OBSERVATORY ON EUROPE 2013Improving European Integration and CompetitivenessOBSERVATORYONEUROPE2013-ImprovingEuropeanInteg...
OBSERVATORY ON EUROPE 2013Improving European Integration and Competitiveness
2INDEX
3Advisory Board OBSERVATORY ON EUROPE 2013Improving European Competitiveness and IntegrationAdvisory Board Members – Scien...
4INDEXINDEXPREFACE by Valerio De Molli ......................................................................................
5INDEX	 4.4 How to recover in those countries which face difficulties? ......................................................
6PREFACEPrefaceThe Eurozone economy shrank more than expected in 2013: the 17-nation currency bloc has now been inrecessio...
7PREFACEbe a very useful tool for policy makers, researchers, officials, and everybody actively involved in building astro...
8PREFACEFigure 1. Nationals who said they tended not to trust the EU, as an institution (% of total respondents), 2007-201...
9PREFACE
10INTRODUCTION1
11INTRODUCTION11 INTRODUCTION1.1 The Observatory on EuropeThe Observatory on Europe is a European think tank conceived and...
12INTRODUCTION1Figure 1. The Observatory on Europe MilestonesThe Reports that were presented in past Forums are available ...
13INTRODUCTION1•	 the financial system;•	 innovation;•	 entrepreneurship;•	 the regulatory environment.-	 Draw up a list o...
14INTRODUCTION1Figure 2. The Observatory on Europe 2013 Project Framework
15INTRODUCTION1
16INTRODUCTION1
17EU-27CompetitivenessIndex22 EU-27 Competitiveness Index2.1 Introduction and methodologyThe EU-27 Competitiveness Index m...
18EU-27CompetitivenessIndex2Figure 2. EU-27 Competitiveness Index: KPIs and Weights
19EU-27CompetitivenessIndex2
20EU-27CompetitivenessIndex2The purpose of the EU-27 Competitiveness Index is to estimate the current level of competitive...
21EU-27CompetitivenessIndex2-	 Imports and Exports, as a percentage of Gross Domestic Product – relative weight 20%-	 Exte...
22EU-27CompetitivenessIndex2Figure 4. External Openness – External Balance of Goods and Services (% of GDP), 2012 – Source...
23EU-27CompetitivenessIndex2Figure 6. External Openness – FDI Flow Income (% of Gross Fixed Capital Formation), average 20...
24EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “External Openness” (Figure 8) is calculated...
25EU-27CompetitivenessIndex2Figure 9. External Openness Current and Past Competitiveness Index – Source: The European Hous...
26EU-27CompetitivenessIndex22.3 Innovation & EducationThe Competitiveness Factor “Innovation & Education” analysed the var...
27EU-27CompetitivenessIndex2Figure 11. Innovation & Education – ICT Expenditure (% of GDP), 2010 – Source: The European Ho...
28EU-27CompetitivenessIndex2Figure 13. Innovation & Education – Patents (per million inhabitants), 2010 – Source: The Euro...
29EU-27CompetitivenessIndex2Figure 15. Innovation & Education – P.I.S.A. Score in Math & Science2, 2009 – Source: The Euro...
30EU-27CompetitivenessIndex2The Nordic countries obtain very high scores under this competitiveness factor: Finland is 1st...
31EU-27CompetitivenessIndex2Figure 17. Innovation & Education Current and Past Competitiveness Index – Source: The Europea...
32EU-27CompetitivenessIndex22.4 Macroeconomic StabilityThe purpose of the Competitiveness Factor “Macroeconomic Stability”...
33EU-27CompetitivenessIndex2Figure 19. Macroeconomic Stability – Gross Government Debt (% of GDP), 2012 – Source: The Euro...
34EU-27CompetitivenessIndex2Figure 21. Macroeconomic Stability – S&P’s Rating, 2013 – Source: The European House - Ambrose...
35EU-27CompetitivenessIndex2The overall ranking of the “Macroeconomic Stability” Competitiveness Factor (Figure 23) was ca...
36EU-27CompetitivenessIndex2The economic crisis also had serious repercussions on the macroeconomic stability of Greece wh...
37EU-27CompetitivenessIndex2Figure 24. Macroeconomic Stability Current and Past Competitiveness Index – Source: The Europe...
38EU-27CompetitivenessIndex22.5 Business EnvironmentThe Competitiveness Factor “Business Environment” measures the comfort...
39EU-27CompetitivenessIndex2Figure 26. Business Environment – Cost to Start a Business (% of GNI per capita), 2012 – Sourc...
40EU-27CompetitivenessIndex2Figure 28. Business Environment – Time to Enforce a Contract (days), 2012 – Source: The Europe...
41EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “Business Environment” (Figure 30) is calcul...
42EU-27CompetitivenessIndex2The least performing country is Italy. The economy is burdened by a total tax rate of 68% on b...
43EU-27CompetitivenessIndex22.6 Labour MarketThe Competitiveness Factor “Labour Market” is fundamental since companies dem...
44EU-27CompetitivenessIndex2Figure 33. Labour Market – Labour Productivity Index (per person employed, EU-27=100), 2011 – ...
45EU-27CompetitivenessIndex2Figure 35. Labour Market – Youth Participation (employment rate for persons aged 15-24 years),...
46EU-27CompetitivenessIndex2The Netherlands are safely placed in 1stposition with a score of 8.5, thanks to a strong perfo...
47EU-27CompetitivenessIndex2Figure 37. Labour Market Current and Past Competitiveness Index – Source: The European House -...
48EU-27CompetitivenessIndex22.7 People & WellbeingBy including a set of specific drivers, the Competitiveness Factor “Peop...
49EU-27CompetitivenessIndex2Figure 39. People & Wellbeing – Population Aged 65 and Above, 2011 – Source: The European Hous...
50EU-27CompetitivenessIndex2Figure 41. People & Wellbeing – Immigration Rate, 2011 – Source: The European House - Ambroset...
51EU-27CompetitivenessIndex2Figure 43. People & Wellbeing – Distribution of Income (Gini Index), 2009 – Source: The Europe...
52EU-27CompetitivenessIndex2Figure 45. People & Wellbeing – Healthy Life Expectancy, 2011 – Source: The European House - A...
53EU-27CompetitivenessIndex2Ireland is the leader of this ranking, closely followed by Sweden and France. With a score of ...
54EU-27CompetitivenessIndex2Figure 47. People & Wellbeing Current and Past Competitiveness Index – Source: The European Ho...
55EU-27CompetitivenessIndex22.8 FinanceThe purpose of the Competitiveness Factor “Finance” is to measure the efficiency an...
56EU-27CompetitivenessIndex2Figure 49. Finance – Stocks Traded, Turnover Ratio (% of GDP), 2011 – Source: The European Hou...
57EU-27CompetitivenessIndex2Figure 51. Finance – M&A Market Activity9, 2012 – Source: The European House - Ambrosetti re-e...
58EU-27CompetitivenessIndex2Figure 53. Finance – Pension, Insurance and Investment Funds (% of Total Assets), 2011 – Sourc...
59EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “Finance” (Figure 55) was calculated as the ...
60EU-27CompetitivenessIndex2The Baltic countries fair rather poorly under this competitiveness factor: the clearest exampl...
61EU-27CompetitivenessIndex22.9 Public SectorThe Competitiveness Factor “Public Sector” measures the quality and efficienc...
62EU-27CompetitivenessIndex2Figure 58. Public Sector – Government Effectiveness Index11, 2011 – Source: The European House...
63EU-27CompetitivenessIndex2Figure 60. Public Sector – Cost Efficiency of Public Servants (GDP on Public Servants ratio mu...
64EU-27CompetitivenessIndex2The overall ranking of the “Public Sector” Competitiveness Factor (Figure 62) was calculated a...
65EU-27CompetitivenessIndex2competitive European country regarding the Public Sector is Romania. The country performed poo...
66EU-27CompetitivenessIndex2The Czech Republic has sensibly worsened its position within the chart, going from 13thdown to...
67EU-27CompetitivenessIndex2Figure 65. Environment – Ecological Footprint14(global hectares per capita), 2012 – Source: Th...
68EU-27CompetitivenessIndex2Figure 67. Environment – Forest Area (% of total land area), 2010 – Source: The European House...
69EU-27CompetitivenessIndex2Figure 69. Environment – Greenhouse Gas (indexed to Kyoto Base year), 2010 – Source: The Europ...
