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Wednesday, May 08, 2013

The real Europe question: how to kick-start growth

We appreciate that Westminster and the media are occupied with the Queen's speech and internal tory divisions over Europe (be them real or overblown), but real story in Europe lies elsewhere: where will the EU's and UK's growth come from?

Well, we know it's not fashionable, but here's a constructive idea.

Open Europe has today released a new report calling for the liberalisation of the services sector across Europe, both through the implementation of the current services directive but also by widening its scope. The report argues that this could boost EU GDP by €300bn and if it cannot be done with all 27 members, the UK and its allies should look to pursue it under ‘enhanced cooperation’ - allowing a smaller group of countries pressing ahead with more integration if not possible at the level of all 27 member states.

See here for the full report and here for a video with British Chambers of Commerce’s Director of Policy and External Affairs, Dr Adam Marshall, discussing the issue and OE’s proposal. That organisation represents thousands of businesses and knows a thing or two what's needed for economic growth, beyond the navel-gazing of the Westminster village and the platitudes of some politicians.

Key points of the report:
- Fully implementing the existing Services Directive and implementing a new “country of origin” principle, a trade-boosting measure that was removed when the Directive was originally negotiated, would boost EU cross-border trade and produce a permanent increase to EU-wide GDP of up to 2.3% or €294bn, in addition to the €101bn already gained under the Services Directive (0.8% of EU GDP).

- If agreement among all 27 member states isn’t possible, a smaller group of EU countries should now press ahead with greater integration in services under the EU’s so-called ‘enhanced cooperation’ procedure, which is being used to pursue the financial transaction tax. This was an idea first floated by Mark Rutte, the Dutch Prime Minister, in 2011.

- In a “pro-growth” letter in February 2012, twelve member states – the UK, the Netherlands, Italy, Estonia, Latvia, Finland, Ireland, Czech Republic, Slovakia, Spain, Sweden and Poland – all committed themselves to “open up services markets”.

- We estimate that if only this group of countries were to fully liberalise their services markets, it would still produce a lasting boost to EU GDP of up to 1.17% or €147.8bn. If other countries, such as Germany, were persuaded to join, the economic benefits would be increased further. Ultimately, this measure should serve as a springboard to achieve services liberalisation for the entire EU.

- The political benefits of further services liberalisation are threefold:
1) It would be a positive, constructive, and pro-European means by which to secure continued engagement in the EU from non-euro countries, particularly the UK.

2) It would provide a new legally enforceable framework to improve competitiveness and growth in the Southern euro member states and therefore boost the economic prospects of the eurozone, but without costing an extra cent of Northern countries’ taxpayers’ money.

3) It would improve EU-wide growth, competitiveness and employment at a time when Europe is at risk of global economic decline.


Jesper said...

The proposal is a so called 'supply side solution', it is a solution to a problem where the supply is too costly and therefore trade is limited.

What it is meant to do is to reduce costs. Services are very worker-intensive so to meaningfully cut costs the thing to cut is wages. In essence it is a cut wages proposal. Gustav Blix, who wrote the foreword, comes from a political party which has history of resisting improvements for workers.

Some argue that we're not facing a supply-side problem, they are arguing that we're actually facing a demand-problem. A demand problem is when not enough people earn enough money to be able to afford to buy - in short, they are unemployed or underpaid.

Applying a supply-side solution to a demand problem will not work. What it will do is in the short term it will increase corporate profits but if it is a demand side problem (and I believe it is a demand side problem) then this won't work but it'll continue until either:

1. We're back to slavery
2. We realise that cutting wages will also reduce markets and start dealing with the actual problem - the demand problem

Rik said...

Free trade (or not) is not mainly a macro issue what you make of it.

Rik said...

It is anyway hard to see how this could work in the South and most of the East with its archaic economic and political structures.

They will add nothing or very little on the supply side of things. The quality level of their organisations will assure that.

As a market foreign companies are likely to drown in a network of red tape, language, 'cousin-economy', corruption and more of that sort of things.

So basically it will work only in the North anyway.

