EAVA By / January 2, 2015

At least €990 billion of untapped economic growth potential

Written by Risto Nieminen Why economic growth is important Weak or negative growth curbs EU economy, endangers fiscal sustainability, hampers…

Cost of Non-Europe Map
Written by Risto Nieminen

Why economic growth is important

Weak or negative growth curbs EU economy, endangers fiscal sustainability, hampers income levels and increases unemployment and inequality.

Real GDP growth
Real GDP growth

The EU’s economic recovery remains fragile and subdued. Labour markets have improved only mildly and weak growth has compounded disinflationary trends. The persistence of high structural unemployment has become a serious concern in the EU because of its severe social consequences and because it hampers growth prospects and the sustainability of public finances.

Real GDP in the euro area rose by 0.2%, quarter on quarter, in the third quarter of 2014.  The recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance sheet adjustments (deleveraging) in the public and private sectors. Structural deficits are projected to remain broadly unchanged (-1.8%) in 2014 and 2015 i.e. the general government deficit corrected for cyclical factors, one-offs and other temporary measures, after having significantly declined since 2011 (by around 2.1 pp. of GDP).

At least €990 billion of untapped growth potential identified in the Cost of Non-Europe reports

The concept of the cost of non-Europe dates from the 1980s, when the Albert-Ball and Cecchini Reports of 1983 and 1988 – which respectively identified and then sought to quantify the significant potential economic benefits from the completion of a single market in Europe – first brought the idea into mainstream political use. The central notion is that the absence of common action at European level may mean that, in a specific sector, there is an efficiency loss to the overall economy and/or that a collective public good that might otherwise exist is not being realised.

The European Parliament Cost of Non-Europe reports provide a source of information, knowledge and expertise on identification, quantification and justification of potential areas where efficiency gains or additional collective good could be realised through common action at EU level. An example of additional GDP would be the potential multiplier effect over time of widening and deepening the digital single market on a continental scale; an example of greater efficiency in public expenditure would be the better coordination of national and European development or defence policies, where there are considerable duplications or dysfunctionalities at present.

Cost of non-Europe reports (14 reports finalised in 2014) provide an estimate of the magnitude of potential measurable gains as it is not possible to fully and accurately quantify the costs of Non-Europe. Most Cost of Non-Europe reports are based on referenced studies provided by universities, research institutes and the Commission.  Potential gains represent the total added value to annual EU GDP after full phasing in of reforms. In other words, it represents a permanent shift of the EU GDP to a higher level.

Is there any link with Cost of Non-Europe reports and the new European Commission €315 billion investment fund?

Cost of Non-Europe Map
Cost of Non-Europe Map

The European Commission is setting out an approach based on three pillars: structural reforms to put Europe on a new growth path; fiscal responsibility to restore the soundness of public finances and cement financial stability; and investment to kick-start growth and sustain it over time. The European Commission will set up a fund with a financing capacity of €315 billion – in support of investments.

Yes, there is a link. Cost of Non-Europe reports contribute to the identifications of areas where inefficiencies or dysfunctionalities exist or where economies of scale could be achieved via better EU level cooperation. For example, if action is taken, and identified problems removed, general business environment and trust would be improved contributing, in turn, to boosting economic activity and private investments.

Accommodative monetary policy, positive economic environment, together with appropriate, available public and private financing/capital supported with strong political will to make things happen and appropriate legislative action to support economic recovery – all necessary elements for growth and recovery.

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