70EU-27CompetitivenessIndex2Latvia tops the chart with a score of 7.3, thanks to an excellent performance in the KPIs “Air...
71EU-27CompetitivenessIndex2Figure 71. Environment Current and Past Competitiveness Index – Source: The European House - A...
72EU-27CompetitivenessIndex2Figure 72. Networks – Energy Dependency (% of net imports on inland consumption), 2011 – Sourc...
73EU-27CompetitivenessIndex2Figure 74. Broadband Penetration (per 100 Inhabitants), 2011 – Source: The European House - Am...
74EU-27CompetitivenessIndex2The overall ranking of the “Networks” Competitiveness Factor (Figure 76) was calculated as the...
75EU-27CompetitivenessIndex2Greece suffered from poor physical and broadband infrastructures, which contributed greatly to...
76EU-27CompetitivenessIndex2The impressive improvement under the KPI “Energy dependency” has allowed the Netherlands to ju...
77EU-27CompetitivenessIndex2Figure 78. EU-27 Current Competitiveness Index – Source: The European House - Ambrosetti, 2013...
78EU-27CompetitivenessIndex2Figure 79. EU-27 Current and Past Competitiveness Index – Source: The European House - Ambrose...
79EU-27CompetitivenessIndex2Understandably, Spain and Portugal were seriously affected by the events of the current crisis...
80EU-27CompetitivenessIndex2
Final Report Observatory On Europe 2013
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Final Report Observatory On Europe 2013

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The sixth edition of the Forum “Observatory on Europe” Improving European Integration and Competitiveness for Growth took place in Brussels on Wednesday, June 5, 2013.
This year’s report is focused on the prospects of manufacturing in Europe and its crucial role for the European Union’s competitiveness. The final report also includes an in-depth analysis on the progress towards completion of the European Single Market and the survey carried out among a select group of European businesses

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Final Report Observatory On Europe 2013

  1. 1. OBSERVATORY ON EUROPE 2013Improving European Integration and CompetitivenessOBSERVATORYONEUROPE2013-ImprovingEuropeanIntegrationandCompetitivenessJune2013
  2. 2. OBSERVATORY ON EUROPE 2013Improving European Integration and Competitiveness
  3. 3. 2INDEX
  4. 4. 3Advisory Board OBSERVATORY ON EUROPE 2013Improving European Competitiveness and IntegrationAdvisory Board Members – Scientific Committee: José Maria Aznar President, FAES – Foundation for Economic and Social Analysis; Former Prime Minister, Spain Antonio Borges Professor of Economics at Catolica Lisbon School of Business and Economics; Former Director of the European Department of the International Monetary Fund Valerio De Molli Managing Partner, The European House - Ambrosetti; Chairman, Advisory Board “Observatory on Europe” Wolfgang Schüssel Former Federal Chancellor of AustriaAdvisory Board Members – Business Leaders: Nani Beccalli-Falco President and Chief Executive Officer, GE Europe; Chief Executive Officer, GE Germany; Senior Vice President, GE and Member of the Group’s Corporate Executive Council Hendrik Bourgeois Vice President European Affairs, GE Nicolas Denis Vice President, Philip Morris Italy Dario Caprioli Vice President, Legal Risk and Regulatory Affairs, Ing Direct Italy Damiano Castelli Chief Executive Officer, Ing Direct Italy Cliff Corso Chief Executive Officer & Chief Investment Officer, Cutwater Asset Management Christopher Keating Managing Director, Global Sales & Distribution, Cutwater Asset Management Livio Vanghetti Vice President EU Corporate Affairs, Philip Morris InternationalThis report is a research study coordinated by the Advisory Board and carried out by the The European House- Ambrosetti project team composed of: Emiliano Briante, Costanza Monari, Ilaria Russi, Brian Terracciano.
  5. 5. 4INDEXINDEXPREFACE by Valerio De Molli ....................................................................................................................................................................................... 61 INTRODUCTION ....................................................................................................................................................................................................... 11 1.1 The Observatory on Europe .................................................................................................................................................................... 11 1.2 The 2013 project aims and methodology ................................................................................................................................... 122 EU-27 COMPETITIVENESS INDEX .................................................................................................................................................................. 17 2.1 Introduction and methodology ............................................................................................................................................................ 17 2.2 External Openness ...................................................................................................................................................................................... 20 2.3 Innovation & Education ............................................................................................................................................................................ 26 2.4 Macroeconomic Stability ........................................................................................................................................................................ 32 2.5 Business Environment .................................................................................................................................................................................. 38 2.6 Labour Market ................................................................................................................................................................................................. 43 2.7 People & Wellbeing .................................................................................................................................................................................... 48 2.8 Finance ................................................................................................................................................................................................................ 55 2.9 Public Sector ...................................................................................................................................................................................................... 61 2.10 Environment ................................................................................................................................................................................................... 66 2.11 Networks ............................................................................................................................................................................................................. 71 2.12 The EU-27 Competitiveness Index final ranking ..................................................................................................................... 763 MONITORING THE IMPLEMENTATION OF THE SINGLE MARKET ACT .................................................................................. 81 3.1 Twenty years of Single Market: main achievements ............................................................................................................ 81 3.2 Completing the Single Market: a work in progress .............................................................................................................. 83 3.3 The Single Market Act (SMA) ............................................................................................................................................................... 84 3.4 The Observatory on Europe’s assessment of the implementation of the Single Market Act ................ 85 3.5 The Single Market Act II (SMA II) ....................................................................................................................................................... 92 BOX - Citizens’ and businesses’ 20 main concerns ...................................................................................................................... 92 BOX - Many actions recommended by the Observatory on Europe last year are now included in the Single Market Act II ................................................................................................................................................................ 94 3.6 The Observatory on Europe’s assessment of the implementation of the Single Market Act II ............ 944 THE AGENDA FOR THE COMPETITIVENESS OF EUROPE’S ECONOMY AND FINANCIAL SYSTEM by Antonio Borges ............................................................................................................................................................................................. 103 4.1 The economic rationale behind the introduction of the Euro .................................................................................. 103 4.2 Failures and success stories: what went right and what wrong ............................................................................. 103 4.3 The effective causes of the financial crisis ............................................................................................................................. 106
  6. 6. 5INDEX 4.4 How to recover in those countries which face difficulties? ......................................................................................... 107 4.5 How to stimulate the development of capital markets in the EU? ........................................................................ 1105 MANUFACTURING EUROPE: the challenge of reindustrialisation ................................................................... 113 5.1 The changing face of manufacturing .......................................................................................................................................... 113 BOX - Re-shoring in the US ........................................................................................................................................................................... 116 5.2 Structural change, competitiveness and economic crisis: the state of the art of manufacturing in Europe ................................................................................................................................................................ 118 5.3 The 7 pillars to re-launch manufacturing competitiveness ........................................................................................... 125 BOX - The German apprentice system ............................................................................................................................................... 1366 INNOVATION: A CRUCIAL ENABLER TO PUSH EUROPE’S COMPETITIVENESS FRONTIER TOWARDS THE FUTURE ....................................................................................................................................................................................... 143 6.1 Why innovation today .............................................................................................................................................................................. 143 BOX - Horizon 2020: a potential game changer? .................................................................................................................... 144 6.2 The EU innovation deficit in international perspective ..................................................................................................... 147 BOX - Some paradigmatic European business stories: Nokia and Skype .................................................................. 151 6.3 The building blocks of the EU innovation gap ....................................................................................................................... 152 6.4 The role of the private sector ............................................................................................................................................................ 