Economic Policy and Infrastructure

Europe

The European manufacturing sector’s competitiveness needs strengthening

EU policy and the automotive industry

In May 2014, Europe elected a new parliament. The EU Parliament confirmed the new EU Commission, headed for the first time in the person of Jean-Claude Juncker by the lead candidate of a European party as the European Commission President. Many observers judge this to be an indication of a greater democratic identity at European level. Admittedly, the number of parties in the new European Parliament pursuing an agenda critical of Europe, or of the euro, has increased. There are increasingly vociferous voices fundamentally questioning the EU. Obviously this does not make the process of obtaining a majority any easier. Ultimately, solid majorities for a constructive policy can only be achieved if both major parties, the social-democratic S&D Group and the conservative European People’s Party, pursue the same policy. How important the EU is for the German automotive industry requires no special mention here: Europe is the “home market” for Germany’s motor manufacturers and suppliers.

In view of the growth in China and the dynamism with which the US-American economy is recovering from the economic crisis of 2008/2009, Europe faces critical challenges. The EU needs to do everything in its power to further increase its economic competitiveness. Sustainable growth – yet another of the lessons learned from the financial crisis – above all requires a strong industrial base. The financial and services sector alone is not enough.

There is no shortage of commitments to Europe as an industrial location. One example of this: at the beginning of 2014 the then EU Commissioner for Industry and Entrepreneurship, Antonio Tajani, presented an EU Commission paper on an “industrial renaissance” of Europe. The governments of the 28 EU member states, in the European Commission’s opinion, had to do more to strengthen industry. Industrial competitiveness needed to be factored into all political decisions, this was a “crosscutting task” for all political areas, he said. The goal was to increase industry’s share of the EU’s gross domestic product from 15 to 20 percent. There was talk of developing infrastructure and a “stable, simplified, entrepreneur and innovation-friendly legal framework.” Energy prices as well had to become more affordable, they had risen by 27 percent for European industry since 2005, and thus by more than in almost all other industrial economies.

The recognition of the right way forward therefore very much exists. But unfortunately the EU continues to struggle to implement these objectives. What’s more, in the past many regulations often achieved the very opposite – tending to be more of a stumbling block for industrial competitiveness.

In addition, the indebtedness of individual EU countries – keyword Greece – overshadowed virtually all other EU-wide measures in 2014. Moreover, there were foreign policy challenges with Russia and Ukraine.

The fact is this, industry’s share of gross value creation in the EU declined slowly, but steadily, between 2011 and 2013: from 15.5 percent in 2011 to 15.2 percent in 2012 and 15.1 percent in 2013.

At the same time, unit labor costs in France, Italy and Germany increased. Apparently only Spain is making headway: this country is pursuing a tough process of adjustment, manifested for years in falling unit labor costs – and just recently enjoying a strong recovery, precisely in the new car market. What that shows is that if an EU country is serious and rigorous about doing its homework, it gets ahead. The responsibility for Europe’s “industrial renaissance” cannot just be left to the EU Commission. The onus of course is on all member states and their governments.

But what is also clear is that the onus is on the European Commission, as the initiator of European law, when the competitiveness of the manufacturing sector is at issue. The European institutions began the new legislative period with grandiloquent statements. President Juncker’s declared intention is to stimulate the economy and make legislation more efficient. In so doing, the intention within one year is to create discernible incentives for growth. The planned investment package is worth 315 billion euros. When it comes to this investment program, the EU Commission and European Investment Bank (EIB) should be guided by the needs of the real economy. In the case of the automotive industry, technologies could be put center stage for which no significant capabilities have been developed to date in Europe – battery technology for example.

In addition to investment incentives, the investment climate should be improved, first and foremost by reducing bureaucracy. From the very moment the new EU Commission began work, President Juncker overhauled and reorganized the European Commission’s structure. Instead of, as in the past, assigning one topic area to each of the 28 Commissioners – one Commissioner per member country – interdisciplinary project groups were now set up. Each of the project groups is headed up and coordinated by a Vice President. The new structures and processes are intended to improve mediation between the individual departments within the European Commission. Moreover, the intention is for substantive differences to be resolved prior to publication of proposed legislation. That is a good start to streamlining future regulation and making it more efficient.

The political content should mirror this organizational focus. The new European Commission’s work program was given a sharper focus. Frans Timmermans, the First Vice-President of the EU Commission, has already withdrawn proposed legislation that had no prospect of success with the institutions. This too sounds cautiously optimistic.

But that is not enough in itself. Especially in the climate and environmental policy arena, the EU Commission must pay greater attention to striking an appropriate balance between ecology and economic requirements. Unilateral and unbalanced interventions impose an excessive burden on industry in Europe and do damage in an intense global competition. What is important, for example with future CO2 regulations, is no longer to place the emphasis on newly registered vehicles alone, but to look at the entire passenger car fleet, namely the demand side. The lever would be considerably longer, as the example of Germany illustrates: The 3 million newly registered passenger cars compares with a fleet of fully 44 million cars – namely almost 15 times as many. By changing driving behavior – eco-driving – and by using second- and third-generation biofuels, the rate of CO2 reduction could be significantly increased.

By the way, the CARS21 working group on the future of the automotive industry – kept in being under its new name CARS2020 – was wound up following submission of its final report in October 2014. For the VDA, which regularly reported on this working group in its annual report, this is not a satisfactory outcome. The automotive industry, with its value creation and employment in Europe, is too important simply to call time on this work. The automotive industry is keenly interested in a close and constructive dialog with political decision-makers. Admittedly, there is also the matter of implementation. If the process – possibly “rebadged” CARS2030 – were to be continued, then it would be advisable to give topics a sharper focus. New challenges for the automotive industry, which can only be resolved in concert and in the European context, must be included – for example, networked and automated driving.

Eckehart Rotter
Eckehart Rotter Head of Department Press

Tel: +49 30 897842-120 Fax: +49 30 897842-603
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