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As a consequence of the eurozone crisis nearly all the EMU countries have seen aggregate company numbers fall over the past few years. The crisis has hit small and medium-sized enterprises on the eurozone's periphery particularly hard. The low demand triggered a sharp drop in the number of firms, mainly in Ireland and Spain but also in Portugal and Italy. As the crisis progressed, the funding conditions for enterprises in these countries gradually worsened and the differences in lending conditions between small and large companies increased. Apart from better funding access for SMEs also the elimination of structural obstacles to growth ought to be on the political agenda.
The European elections will be held in late May. The share of the vote gained by eurosceptics could increase. Using national election surveys as a basis we have modelled three potential scenarios of the outcome. Even under extreme assumptions the eurosceptics remain far short of attaining working majorities. However, in the run-up to national elections government positions on European policy could be influenced by how well the respective eurosceptics fare on polling day. Thus, the eurosceptics' indirect influence will probably be of relevance both before and after the European elections.
Even though current political developments have disrupted the agenda for the spring summit of the European Council (March 20-21), competitiveness issues have in fact traditionally been an important topic at such gatherings. At the end of January the European Commission already issued a communication on this issue that once again called for a strengthening of European industry. While this political signal is to be welcomed, the Commission's short-term scope for taking action is limited in many areas. Firstly, this is the case because established economic structures in individual member states cannot be altered overnight. And secondly, decision-making powers in important policy areas largely rest with national governments.
Following two years of recession in the eurozone Greece, Italy, Portugal and Spain can expect a return to positive GDP growth – albeit probably of less than 1% – in 2014. At the same time, at least the labour market situation no longer appears to be deteriorating further. Nevertheless, what remains alarming is high youth unemployment and – even though it attracts less public attention – the often equally precarious employment situation of 25 to 35-year-olds in the crisis-stricken countries.
The burden of the employment crisis is shared very unequally across generations and the euro area periphery faces an often termed “lost generation” which encounters unusually adverse labour market conditions. Youth unemployment, which refers to the population younger than 25 years, has received the bulk of attention, but also the early cohorts of the prime labour market population above 25 have experienced disproportionate employment losses. In addition, long-term unemployment is becoming increasingly prevalent across younger cohorts. The most affected countries have started to implement measures to facilitate job creation and the transition from education to work, which need to be complemented by effective activation policies not only aimed at the under-25s, but also at younger cohorts in the prime labour market age.
The EU Commission's stated aim of increasing the industrial sector's share of gross value added in the European Union to 20% by 2020 is extremely ambitious and, in our view, cannot be achieved in the foreseeable future. Nonetheless, it sends out the right political signal that Europe is to be strengthened as an industrial location. Rather than focusing on purely industry-specific measures, the attainment of this goal will ultimately require supportive conditions for companies – those from both the industrial and service sectors – to ensure that they can compete against non-European rivals. This in turn will necessitate investment in education, research and infrastructure as well as a benign investment climate, affordable energy prices and intelligent regulation.
Is the Single European Market a success story? 20 years after it was established the question can largely be answered in the affirmative. The high and in part too optimistic expectations have not all been fulfilled. Nevertheless, the Single Market has resulted in increased competition, higher exports and more foreign direct investment. Overall, positive effects on GDP can be confirmed, albeit not on the scale anticipated by some. Given the structural problems in the eurozone and Europe's long-term dwindling importance for the global economy the continuing development of the Single Market is one absolutely essential element if Europe wants to maintain its economic strength.
The European Commission is pushing for a stronger "social dimension" in EMU in order to reduce the large regional differences to be found in terms of, for example, unemployment and at-risk-of-poverty rates. However, it also appears to be distancing itself from more ambitious proposals it made less than a year ago.
The economic and financial crisis in Europe has led to a dwindling of the options for funding infrastructure projects. While funding conditions have deteriorated, a huge amount of investment needs to be made in infrastructure. The Project Bond Initiative (PBI) developed by the European Commission and the EIB is an instrument that is intended to help free up the investment logjam. The primary objective of the PBI is to persuade private-sector institutional investors to fund infrastructure projects.