156 BOX - Innovation as the magic concept for growth today – by Wolfgang Schüssel ....................................... 160 6.5 Conclusions ..................................................................................................................................................................................................... 1637 A CRUCIAL LEVER FOR RELEASING THE EU’S GROWTH POTENTIAL: ENTREPRENEURSHIP ................................. 165 7.1 The challenge of entrepreneurship in the EU .......................................................................................................................... 165 7.2 Measuring the “Entrepreneurial” gap between the EU and the US ........................................................................ 166 7.3 The key determinants of entrepreneurship .............................................................................................................................. 170 7.4 Conclusions ...................................................................................................................................................................................................... 1788 THE EUROPEAN BUSINESS LEADERS SURVEY ..................................................................................................................................... 181 8.1 Why and how ................................................................................................................................................................................................. 181 8.2 Main results ...................................................................................................................................................................................................... 1829 POLICY RECOMMENDATIONS ................................................................................................................................................................... 191 9.1 Manufacturing sector: towards a European business model ...................................................................................... 191 9.2 Regulatory environment: developing a common and facilitating framework for business .................. 192 9.3 Entrepreneurship: promoting a pro-business culture and the framework conditions for the creation and growth of enterprises ............................................................................................................................. 193 9.4 Innovation: push Europe’s competitiveness frontier towards the future .............................................................. 194 9.5 Capital and financial markets: new channels for credit ................................................................................................ 195BIBLIOGRAPHY ................................................................................................................................................................................................................ 197
  7. 7. 6PREFACEPrefaceThe Eurozone economy shrank more than expected in 2013: the 17-nation currency bloc has now been inrecession for six consecutive quarters – even longer than the deep recession following the global financialcrisis of 2008.There is no doubt that Europe needs its real economy now more than ever to underpin the economic re-covery. Thus, EU actions should be designed to reverse the current downward trend and promote a path ofreindustrialisation for Europe.The phrase ‘Industrial Revolution’ may be hundreds of years old, but it will be reborn in the 21stcentury. Europeshould invest in – and rely on – reindustrialisation to foster economic recovery, ease environmental strainsand consolidate Europe’s standing as a global industrial leader. And while the last Industrial Revolution gavebirth to modern technology, the next Industrial Revolution will help create future technology.In a fast-changing world, if the EU wants to maintain its position as one of the world’s leading economicblocks, it must provide the right framework conditions capable of attracting companies to invest in Europe.Having said that the Observatory on Europe very much welcomes the European Commission’s recent clearmessage stressing that industry is vital for economic recovery, that industrial output must grow and reach20% of GDP and that the policy focus has shifted towards reaching this target, in terms of growth and jobcreation1.As European Commission Vice-President Antonio Tajani, Commissioner for Industry and Entrepreneurship, re-cently underlined, “We cannot continue to let our industry leave Europe. Our figures are crystal clear: Europeanindustry can deliver growth and can create employment […] By working together and restoring confidence,we can bring back industry to Europe”.The Observatory on Europe is eager to participate in the debate on how to achieve this goal: in this reportwe outline what we perceive as the right framework conditions and how Europe should operate to attainthem. We highlight hereafter a number of core issues for our industry, as we believe improvements will helpto trace the path towards a stronger manufacturing economy in Europe: we cover the areas of the internalmarket, the EU’s policies on regulation, labour market reforms, finance, innovation, human resources, skillsand entrepreneurship, ultimately suggesting concrete recommendations to the European decision-makers.We continued to make the results of all of our analyses available online. The website www.observatory-oneurope.eu allows everybody to access, in an interactive manner, the data and rankings developed by theObservatory on Europe, such as the EU-27 Competitiveness Index. Search criteria and a very user-friendly visu-al interface facilitate information retrieval and comparisons among States’ performances. We think this could1 - Communication from the Commission to the European Parliament, the Council, the European economic and social committee and the Com-mittee of the Regions, “A Stronger European Industry for Growth and Economic Recovery, Industrial Policy Communication Update” Brussels,10.10.2012
  8. 8. 7PREFACEbe a very useful tool for policy makers, researchers, officials, and everybody actively involved in building astronger and more competitive European Union.We would like to express our deepest gratitude to our outstanding Scientific Committee for their work ofguidance and supervision. It is composed of:- José Maria Aznar (President, FAES – Foundation for Economic and Social Analysis; Former Prime Minister, Spain);- Antonio Borges (Professor of Economics at Catolica Lisbon School of Business and Economics; FormerDirector of the European Department of the International Monetary Fund);- Wolfgang Schüssel (Former Federal Chancellor of Austria).In addition we would like to thank very much Mr. Markus Kerber (CEO and General Director, BDI - Federationof German Industries) and Mr. Neville Reeve (Senior Policy Analyst, DG Research and Innovation, EuropeanCommission) for their contribution during our Advisory Board meetings.As always, the Observatory’s approach was very practical in trying to meet business leaders’ expectations inthe best possible way. Therefore, a special thanks goes to the business leaders that believed in this projectand actively participated in the Advisory Board: Ferdinando “Nani” Beccalli Falco (President and Chief Execu-tive Officer, GE Europe; Chief Executive Officer, GE Germany; Senior Vice President, GE and Member of theGroup’s Corporate Executive Council), Hendrik Bourgeois (Vice President European Affairs, GE), AlessandroCoppola (Director Government Affairs and Policy, GE Italy), Livio Vanghetti (Vice President EU Corporate Af-fairs, Philip Morris International), Nicolas Denis (Vice President, Philip Morris Italy), Eleonora Santi (CorporateAffairs, Philip Morris Italy); Damiano Castelli (Chief Executive Officer, Ing Direct Italy), Dario Caprioli (VicePresident Legal Risk and Regulatory Affairs, Ing Direct Italy), Cliff Corso (Chief Executive Officer & Chief Invest-ment Officer, Cutwater Asset Management) and Christopher Keating (Managing Director, Global Sales &Distribution, Cutwater Asset Management).Since its foundation, the Observatory has always adopted a pro-European position, with the clear objectiveof contributing to create a stronger Europe from an economic, social and political standpoint. For thesereasons we are deeply concerned by the rising scepticism – of citizens and enterprises – towards Europe.Recent data shows that public confidence in the European Union has fallen to historically low levels in thesix biggest EU countries. After financial, currency and debt crises, wrenching budget and spending cuts, Euroscepticism is soaring, as figures from Eurobarometer – the EU’s polling organisation – show a vertiginous de-cline in trust in the EU in countries such as Spain, Germany and Italy that are historically very pro-European.
  9. 9. 8PREFACEFigure 1. Nationals who said they tended not to trust the EU, as an institution (% of total respondents), 2007-2012 –Source: The European House - Ambrosetti re-elaboration on Eurobarometer data, 2013On the contrary we believe that the crisis has amplified the urgent need for a stronger co-operation andgovernance at European level and bold reforms at national level.In this sense, we sincerely hope that the 2013 Observatory on Europe’s analyses and recommendations – aswell as the debate we would like to encourage during our annual Forum – can contribute to face the dif-ficult challenges we are experiencing and orient policy making towards a stronger and more united Europein the near future.To conclude, I would relish the opportunity to quote the inspiring words that Winston Churchill addressed tothe academic youth, at the end of his speech at the University of Zurich in 1946:”There is a remedy which ...would in a few years make all Europe ... free and ... happy. It is to re-create the European family, or as muchof it as we can, and to provide it with a structure under which it can dwell in peace, in safety and in freedom.We must build a kind of United States of Europe.”Valerio De MolliCEO & Managing Partner, The European House - AmbrosettiChairman, Observatory on Europe
  10. 10. 9PREFACE
  11. 11. 10INTRODUCTION1
  12. 12. 11INTRODUCTION11 INTRODUCTION1.1 The Observatory on EuropeThe Observatory on Europe is a European think tank conceived and set up in 2005 by The European House -Ambrosetti with the contribution of an outstanding Scientific Committee1.Mission of the Observatory on EuropeThe aim of the Observatory is to pragmatically contribute to the success of the European Union, provi-ding its political and economic leaders, as well as its citizens, with high-quality studies, analyses and pro-posals in order to help them build a stronger Europe from an economic, social and political standpoint.This mission is particularly important today, given the slow and weak recovery following the global crisis inmany European countries and the Eurozone tensions.The Observatory’s activity is overseen by an Advisory Board, made up both of European experts on theissues being analysed (Scientific Committee) and business leaders representing the international sponsorcompanies.The Observatory on Europe aims to proffer concrete recommendations to enhance the EU’s integrationprocess and European competitiveness. These recommendations are always accompanied by a fact-drivenanalysis of the competitive scenario at the Member State level and of the EU as a whole. Over the years,the Advisory Board has selected and focused on the critical issues that present significant risks and/or op-portunities for Europe.The Observatory on Europe organises Forums in Brussels during which the work of the Advisory Board is pre-sented to an international audience and discussed with leading members of national and European institu-tions as well as business leaders.Furthermore, since 2008, a Central and Eastern European “spin-off” of the Observatory has operated with adistinct focus on the newest European Member States, with a Forum held in Budapest (see Figure 1).1 - It included Mario Monti, who advised the project up to the very moment that he accepted to become Prime Minister of Italy in November2011, Laurent Fabius, and the late Loyola de Palacio.
