Passing headache?

The “slumps” of the once-glorious European industry will probably seem like a passing “headache”?

The good news is that the EU already has a roadmap for sustainable industrial modernization under the Green Deal. (Source: Getty Images)

International media commented that the automobile industry - the industry that once made European names - is in "free fall". Volkswagen and many famous European car brands are considering closing factories.

Because in fact, not only the German giant Volkswagen, but also the luxury car factory of Audi brand in Belgium is facing the risk of closing; French car manufacturer Renault and the Italian car group Stellantis, which includes 14 different brands, are both having difficulty in selling their products and operating below capacity.

“Self-condemnation”?

Warning of a decline in manufacturing in most European Union (EU) member states, the updated report on EU competitiveness sent by former European Central Bank (ECB) President and former Italian Prime Minister Mario Draghi to the European Commission (EC) in early September stated that the EU is “falling behind” China, the US and the EU-27 is “slowly and painfully” condemning itself if it does not change.

Mr Draghi called for drastic action to prevent the region's economy from stagnating as the recession reflects a lack of competitiveness in European industry, in the face of the dominance of the US, China and Asia.

The signal is both striking and worrying, as industrial output in Europe’s four largest economies is falling. Germany, France, Italy and Spain all recorded year-on-year declines in output of capital goods and durable consumer goods, according to the latest data released by Eurostat on September 13. The trend appears to be spreading to other countries and affecting the entire continent.

Accordingly, from July 2023 to July 2024, industrial output fell by 2.2% in the euro area and by 1.7% in the EU. However, during this period, the sharpest declines recorded by Eurostat were in Hungary (-6.4%), Germany (-5.5%), Italy (-3.3%) and France (-2.3%). On the other hand, a few countries saw growth, such as Denmark (+19.8%), Greece (+10.8%) and Finland (+6.4%).

European producers are experiencing sluggish domestic demand, a shortage of skilled labor and, above all, the energy crisis caused by the Russia-Ukraine military conflict (from February 2022), which has ended Russia's advantage of accessing cheap gas.

“The EU is facing average energy prices that are almost twice as high as those in the US and China. This is a major structural obstacle in terms of competitiveness and industrial productivity,” Raphaël Trotignon, head of the Energy-Climate Center at the Rexecode Institute of Economics, analyzed.

Le Monde newspaper reflects the domino phenomenon occurring east of the Rhine, the industrial recession is affecting Central European countries such as Romania, Czech Republic and Bulgaria - economies that depend on the German automobile industry.

Meanwhile, another of Europe’s leading players, France, is falling further behind, posting “unhappy” figures for per capita growth, international trade and public finances. The country’s re-industrialisation, which began years ago, has slowed considerably in recent months – posing a major challenge to the government of new Prime Minister Michel Barnier.

Both the “stick” and the “carrot” are needed.

The choices EU leaders make in the coming years will determine whether European industry has a long-term future, Project Syndicate commented. If the EU fails to reverse its current decline, Europeans may be left without industries that have been the economic backbone for decades.

Meanwhile, rival economic powers have made significant strides in industrial modernization. Two decades of aggressive industrial strategy have given China a dominant position in most clean-tech supply chains. The United States has been aggressive in its own industrial policy with the CHIPS and Science Act, the Inflation Reduction Act (IRA), and more.

The main reason why the EU’s productivity lags behind the US in the mid-1990s was its failure to capitalise on the first wave of the digital revolution led by the Internet – both in the creation of new technology companies and in the diffusion of digital technologies in the economy. Because in fact, if we exclude the technology sector, the EU’s productivity growth over the past two decades has been basically on par with the US,” reads an excerpt from Mario Draghi’s report on European competitiveness, which points to a core aspect of the EU’s future agenda if it is to achieve its goal of “strategic autonomy”.

For nearly 20 years, the EU has favored the “stick” of emissions trading over the “carrot” or positive incentives for decarbonization. As a result, the EU’s extensive and stringent regulatory environment has sometimes been a side effect, stifling innovation. Firms have incurred higher restructuring costs than their competitors, putting them at a severe disadvantage in highly innovative sectors with a “winner-takes-all” character.

Andrew McAfee, a respected expert at the Massachusetts Institute of Technology (MIT), says that the EU industry is in a precarious state. But the problem is not a lack of funding – EU governments currently spend almost as much (and as a percentage of GDP) on research and development as the US government. Granted, this spending is spread across member states, but that is not the core problem.

“It is the government's intervention in this ecosystem, not through subsidies or incentives, but through laws and regulations, as well as other constraints, restrictions and burdens on businesses,” the expert argued.

Meanwhile, the FT offers another piece of the puzzle from the digital revolution challenge. Accordingly, it is also unreasonable to assume that the EU lacks capital for attractive technology opportunities, although capital market reform would contribute to the development of a stronger venture capital industry in the region. However, the current venture capital investment in the EU is only one-fifth that of the US in 2023 not due to a lack of resources, but due to a failure to create the necessary technology ecosystem.

The former ECB President's report acknowledged the EU's problem: "We have been saying for a long time that industrial growth is slowing in Europe, but until two years ago we ignored it, thinking that everything was going well." At the same time, the report stressed: "The good news is that the EU has a roadmap for sustainable industrial modernization with the Green Deal - a broad set of policies, aiming to transform the EU into a modern, resource-efficient and competitive economy... Unfortunately, this is not an easy solution and we still have to overcome many challenges to succeed."

Fortunately, the history of the EU shows that in exceptional times, they have overcome many obstacles when there is political will.

Source: https://baoquocte.vn/nganh-cong-nghiep-chau-au-con-dau-dau-thoang-qua-289568.html