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The case for a Microeconomic European Policy
September 6, 2012 , London Stock Exchange
Policy Network meeting
Miguel Sebastián, Universidad Complutense de Madrid
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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.
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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.
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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.
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%
2040 (E) ?? ?? 50% ??
Europe is shrinking at a faster pace than the US
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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.
Share of World GDP
1. The EU is steadily loosing weight in the world economy
In the last ten years the EU’s energy dependence has increased almost 10 points.
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European Union Energy Dependence
40
42
44
46
48
50
52
54
56
58
60
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Perc
enta
ge
EU Net imports of primary energy
96.175
187.247137.125
199.646
311.930
378.258
486.178
208.999
376.941
168.947
0
100.000
200.000
300.000
400.000
500.000
600.000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill
ion
€
Energy dependence, together with rising oil prices, have multiplied the EU’s energy import bill by 5 in the last 10 years
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.
The EU annual budget sums up to 140.000 M€.
2. The European energy dependence is worsening
Critical raw materials
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Antimony Display panels, micro capacitorsChina 91% Bolivia 2% Russia 2% South Africa 2%
Indium Displays, Thin layer photovoltaicChina 58% Japan 11% South Korea 9% Canada 9%
Beryllium Military applicationsEEUU 85% China 14% Mozambique 1%
Magnesium Space, manufacturingChina 56% Turkey 12% Russia 7%
Cobalt Lithium-ion batteries, synthetic fuelsD.R. Congo 41% Canada 11% Zambia 4%
Niobium Micro capacitors, ferroalloysBrazil 92% Canada 7%
Fluorspar LensesChina 59% Mexico 18% Mongolia 6% Platinum
Group Metals
Fuel cells, catalysts, seawater desalinationSouth Africa 79% Russia 11% Zimbabwe 3%
Gallium Thin layer photovoltaic, LedN.A. Rare Earths
Permanent magnets, laser technologyChina 97% India 2% Brazil 1%
Germanium Fiber optic cable, IR optical technologyChina 72% Russia 4% EEUU 3%
Tantalum Micro capacitors, medical technologyAustralia 48% Brazil 16% Ruanda 9% D.R. Congo 9%
Graphite SteelmakingChina 72% India 13% Brazil 7%
Tungsten Drills, steelmakingChina 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.
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.
2… and the raw materials dependence is dramatic
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
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3.The EU share of world exports is shrinking
EU excluding internal trade
15%
16%
17%
18%
19%
2003 2004 2005 2006 2007 2008 2009
Perc
enta
ge
Share in world trade of Goods
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.
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3. ….and so is the relative European manufacturing sector.
Shipbuilding Sector Evolution
World Total
Europe0
5.00010.00015.00020.00025.00030.00035.00040.00045.00050.000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Prod
ucti
on T
hous
ands
CG
T
Rest of the World
Europe
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.
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1999 Automotive Production
EU (15)30,1%
China3,3%
Rest of the world66,7%
2009 Automotive Production
EU (15)20,2%China
22,6%
Rest of the world57,2%
3. ….and so is the relative European manufacturing sector.
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.
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3. ….and other technological sectors
159
309
174
287
114
84
115
58
EU USA Japan Korea
ITC Imports and Exports (2008) Million US$
ITC Exports
ITC Imports
Hardware & Semiconductors Top 25 Enterprises. Sales
USA; 31,8%
Europe; 9,2%
Asia; 59,0%
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.
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4. Tourism is a stronghold in the EU
Share in world tourism
Source: UNWTO
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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.
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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)
What should a Microeconomic European Policy consist of?
United, Europe may better manage its uncertainties, thanks to a stronger negotiating position through:
• An EU single voice
• More interconnections
• A common regulatory framework
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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.
Some examples
Energy Dependence
key regional electric connections capacity in Europe
11 TWh
8 TWh
18TWh
1 TWh
9 TWh
41 TWh
8 TWh
12 TWh
15 TWh 2 TWh
35 TWh
1TWh
1 TWh
3%
8,6%
15,2%
20,9%
7,2%
13%
9,7%
X% % Cross-border electricity between regions
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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
Some examples
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.
Number of tourists worldwide (M)
Source: UNWTO
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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-commerceSingle Digital Market
20%
55%
24%
7%0%
10%
20%
30%
40%
50%
60%
70%
80%
Enterprises that sellthrough internet
Citizens that boughtthrough internet
Only in their country
In other EuropeanCountries
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.
Some examples
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.
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Some examples
Industrial Policy
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
We want a strong and dynamic industrial sector and we also want to be leaders in:
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A final question for debate
Climate change
prevention
Welfare system
Fiscal discipline
Monetary orthodoxy
¿?
Can we make all these 5 goals compatible?
¿?
The case for a Microeconomic European Policy
September, 2012 . London Stock Exchange
Policy Network meeting
Miguel Sebastián, Universidad Complutense de Madrid