  13. 13. 12INTRODUCTION1Figure 1. The Observatory on Europe MilestonesThe Reports that were presented in past Forums are available online, on the think tank’s website (www.ob-servatoryoneurope.eu), which also contains a collection of tools, animated graphs and data resulting fromthe quantitative analyses of the project.1.2 The 2013 project aims and methodologyThe Observatory on Europe 2013 developed its analyses with the following aims:- Update the Observatory on Europe EU-27 Competitiveness Index, which aims at measuring the cur-rent level of competitiveness of the EU-27 Member States and their trend over the past 5 years, iden-tifying strengths and weaknesses of the EU-27 MSs in relation to the diverse competitiveness factorsand having a better understanding of the European competitive environment.- Monitor the implementation of the Single Market Act and Single Market Act II proposals and to drawup a list of recommendations to be implemented in order to enforce the Internal Market.- Carry out a survey addressed to a restricted sample of top managers of European-based companiesin order to better understand what practitioners think about European integration and competitiveness.- Study the performance of the European manufacturing sector and identify the key elements for itsfuture development, focusing on some key pillars of manufacturing competitiveness, particularly:
  14. 14. 13INTRODUCTION1• the financial system;• innovation;• entrepreneurship;• the regulatory environment.- Draw up a list of recommendations that Europe should implement in order to improve its world-wide competitiveness (particularly regarding the manufacturing sector) and enhance the integrationprocess.As in the past editions, these topics have been studied and developed with the contribution of an AdvisoryBoard comprising a qualified mix of experts who combine scientific knowledge with practical and pragmaticexperience.The Advisory Board guaranteed the scientific accuracy of the work carried out as well as its link to the busi-ness perspective. It comprises a Scientific Committee, business leaders and The European House - Ambro-setti team.Some eminent external experts either took part in the Advisory Board meetings or were interviewed in func-tion of the needs that emerged over the course of the project2.The Scientific Committee comprises:- José Maria Aznar (President, FAES – Foundation for Economic and Social Analysis; Former PrimeMinister, Spain)- Antonio Borges (Professor of Economics at Catolica Lisbon School of Business and Economics; FormerDirector of the European Department of the International Monetary Fund)- Wolfgang Schüssel (Former Federal Chancellor of Austria)Business leaders are:- Ferdinando “Nani” Beccalli Falco (President and Chief Executive Officer, GE Europe; Chief ExecutiveOfficer, GE Germany; Senior Vice President, GE and Member of the Group’s Corporate ExecutiveCouncil) and Hendrik Bourgeois (Vice President European Affairs, GE)- Livio Vanghetti (Vice President EU Corporate Affairs, Philip Morris International) and Nicolas Denis (VicePresident, Philip Morris Italy)- Damiano Castelli (Chief Executive Officer, Ing Direct Italy) and Dario Caprioli (Vice President Legal Riskand Regulatory Affairs, Ing Direct Italy)- Cliff Corso (Chief Executive Officer & Chief Investment Officer, Cutwater Asset Management) andChristopher Keating (Managing Director, Global Sales & Distribution, Cutwater Asset Management)This Report contains the analyses developed by and discussed among the Observatory on Europe’s AdvisoryBoard members between October 2012 and May 2013 (Figure 2).2 - In particular, we would like to thank very much Mr. Markus Kerber (CEO and General Director, BDI - Federation of German Industries) and Mr.Neville Reeve (Senior Policy Analyst, DG Research and Innovation, European Commission) for their contribution.
  15. 15. 14INTRODUCTION1Figure 2. The Observatory on Europe 2013 Project Framework
  16. 16. 15INTRODUCTION1
  17. 17. 16INTRODUCTION1
  18. 18. 17EU-27CompetitivenessIndex22 EU-27 Competitiveness Index2.1 Introduction and methodologyThe EU-27 Competitiveness Index measures, compares and examines the competitiveness of Europe’s coun-tries.Competitiveness is defined as the capability of an economy to maintain increasing standards of living forthose who participate within it, by attracting and maintaining firms with stable or rising market shares in anactivity. As such, the competitiveness of a country will depend on its ability to anticipate and successfullyadapt to internal and external economic and social challenges, by providing new economic opportunities.The importance of the concept of competitiveness is now firmly embedded within economic policymaking inEurope, and indeed around the world. Consequently, measuring, understanding and analysing competitive-ness at a number of geographic levels has become a vital factor in creating an informed dialogue that cancontribute to a policy environment attuned to enhancing the economic performance of Europe’s nations.The Observatory on Europe decided to focus its analysis on 10 Competitiveness Factors that are essentialfor measuring a country’s level of competitiveness (Figure 1).Figure 1. EU-27 Competitiveness Index: Competitive Factors and WeightsEach Competitiveness Factor was analysed by measuring specific Key Performance Indicators (KPIs). Theseare basic quantitative indicators, chosen as suitable proxies for estimating the level of competitiveness ofeach considered Member State. Both the significance of the KPI and the availability of a complete data-base for all EU countries were considered very important. The logic followed was to select the “best” indica-tors for describing the current European situation in each Competitiveness Factor.As shown in Figure 2, 55 KPIs were selected and analysed.
  19. 19. 18EU-27CompetitivenessIndex2Figure 2. EU-27 Competitiveness Index: KPIs and Weights
  20. 20. 19EU-27CompetitivenessIndex2
  21. 21. 20EU-27CompetitivenessIndex2The purpose of the EU-27 Competitiveness Index is to estimate the current level of competitiveness of the EUand its Member States. Through the comparison with the competitiveness levels reported five years ago, it isalso possible to understand whether there were significant changes (both improvements and setbacks).To allow comparisons and present an overall picture of the European Countries’ Competitiveness Index, thescores were consolidated as follows:- The Observatory on Europe assigned a weight to each Competitiveness Factor / KPI according to itsrelative importance from a competitiveness standpoint (Figure 2).- For each KPI, the best performer among the EU-27 Member States received a score of 10 (maxscore) and the worst performer received a score of 1 (min score).- The remaining Member States’ scores varied between 1 and 10, according to their relative perfor-mance. The “scale” drove the scoring process and was calculated as follows: Scale = (max value – min value) / (max score – min score)- Having fixed the “scale”, each Member State’ score was computed as follows: Score = [(country value – min value) / scale] + 1- The Competitiveness Factors’ scores (i.e. each Member States’ level of competitiveness in that factor)were calculated as a weighted sum of the KPIs’ scores.- The Final Competitiveness score was calculated as a weighted sum of the Competitiveness Factors’scores.The following paragraphs will present the analysis of the indicators for each of the ten Competitiveness Fac-tors. Each paragraph will close with an overall analysis of the Competitiveness Factor and a comparison withthe countries’ past rankings.2.2 External OpennessThe purpose of the Competitiveness Factor “External Openness” is to understand how European MemberStates interact with foreign entities, and particularly:- whether EU Member States attract investments from abroad or not (i.e. can European countries beseen as an interesting business area?);- whether EU Member States show a positive external balance on goods and services or not (i.e. canEuropean countries be successful in foreign markets?);- whether EU Member States have favourable conditions for exports or not (i.e. is there a low cost toexport from European countries?).Accordingly, the Competitiveness Factor “External Openness” has been analysed using the following KPIs(Figure 3-7) and weights:
  22. 22. 21EU-27CompetitivenessIndex2- Imports and Exports, as a percentage of Gross Domestic Product – relative weight 20%- External Balance of Goods and Services, as a percentage of Gross Domestic Product – relative weight20%- Foreign Direct Investment Stocks, as a percentage of Gross Domestic Product – relative weight 20%- Foreign Direct Investment Flow Income, as a percentage of Gross Fixed Capital Formation – relativeweight 20%- Cost to Export, US Dollar per container – relative weight 20%Figure 3. External Openness – Imports and Exports (% of GDP), 2012 – Source: The European House - Ambrosetti re-elaboration on Eurostat data, 2013
  23. 23. 22EU-27CompetitivenessIndex2Figure 4. External Openness – External Balance of Goods and Services (% of GDP), 2012 – Source: The European House- Ambrosetti re-elaboration on Eurostat data, 2013Figure 5. External Openness – FDI Stocks (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaboration onUNCTAD data, 2013
  24. 24. 23EU-27CompetitivenessIndex2Figure 6. External Openness – FDI Flow Income (% of Gross Fixed Capital Formation), average 2008-2010 – Source:The European House - Ambrosetti re-elaboration on UNCTAD data, 2013Figure 7. External Openness – Cost to Export (US Dollar per container), 2012 – Source: The European House - Ambrosettire-elaboration on Eurostat data, 2013BRIEFECONOMICOUTLOOK
  25. 25. 24EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “External Openness” (Figure 8) is calculated as the weight-ed sum of the KPIs’ scores.Figure 8. External Openness Current Competitiveness Index – Source: The European House - Ambrosetti, 2013Luxembourg still tops the rank this year, thanks to a good performance under almost every KPI: the size ofthe economy has a considerable impact on the final score. However, as small as it may be, the economy ofLuxembourg is impressively open and integrated within the EU. Malta also performs very well under this Index(2nd), thanks to an impressive volume of “FDI Stocks” which is 187% bigger than the country’s GDP. After Malta,we find Ireland in 3rdposition with a score of 5.8 mainly related to the positive external balance of goods andservices in 2012. The economies following Hungary all fair similar scores, ranging from 4.4 to 3.2. What is rathersurprising is the performance of Poland (20th), which is comparable with the UK’s. Under this competitivenessfactor Bulgaria (22nd) scores higher than economies such as France (23rd), Spain (24th) and Italy (25th). Thesecountries are traditionally referred as closed economies and, in fact, all score rather poorly under the KPIs “Im-ports + Exports”, “FDI Stocks” and “FDI Flow income”. We find Greece (26th) and Romania (27th) at the bottomof the list: understandably Greece’s position was heavily penalised by performance areas related to exports,external balance and FDIs, while Romania obtains very low scores under practically every KPI.By going 5 years back in time, we register that both Luxembourg and Malta managed to maintain theirpositions. However, one of the most interesting findings is Ireland, which has gained 11 positions thanks to asubstantial improvement of its external trade balance and to an impressive increase in FDI income.Slovenia has also gained 11 positions, entering in the EU’s top ten best performers: in five years, the cost ofexporting has gone down by 25% (from 971$ to 745$), this had powerful implications on the country’s overallperformance.