In that respect however the calculation of the GDP boost looks a bit weird. The percentage/amount looks at first sight not unrealistic however.
It simply looks mainly done obo GDP. Which is a very rough measure and probably inadequate to make a distiction between the fact that say Belgium, Holland and the UK will have a lot more positives than say Rumenia, Italy, France or Spain.

Anyway breaking the services market up seems the area where the EU could be a really useful tool and where by far the most increase in standard of living can by achieved by them. And probably by far.

Also in that respect having the Southern brothers in probably is a huge disadvantage. Their education levels are often considerably lower. For the education related services it is imho more important that education standards get brought on an equal foot than have things recognised. Which is also easier said as done. They have no money and were not able to attack the problem for decades already.

As advantages are probably very similar whether the Latino Bros and Co are in or out. It looks clear what is the most sound way forward for the UK and similar countries.

Rollo said...

Governments cannot make growth. What they can do is stop impeding growth. The EU is one of the worst forms of government, as was the USSR. The bureaucracy, intended to give power to itself,impedes growth with every utterance, every decison, every regulation. And you cannot kick start growth anyway: growth is a cumulative process which starts from seed when the conditions are right. What are the right conditions? Anything which encourages a product or service that someone wants to buy at a price they want to buy it at; men who want to make and sell the product for their own gain; rules that allow people to gain; control of one's own currency, media, work force.
In other words, get out of the Euro, get out of the EU and allow yourself to blossom. Business does not need subsidy; it needs freedom. (though, I think, some regulation, relevant to the environment, will always be needed to prevent greed and abuse).

Jesper said...

How does this relate to the subsidiarity principle?

A bit surprising that a national situation is to be changed by the imposition of supra-national legislation. Sounds like imperialism.

But I suppose when I read the list of areas then I do get a fuller picture of the seriousness of the situation. Growth is stopped by chambermaids, barmen, chimney sweepers, photographers & corset makers. Yep, those are the examples taken from the report so my guess is that they are the ones responsible for hindering growth....

Watch the interview and listen to the guy talking about the benefits and he doesn't list examples. I couldn't hear him mention a single example of which business would profit from the directive.

The 'scientific' basis for the proposal is based on economic research from before the financial crisis. Economists failed to predict the crisis but we're to believe that their models can accurately predict this?
The report indicates that the ones buying services will be paying less but the ones working and providing the very same service will be paid more.

The services directive is about two things:
1. Transferring a lot of power and competences from nations to EU-institutions. Once transferred, and the ECJ will decide when and some some extent which powers and competences have been transferred, then it stays at EU-level.
2. Downward pressure of wages in the countries that do sign up to the services directive. 'Country of origin' principle is quite similar to the 'Flag of convenience' that shipowners use.

Ian Campbell said...

Helpful as the OEcontribution is, it merely highlights why the EU is a stagnant harbour in which to park our boat. France will end up agreeing to anything but get in the way of implementation. And if they are in the way on of our biggest economic sector - services - we should be plying our trade elsewhere.

The game is up. Time to move on.

Anonymous said...

There isn't a "real" or an unreal EUSSR question.

There is merely one course of action left to anyone who seriously wants the UK to be an independent nation again: The UK must immediately leave the EUSSR.

Jesper said...


"The gremlin inhabits a few lines of text in the middle of the treaty, concerning something called “the country of origin principle”. Companies, it says, “are subject only to the national provisions of their Member State of origin.”(2) Roughly translated, this means that a company based in one European country but working in another is bound only by the rules of the country in which it is based. If a construction firm whose offices are in Lithuania, for example, has a contract in the United Kingdom, it need abide only by Lithuanian law while working over here. The obvious result is that every enterprising corporation in Europe will relocate its headquarters to the place in which the laws are weakest.

And then it gets really weird. The state responsible for enforcing the rules – health and safety laws for example – will be the one in which the company is based, not the one in which it is working.(3) If, for example, a Lithuanian construction company is forcing workers in the UK to use dodgy scaffolding, our own Health and Safety Executive won’t be able to do a damn thing about it. Instead, the Lithuanian equivalent must send its inspectors over here, and, without local knowledge, hampered by any number of translation problems, seek to defend the lives of British workers."