Europe is falling behind. This is what the experts gathered at the Davos Economic Forum, which started yesterday, believe. And this is certified by the economic data. The expression that was repeated the most in English at the Swiss congress center was “l agging behind”.
Europeans are losing ground compared to the United States. Twenty years ago there wasn’t such a distance. However, today, with the onset of the technological revolution of the fourth industrial revolution, the rise of semiconductors and AI (artificial intelligence), the gap has widened.
A report by the consulting firm McKinsey (Accelerating Europe: Competitiveness for a new era) published yesterday calculated that, today, the per capita income of Europeans is 27% lower than that of Americans. Since 1970 the difference had never been so wide. According to the World Bank, by 2023 US per capita income was twice that of the EU in nominal terms and also exceeded it in purchasing power parity (1.4 times).
If you look at the nominal GDP data, the comparison between the two blocs is merciless. In 2011 the EU was above the United States. Today, in just over ten years, Uncle Sam has 47% more wealth than Europeans.
And that there was a time, in the early 2000s, when the EU was leading the revolution in mobile telephony (remember Nokia and the UMTS telephony standards?). Its member states launched the ambitious plan known as the Lisbon Agenda, to make the continent the most competitive area in the world by 2020. Everything has remained on wet paper. This is how an article published this summer by The Wall Street Journal is best understood: “Europeans are facing a new economic reality that they have not experienced in decades. They are becoming poorer.”
Relative to the US, from 2015 to 2022, Europeans spent about half as much on R&D as a percentage of their income. However, its return on capital was four percentage points lower. As a result, in 2022, the market capitalization of companies was 2.5 times greater in the United States than in Europe.
This debate hit the Davos Economic Forum like a tornado yesterday. Martin Wolf, Financial Times analyst, summed it up succinctly: “Europe has a problem”. European businessmen took the floor yesterday to give their opinion.
The executive president of Telefónica, José María Álvarez-Pallete, pointed out that “of the 50 largest ICT [Communication Technology] companies in the world by market capitalization, only five are European”, and they represent less than 5% of Total value.
Álvarez-Pallete remarked that “we are being regulated with analogue rules from the last century, but we are in a new digital economy and we are playing on unequal terms”. That is why he called for “disruptive initiatives, to encourage innovation and remove regulatory obstacles”.
For his part, the Minister of Economy of Germany, Robert Habeck, said that it is necessary to put an end to European “arrogance”, because times have changed and now it is necessary to assume that the states will have to play an increasing role in the economy and that, like it or not, we will have to fight with it.
In this sense, Habeck gave as an example the resistance of the member states to defend their national banks and to delay the banking union, which prevents the entities from gaining volume. And in the insistence on providing public aid.
“There are public subsidies that are good, such as those dedicated to key innovative sectors. And other bad ones, which are the ones that occur to compete between European states”, Habeck gave as an example. “I think that rather Europe has fallen into complacency. Incentives are not enough. It is necessary to set a new agenda with priorities”, added Belén Garijo, CEO of Merck pharmaceuticals.
The consulting firm McKinsey considers that European weaknesses are more conjunctural than structural. “Europe is a global leader in sustainability and inclusion. It is a global reference in the reduction of carbon emissions and indicators of social progress, such as income inequality and life expectancy”, they remind. What happens is that its model, which was based on industrial excellence, must “reactivate its competitiveness”.
The president of BBVA, Carlos Torres Vila, defended yesterday in Davos the need to “involve the final consumer in the energy transition” to speed up the decarbonisation process. But all the speakers agreed on one point to improve: it is necessary to deepen the integration of Europe… just when populism is on the rise in the polls for the European elections in June.