  26. 26. 25EU-27CompetitivenessIndex2Figure 9. External Openness Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2012Lithuania has opened considerably its economy, gaining 10 positions (from 21stto 11th): if in 2007 thecountry’s imports and exports accounted for approximately 120% of its GDP, today the economy trades avolume of goods and services close to 170%.The Czech Republic has lost ground in these years, going from 8thposition down to 14th: FDI flow income hasshrunk from an average of 20% of Gross Fixed Capital Formation (GFCF) down to 9%. Furthermore, export-ing costs have risen by almost 50% going from 775 up to 1,145 US $ per container.A very similar situation has been reported in Slovakia which, in fact, has lost 8 positions: FDI flows have gonefrom 25% down to 7% of GFCF and exporting costs have risen by more than 50%.A significant deterioration of the external trade balance costs 9 positions to Bulgaria which lands at 22ndposition.France, Spain and Italy hardly improved their positions in the ranking and in fact they remain at the bottomof the ranking, right before Greece and Romania.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  27. 27. 26EU-27CompetitivenessIndex22.3 Innovation & EducationThe Competitiveness Factor “Innovation & Education” analysed the variables that directly affect Europe’sfuture. Among these are the following two fundamental concepts:- current investments in education, lifelong learning, etc., will result in higher levels of human capital inthe future;- new technologies, products and processes currently are a prerequisite for future international competi-tiveness.Accordingly, the Competitiveness Factor “Innovation & Education” was analysed using the following KPIs andweights:- R&D Expenditure, as a percentage of Gross Domestic Product – relative weight 20%- ICT Expenditure, as a percentage of Gross Domestic Product – relative weight 10%- High-tech Exports, as a percentage of Total Exports – relative weight 10%- Patents, per million inhabitants – relative weight 20%- Tertiary Education, as a percentage of total population – relative weight 20%- P.I.S.A. Score in Math & Science – relative weight 20%Figure 10. Innovation & Education – R&D Expenditure (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaboration on Eurostat data, 2013
  28. 28. 27EU-27CompetitivenessIndex2Figure 11. Innovation & Education – ICT Expenditure (% of GDP), 2010 – Source: The European House - Ambrosetti re-elaboration on Eurostat data, 2013Figure 12. Innovation & Education – High-tech Exports1(% of total exports), 2011 – Source: The European House - Am-brosetti re-elaboration on Eurostat data, 20131 - This indicator is calculated as share of exports of all high technology products of total exports. High Technology products are defined as thesum of the following products: Aerospace, Computers-office machines, Electronics-telecommunications, Pharmacy, Scientific instruments, Elec-trical machinery, Chemistry, Non-electrical machinery, Armament (Eurostat).BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  29. 29. 28EU-27CompetitivenessIndex2Figure 13. Innovation & Education – Patents (per million inhabitants), 2010 – Source: The European House - Ambrosettire-elaboration on European Patent Office data, 2012Figure 14. Innovation & Education – Tertiary Education (% of total population), 2012 – Source: The European House -Ambrosetti re-elaboration on Eurostat data, 2013
  30. 30. 29EU-27CompetitivenessIndex2Figure 15. Innovation & Education – P.I.S.A. Score in Math & Science2, 2009 – Source: The European House - Ambro-setti re-elaboration on OECD data, 2012The overall ranking of the “Innovation & Education” Competitiveness Factor (Figure 16) was calculated as theweighted sum of the KPIs’ scores.Figure 16. Innovation & Education Current Competitiveness Index – Source: The European House - Ambrosetti, 20132 - The Programme for International Student Assessment (PISA) is a worldwide study by the Organisation for Economic Co-operation and Develop-ment (OECD) in member and non-member nations of 15-year-old school pupils’ scholastic performance on mathematics, science, and reading.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  31. 31. 30EU-27CompetitivenessIndex2The Nordic countries obtain very high scores under this competitiveness factor: Finland is 1stwith a score of8.8, Sweden is 2ndwith a score of 7.4 while Denmark is 5thwith a score of 6.6. These high scores are mainlythe result of large investments in R&D and a high number of issued patents. The strong educational systemsof these countries confirm their positions.Germany ranks 3rdwith a score of 7.0: the country has been investing a considerable portion of GDP inR&D in the last years and an impressive volume of patents have been issued by the economy. The Germaneducational system is also commonly referred as very effective and performing: the PISA study confirms thatGerman students perform outstandingly under maths and sciences.Shortly after Denmark, we find the UK and Luxembourg, both tied in 6thposition with a score of 6.4: whilethe former scored very well in “ICT Expenditure” and “Tertiary Education”, the latter registers an outstandingperformance as for “High Tech Exports” and “Patents”.France is in 10thplace (6.0), followed closely by Belgium (5.9): the overall performance of these countries isaverage, even though Belgium obtains an excellent mark under “Tertiary Education”.Scrolling down the ranking we see that Spain ranks 15th(score 4.3), Italy ranks 23rd(score 3.1), and Greeceranks 25th(score 2.9). All of these countries had a low number of issued patents, scarce exports of high-techproducts, and limited R&D.The least competitive European economy in terms of Innovation and Education is Romania. The countryperforms poorly in almost all KPIs.Making a comparison with the results from five years ago, we may observe that the first 7 positions havebeen stable throughout the period: Finland, Sweden, Germany, the Netherlands, Denmark, Luxembourg andthe United Kingdom all managed to maintain their respective positions.
