . London Stock Exchange