Webinar Summary: Waiting for Draghi – Defining Europe’s Productivity Problem

The webinar “Waiting for Draghi – Defining Europe’s Productivity Problem” featured insightful discussions from Judith Arnal, Senior Research Fellow at CEPS and Real Instituto Elcano, and Oscar Guinea, Senior Economist at ECIPE, moderated by Fredrik Erixon. The conversation focused on the productivity challenges facing the EU and potential policy solutions.

Judith Arnal began by highlighting the issue of competitiveness, stating that while productivity is a well-defined economic concept, competitiveness remains blurry. She emphasised the importance of financial regulation in enhancing competitiveness, noting that “the EU banking sector represented almost 250 percent of EU’s GDP, whereas in the US, it only amounted to slightly below 90 percent of GDP”. Ms Arnal pointed out that despite the larger banking sector, EU banks have struggled with profitability and market capitalisation compared to their US counterparts.

She also discussed the challenges in venture capital investment, noting that the EU lags behind the US significantly. “In the United States, venture capital investment as a percentage of GDP amounts to more than 0.7 percent, while in the EU, the highest was Estonia, almost half compared to the US”. This lack of venture capital is a critical barrier to the growth of startups in the EU, affecting Europe’s overall competitiveness.

One of Ms Arnal’s key points was the over-regulation within the EU, which stifles innovation. She argued, “We are always thinking about regulating. We’re not so much thinking about how to stimulate the public sector and what the public sector needs”. She called for a shift in focus towards simplifying regulations and fostering a more competitive private sector.

Oscar Guinea presented data on EU productivity, noting that while it has increased by 36 percent between 1999 and 2022, this growth has been slower than in the US, where productivity grew faster, leading to a 20 percent higher productivity rate by 2022. Mr Guinea highlighted that the US has consistently outperformed the EU in Total Factor Productivity (TFP), a measure that includes innovation and technological change.

He emphasised the importance of intangible investments, stating, “Intangibles and investment in intangibles are one of the drivers of higher productivity”. However, he noted that the EU has historically invested less in intangibles compared to the US, which contributes to the productivity gap. He suggested that the EU needs to increase its ambition in R&D investment, proposing a target higher than the current 3 percent of GDP to match the levels seen in South Korea and Japan.

Both speakers agreed on the need for a more unified single market and better coordination among member states. Ms Arnal advocated for enhancing the powers of ESMA to create a level playing field in the financial sector and avoid regulatory races to the bottom. She also highlighted the need for cross-border mergers in the banking sector and national-level mergers in the telecommunications sector to enhance profitability and investment capacity.

In conclusion, the discussion underscored the critical need for the EU to address its productivity challenges through increased investment in R&D, simplification of regulations, and fostering a competitive and innovative environment. Arnal and Guinea’s insights provide a roadmap for policymakers to enhance Europe’s productivity and competitiveness in the global economy.

---

You can watch the full event below:

Related documents:

• Presentation by Judith Arnal
• Presentation by Oscar Guinea
• Keeping Up with the US: Why Europe’s Productivity Is Falling Behind by Fredrik Erixon, Oscar Guinea and Oscar du Roy