  32. 32. 31EU-27CompetitivenessIndex2Figure 17. Innovation & Education Current and Past Competitiveness Index – Source: The European House - Ambrosetti,2013The central section of the chart (from the 8thto the 19thposition) has been subject to marginal variations.However, Portugal (from 23rdto 20thposition), Poland (from 24thto 21stposition) and Slovakia (from 25thto22nd) have managed to climb 3 positions thanks to a moderate but comprehensive improvement of all KPIs:in particular Portugal’s performance under the “ICT Expenditure” KPI has improved significantly.Lastly, the comparison with 5 years ago underlines that Greece and Bulgaria have lost ground under thiscrucial competitiveness factor: Greece has gone from 21stto 25thposition while Bulgaria from 26thto 22nd.The two countries have registered some minor improvements; however these were not sufficient to keep upwith the rest of the EU Member States.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  33. 33. 32EU-27CompetitivenessIndex22.4 Macroeconomic StabilityThe purpose of the Competitiveness Factor “Macroeconomic Stability” is to analyse the stability of economicsystems, and particularly:- whether EU Member States have sustainable debt or not (i.e., if European Countries may be at risk todefault);- how EU Member States are assessed by rating agencies;- whether the progressive aging of the population will be sustainable or not (i.e. if the number of work-ers will support the increasing number of retirees).Accordingly, the Competitiveness Factor “Macroeconomic Stability” was analysed using the following KPIsand weights:- Inflation Rate – relative weight 12.5%- Government Gross Debt, as a percentage of Gross Domestic Product – relative weight 25%- Government Deficit/Surplus, as a percentage of Gross Domestic Product – relative weight 25%- S&P’s Rating – relative weight 12.5%- Old Age Dependency Ratio, ratio of 65 years old or over / 15-64 years – relative weight 25%Figure 18. Macroeconomic Stability – Inflation Rate, 2012 – Source: The European House - Ambrosetti re-elaboration ofEurostat data, 2013
  34. 34. 33EU-27CompetitivenessIndex2Figure 19. Macroeconomic Stability – Gross Government Debt (% of GDP), 2012 – Source: The European House - Am-brosetti re-elaboration of IMF data, 2013Figure 20. Macroeconomic Stability – Gross Deficit/Surplus (% of GDP), average 2009-2012 – Source: The EuropeanHouse - Ambrosetti re-elaboration of IMF data, 2013BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  35. 35. 34EU-27CompetitivenessIndex2Figure 21. Macroeconomic Stability – S&P’s Rating, 2013 – Source: The European House - Ambrosetti re-elaboration ofS&P’s data, 2013Figure 22. Macroeconomic Stability – Old Age Dependency ratio (65 years old or over / 15-64 years old), 2012 – Source:The European House - Ambrosetti re-elaboration of Eurostat data, 2013
  36. 36. 35EU-27CompetitivenessIndex2The overall ranking of the “Macroeconomic Stability” Competitiveness Factor (Figure 23) was calculated asthe weighted sum of the KPIs’ scores.Figure 23. Macroeconomic Stability Current Competitiveness Index – Source: The European House - Ambrosetti, 2013Luxembourg is the undisputed leader of this ranking. However an interesting finding is the impressive score ofEstonia (7.7) which ties in for 2ndplace with Sweden. Estonia’s performance is mainly due to its governmentgross debt, which is only 8.2% of its GDP. Eastern European countries like Slovakia (4thposition) and theCzech Republic (5thposition) but also Poland (tied in 5thposition with the Czech Republic) score very wellthanks to low government debt and good surpluses.Despite excellent scores under almost every KPI, the performance of Nordic countries is undermined by cur-rent demographic trends: the extension of life expectancy in these countries also implied a higher old-agedependency ratio.With a very good government surplus and rating, Austria reaches the 11thposition with a score of 6.8.France and Germany are tied for 14thplace. France performs well in the KPI “Inflation Rate” while Germany’soverall good performance is somewhat undermined by the old-age dependency ratio.The United Kingdom ranks 19thwith a score of 5.9, while Spain falls back to the 21stposition with a score of 5.3.In the case of Italy, the most penalising factors are undoubtedly gross government debt (126% of nationalGDP) and old–age dependency ratio which is, by the way, the highest in Europe (32%). The recent struc-tural reforms have improved substantially the governments surplus, however the final score (4.5) places Italyat 24thposition.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  37. 37. 36EU-27CompetitivenessIndex2The economic crisis also had serious repercussions on the macroeconomic stability of Greece which, in fact,scores 3.3 and ranks last under this competitiveness factor.With respect to five years ago, the ranking has substantially changed: only Luxembourg has managed tokeep its position.Sweden has gained 5 positions thanks to a general improvement of all the observed KPIs (with the excep-tion of old age dependency ratio). In 5 years time, Estonia has managed to climb 8 positions, tying in withSweden at 2nd: the impressive result is mainly due to a remarkable improvement of the country’s credit ratingand government surplus. A very similar situation happened in Poland, which has managed to climb 12 posi-tions in 5 years: from 17thto 5thposition.Austria has gained 8 positions landing from 19thto 11ththanks to a general improvement of the government’sgross debt and surplus indicators.Belgium (13thposition) and Germany (14thposition) have gained 9 positions under this competitiveness fac-tor: the former has sensibly improved its performance under the KPI “Gross Government Debt” while the latterhas reduced its government net deficit.Hungary has gone from the 26thposition up to the 17thwith a score of 5.9. The performance is mainly relatedto the dramatic reduction of the government’s deficit, which has gone from -7.16% of national GDP down to-1.87%. A relevant improvement has also been registered under the KPI “Government Gross Debt”.The economic crisis had an impressive impact on Ireland, which went from 1stposition down to 20th: thecountry’s performance was undermined by the significant deterioration registered under the KPIs “Gov-ernment Gross Debt” and “Government Deficit/Surplus”. In fact, between 2004 and 2007 the averagebalance of the government was +1.5% while the average between 2009 and 2012 was -16.5% of theeconomy’s GDP. The deterioration of Ireland’s financial stability also had an impact on the S&P rating, whichhas gone from AAA to BBB+. A similar pattern was registered in Spain, which has gone from 5thpositiondown to 21st: the deterioration of the government’s deficit and the downgrading performed by S&P cost 16positions to the country.
  38. 38. 37EU-27CompetitivenessIndex2Figure 24. Macroeconomic Stability Current and Past Competitiveness Index – Source: The European House - Ambro-setti, 2013Ageing population had a significant impact on Lithuania’s score: due to poor performance under the KPI“Old-age Dependency Ratio”, the country has gone from 13thposition down to 23rd(10 positions).Rising inflation and the recent credit downgrade issued by Standard and Poor’s are the main reasons for Cy-prus’ poor performance: the country has lost 15 position going from 11thdown to 26thwith a final mark of 4.0.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  39. 39. 38EU-27CompetitivenessIndex22.5 Business EnvironmentThe Competitiveness Factor “Business Environment” measures the comfort of doing business in the EuropeanMember States, and more specifically:- the amount of time and money required to start a business;- the tax burden;- the business environment dynamics.Accordingly, the Competitiveness Factor “Business Environment” was analysed using the following KPIs andweights:- Time to Start a Business, days – relative weight 10%- Cost to Start a Business, percentage of Gross National Income per capita – relative weight 10%- Total Tax Rate – relative weight 35%- Time to Enforce a Contract, days – relative weight 10%- Labour Freedom Index – relative weight 35%.Figure 25. Business Environment – Time to Start a Business (days), 2012 – Source: The European House - Ambrosetti re-elaboration of World Bank data, 2013
  40. 40. 39EU-27CompetitivenessIndex2Figure 26. Business Environment – Cost to Start a Business (% of GNI per capita), 2012 – Source: The European House- Ambrosetti re-elaboration of World Bank data, 2013Figure 27. Business Environment – Total Tax Rate3, 2012 – Source: The European House - Ambrosetti re-elaboration of WorldBank data, 20133 - Total tax rate measures the amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductionsand exemptions as a share of commercial profits. Taxes withheld (such as personal income tax) or collected and remitted to tax authorities(such as value added taxes, sales taxes or goods and service taxes) are excluded (World Bank).BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  41. 41. 40EU-27CompetitivenessIndex2Figure 28. Business Environment – Time to Enforce a Contract (days), 2012 – Source: The European House - Ambrosettire-elaboration of World Bank data, 2013Figure 29. Business Environment – Labour Freedom Index4, 2013 – Source: The European House - Ambrosetti re-elabora-tion of Heritage Foundation data, 20134 - Quantitative measure that looks into various aspects of the legal and regulatory framework of a country’s labour market. Six quantitative fac-tors are equally weighted, with each counted as one-sixth of the labour freedom component: Ratio of minimum wage to the average valueadded per worker; Hindrance to hiring additional workers; Rigidity of hours; Difficulty of firing redundant employees; Legally mandated noticeperiod; Mandatory severance pay (The Heritage Foundation).
  42. 42. 41EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “Business Environment” (Figure 30) is calculated as theweighted sum of the KPIs’ scores.Figure 30. Business Environment Current Competitiveness Index – Source: The European House - Ambrosetti, 2013Denmark, with a score of 9.4, undoubtedly tops the rank: the economy excels under almost every KPI. In sec-ond place we find Ireland with a score of 8.3: the country performs very well under the KPIs “Cost of Startinga Business” and “Total Tax Rate”. Bulgaria also performs very well under these KPIs and lands in 3rdposition witha score of 7.9. The United Kingdom and Cyprus are often regarded as economies with a business friendlyenvironment, and in fact, they rank respectively 4thand 5th.After Cyprus, the economies follow closely each other: from Latvia’s 6thposition down to Spain’s 17th, scoresrange from 6.9 to 5.7. Overall, it should be noted that Eastern European and Baltic countries perform ratherwell under this competitiveness factor: the Czech Republic ranks 7th(with a score of 6.7) along with Luxem-bourg, while Slovakia, Lithuania and Romania are right after the Netherlands which is in 9thposition.Unexpectedly, Finland (16thposition), Sweden (18thposition) and Germany (20th), all fall back into the chartdue to poor performance under the KPI “Labour Freedom”.At the bottom of the chart we find France, Greece and Italy respectively in 25th, 26thand 27thposition. Allthese countries present rigid labour markets and in fact perform poorly under the KPI “Labour Freedom”, how-ever there are also individual factors which explain such scores. For instance the French economy requireslow costs to start a business but then presents a total tax rate close to 66% of business profits. Conversely,total tax rate in Greece is on the EU average, while the cost of starting a business is particularly high.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  43. 43. 42EU-27CompetitivenessIndex2The least performing country is Italy. The economy is burdened by a total tax rate of 68% on business profitsand detains Europe’s negative record for time to enforce a contract: 1,210 days.Figure 31. Business Environment Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013In the comparison with 5 years ago, Denmark and Ireland have remained stable at 1stand 2ndpositions.Bulgaria gained 2 positions thanks to a significant reduction in costs to start a business and total tax rates.By going from 14thto 7th, the Czech Republic has gained 7 positions. The result is largely explainable by thesubstantial improvement of the labour freedom index, which has gone from 66.1 to 85.5.Spain has also climbed 9 positions, landing at 17thposition with a score of 5.7: the economy has reduced itstotal tax rate from 50.2% of business profits to 38.7%. Furthermore, Spain has reduced the costs to start abusiness by 48%. Similarly, Slovenia gained 6 positions, tying in for 18thplace with Sweden which has actuallylost 6 positions.On the other hand, Estonia has fallen back by 7 positions: a 36% increase in tax rates and the increasedtime to start a business have undermined the country’s performance under this indicator.
  44. 44. 43EU-27CompetitivenessIndex22.6 Labour MarketThe Competitiveness Factor “Labour Market” is fundamental since companies demand skilled and adapt-able human capital. Labour economics seeks to understand the functioning and dynamics of the labourmarket. Moreover, labour economics studies the supply and demand of labour services, in order to predictthe resulting pattern of productivity and employment.Accordingly, the Competitiveness Factor “Labour Market” was analysed using the following KPIs and weights:- Employment Rate – relative weight 25%- Labour Productivity Index, per person employed – relative weight 35%- Unemployment Rate – relative weight 20%- Youth Participation, (employment rate for persons aged 15 to 24 years) – relative weight 20%Figure 32. Labour Market – Employment Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of Eurostatdata, 2013BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  45. 45. 44EU-27CompetitivenessIndex2Figure 33. Labour Market – Labour Productivity Index (per person employed, EU-27=100), 2011 – Source: The EuropeanHouse - Ambrosetti re-elaboration of Eurostat data, 2013Figure 34. Labour Market – Unemployment Rate, 2012 – Source: The European House - Ambrosetti re-elaboration of Eu-rostat data, 2013
  46. 46. 45EU-27CompetitivenessIndex2Figure 35. Labour Market – Youth Participation (employment rate for persons aged 15-24 years), 2011 – Source: TheEuropean House - Ambrosetti re-elaboration of Eurostat data, 2013The overall ranking of the “Labour Market” Competitiveness Factor (Figure 36) was calculated as the weight-ed sum of the KPIs’ scores.Figure 36. Labour Market Current Competitiveness Index – Source: The European House - Ambrosetti, 2013BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  47. 47. 46EU-27CompetitivenessIndex2The Netherlands are safely placed in 1stposition with a score of 8.5, thanks to a strong performance underthe KPIs “Employment” (10.0), “Unemployment” (9.5) and “Youth Participation” (10.0). Thanks to an unem-ployment rate set at 4.2%, Austria reaches the 2ndposition with a score of 8.0. Denmark follows closelythanks to a very good performance under the “Employment” KPI (9.2).The other Nordic countries also perform quite well: Sweden is 4thwith a score of 7.4 and Finland is 8thwith ascore of 6.6. Both countries present very good employment and unemployment rates and present a youthparticipation rate which is approximately 10 percentage points higher than the EU average.Germany ties in 4thposition with Sweden, thanks to an impressive employment rate: 72.5%. The Germanmodel is also particularly successful in involving younger generations into the labour market and in fact pres-ents a youth participation close to 48%.France is in 10thplace (5.6), followed by Ireland (5.2). Neither performed exceptionally in any KPIs.Italy, Poland and Portugal rank respectively 17th, 18thand 19th. Italy presents a rather low employment rate(56.9%) and youth participation in the labour market (19.4%). Poland and Portugal also present low youthparticipation rates and, in addition, perform poorly under the KPI “Labour Productivity”.The most critical aspects of the Spanish labour market today are high unemployment and low youth partici-pation. In fact, Eurostat has recently issued data which confirms the picture: Spain has the highest unemploy-ment rate in Europe (25%, even higher than in Greece) and a very low youth participation to the labourmarket. As a result, the country obtains a score of 3.1 and ranks 24th.The economic crisis had an impressive impact on Greece’s labour market and it comes to no surprise thatthe country ranks last with a score of 2.2. Indeed Greece registers poor performances in all the observedindicators.Over the past five years the Netherlands have managed to maintain the 1stposition, Austria has gained oneposition (2nd) and Denmark has lost ground, still remaining, however, at the top of the rankings.Thanks to a substantial increase of the employment rate (from 67.2% to 72.5%) and a reduction of theunemployment rate (from 8.7% down to 5.5%), Germany has gained 6 positions, jumping from 10thto 4thplace. A decline in all the KPIs, except “Labour Productivity Index”, brought Ireland down 8 positions: thecountry now stands in 11thplace. The most staggering figure about Ireland is employment rate, which hasgone from 68.7% in 2006 down to 58.9% in 2011.
  48. 48. 47EU-27CompetitivenessIndex2Figure 37. Labour Market Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013Despite the economic crisis and worsening conditions, the Italian Labour Market appears to show resilienceand has lost only 1 position. In fact, despite all structural limitations and rigidities of the Italian Labour Market,the only KPI which has registered a deterioration is “Employment”.Five years ago, Poland presented the least competitive European Labour Market. Thanks to a relative im-provement in the KPI “Unemployment Rate”, the country gained 8 positions and now ranks 19th. The samecan be said for Slovakia, which has made a significant jump of 6 positions and is now 20th.The consequences of the sovereign debt crisis had a considerable impact on Spain and Greece which havelost respectively 12 (from 12thto 24thposition) and 5 positions (from 22thto 27th). In both cases, the mainreasons of the “fall” are a substantial reduction of employment rates and a contextual increase in unemploy-ment rates.BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  49. 49. 48EU-27CompetitivenessIndex22.7 People & WellbeingBy including a set of specific drivers, the Competitiveness Factor “People & Wellbeing” addresses the ques-tion: “Why should professionals, business leaders, researchers, students and tourists choose this territory in-stead of another destination?”Accordingly, the Competitiveness Factor “People & Wellbeing” was analysed using the following KPIs andweights:- Fertility Rate – relative weight 15%- Population Aged 65 and Above – relative weight 15%- Net Migration Rate – relative weight 15%- Immigration Rate – relative weight 15%- Monetary Poverty – relative weight 7.5%- Distribution of Income, Gini Index – relative weight 7.5%- Happiness Index – relative weight 10%- Healthy Life Expectancy – relative weight 15%Figure 38. People & Wellbeing – Fertility Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of Eurostatdata, 2013
  50. 50. 49EU-27CompetitivenessIndex2Figure 39. People & Wellbeing – Population Aged 65 and Above, 2011 – Source: The European House - Ambrosetti re-elaboration of Eurostat data, 2013Figure 40. People & Wellbeing – Net Migration Rate, 2011 – Source: The European House - Ambrosetti re-elaboration ofEurostat data, 2013BRIEFECONOMICOUTLOOKBRIEFECONOMICOUTLOOK
  51. 51. 50EU-27CompetitivenessIndex2Figure 41. People & Wellbeing – Immigration Rate, 2011 – Source: The European House - Ambrosetti re-elaboration ofEurostat data, 2013Figure 42. People & Wellbeing – Monetary Poverty5, 2011 – Source: The European House - Ambrosetti re-elaboration ofEurostat data, 20135 - The at-risk-of-poverty threshold is 50% of median equivalent income.
  52. 52. 51EU-27CompetitivenessIndex2Figure 43. People & Wellbeing – Distribution of Income (Gini Index), 2009 – Source: The European House - Ambrosettire-elaboration of CIA Factbook data, 2012Figure 44. People & Wellbeing – Happiness Index6, 2012 – Source: The European House - Ambrosetti re-elaboration of TheHappy Planet Index data, 20136 - The Happiness Index reflects the average years of happy life produced by a given society, nation or group of nations, per unit of planetaryresources consumed. In other words, it represents the efficiency with which countries convert the earth’s finite resources into well-being expe-rienced by their citizens. The Global HPI incorporates three separate indicators: ecological footprint, life-satisfaction and life expectancy.BRIEFECONOMICOUTLOOK
  53. 53. 52EU-27CompetitivenessIndex2Figure 45. People & Wellbeing – Healthy Life Expectancy, 2011 – Source: The European House - Ambrosetti re-elaborationof World Life Expectancy data, 2013The “People & Wellbeing” Competitiveness Factor (Figure 46) was calculated as the weighted sum of theKPIs’ scores.Figure 46. People & Wellbeing Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
  54. 54. 53EU-27CompetitivenessIndex2Ireland is the leader of this ranking, closely followed by Sweden and France. With a score of 7.2, the UnitedKingdom ties in for 3rdplace with France. The former was the best performer in the KPIs “Happiness Index”,while the latter achieved a score of 10 in the KPI “Immigration rate”.Also the Netherlands (6.9) and Denmark (6.7) fair rather well, ranking respectively 4thand 5th. The perfor-mance of the Netherlands is mainly explainable by the high scores in the KPIs “Immigration rate” and “LifeExpectancy”, while Denmark achieved very good results under the KPIs “Monetary Poverty” and “Distributionof Income (Gini Index)”.Germany and Spain obtain identical scores (5.3) under this competitiveness factor and, in fact, they bothland in 14thposition. Germany presents one of the highest percentages of over 65 population (20.62% oftotal population) and this has substantial consequences on the economy’s final score. On the other hand,Spain would have obtained a far better score if the KPI “Net Migration Rate” would not have been so low(1.0).Ageing population is one of the most problematic aspects of the Italian economy. Indeed, the country hasa percentage of over 65 population which is only comparable to Germany’s (20.64%). Fertility rate is alsolower than the EU average (1.40 vs. 1.57). The abovementioned elements have a considerable impact onthe country’s performance: despite the high score achieved in some areas (e.g. the Happiness Index), thecountry ranks only 17th. Also Greece and the Czech Republic rank 17thdue to poor performance in the ma-jority of KPIs.The least competitive European country in terms of People & Wellbeing is Bulgaria, which performed poorlyin almost all indicators.Making a comparison with the ranking of five years ago, we notice that Ireland and Sweden have managedto maintain their respective positions in the ranking. Denmark and France have switched positions: the formernow ranks 6thwhile the latter is 3rd. Thanks to an improvement of the Gini and Happiness Indexes, the UK hasmanaged to climb 7 positions, ultimately ranking 3rdalong with France.An overall improvement of the fertility rate and of the Gini Index has moved Slovenia from 16thto 12thposi-tion. In Germany, distribution of income and citizen’s happiness has improved over the observed 5 years: asa matter of fact, Germany has gone from 18thup to 14th.Poland has lost 5 positions and went from 20thto 25th: the Gini Index of the economy has deteriorated duringthe considered 5 years. Finally, Bulgaria has lost 6 positions, going from 21stdown to 27th. The main reason ofthe downturn is the deterioration of the Gini Index, which has gone from 0,264 up to 0,3077.7  -  A higher score implies higher inequalities in income distribution
  55. 55. 54EU-27CompetitivenessIndex2Figure 47. People & Wellbeing Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
  56. 56. 55EU-27CompetitivenessIndex22.8 FinanceThe purpose of the Competitiveness Factor “Finance” is to measure the efficiency and pro-activeness of theEU financial markets, and particularly:- the dynamism of the EU’s stock markets;- the number of Corporate Finance transactions in the EU;- companies’ relationships with financial markets in the EU.Accordingly, the Competitiveness Factor “Finance” was analysed using the following KPIs and weights:- Market Capitalisation, as a percentage of Gross Domestic Product – relative weight 10%- Stock traded (Turnover Ratio), as a percentage of Gross Domestic Product – relative weight 10%- Investor Protection Index – relative weight 10%- SMEs with Financing Problems, as a percentage of total SMEs – relative weight 15%- M&A Market Activity Index – relative weight 20%- Incidence of Insurance, Pension and Investment Funds, as a percent of Total Assets of the economy– relative weight 15%- Venture Capital (Funds Raised), as a percentage of Gross Domestic Product – relative weight 20%Figure 48. Finance – Market Capitalisation (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaborationof World Bank data, 2013
  57. 57. 56EU-27CompetitivenessIndex2Figure 49. Finance – Stocks Traded, Turnover Ratio (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaboration of World Bank data, 2013Figure 50. Finance – Investor Protection Index8, 2013 – Source: The European House - Ambrosetti re-elaboration of WorldBank data, 20138 - The Index measures the strength of minority shareholder protection against misuse of corporate assets by directors for their personal gain. Theindex is composed by other 3 sub-indices: extent of disclosure, extent of director liability, ease of shareholder suits
  58. 58. 57EU-27CompetitivenessIndex2Figure 51. Finance – M&A Market Activity9, 2012 – Source: The European House - Ambrosetti re-elaboration of ThomsonFinancial data, 2013Figure 52. Finance – SMEs with Financing Problems10(%), 2011 – Source: The European House - Ambrosetti re-elabora-tion of European Commission data, 20129 - It comprises M&A Market Volume and Number of M&A deals in a country (Thomson Financial).10 - Percentage of SMEs that cited access to finance as the most pressing problem (European Commission, SMEs’ Access to Finance, Survey 2011,Analytical Report, 7 December 2011)
  59. 59. 58EU-27CompetitivenessIndex2Figure 53. Finance – Pension, Insurance and Investment Funds (% of Total Assets), 2011 – Source: The European House- Ambrosetti re-elaboration on ECB data, 2013Figure 54. Finance – Venture Capital, Funds Raised (% of GDP), 2011 - Source: The European House - Ambrosetti re-elaboration on European Commission data, 2013
  60. 60. 59EU-27CompetitivenessIndex2The overall ranking of the Competitiveness Factor “Finance” (Figure 55) was calculated as the weighted sumof the KPIs’ scores.Figure 55. Finance Current Competitiveness Index – Source: The European House - Ambrosetti, 2013The United Kingdom easily tops the rank, thanks to an outstanding performance under the KPIs “Market Capi-talization”, “Stock Traded” and “M&A Market Activity”. The Nordic countries also perform rather well: Swedenis 2ndwith a score of 7.7 while Denmark and Finland tie in for 4thposition with a score of 5.9. The volume ofventure capital funds is quite impressive in all these countries and, in fact, SMEs find it comparatively lessdifficult to access funding.France, Belgium, Luxembourg, Germany, Ireland and Spain rank from 6thto 10thposition. The five countries’scores fall within a small range (from 5.7 to 5.2).Spain follows closely in 11thposition with a score of 4.8: the country performs well on the KPI “Stock traded”,however low levels of investor protection and considerable problems in access to funding penalise consider-ably the economy. To this end, it is interesting to see the correlation between SMEs problems in access tofunding and venture capital market development. With a low to average performance under every KPI, Italyties in for 14thposition with Poland.Eastern European countries are located in the lowest portion of the ranking: Hungary ranks 18th, the CzechRepublic is 19th, Romania is 20th, Bulgaria 21stand Slovakia is at the bottom of the chart. In fact, all thesecountries are substantially penalised by the fact that they do not have sufficiently developed stock andventure capital markets.
  61. 61. 60EU-27CompetitivenessIndex2The Baltic countries fair rather poorly under this competitiveness factor: the clearest example is Estonia whichranks last with very low scores under every KPIs.Making a comparison with the data from five years ago, it is possible to observe that the United Kingdomhas managed to preserve its leadership, remaining stable in 1stplace with a substantial distance from itscompetitors. Sweden has also kept its 2ndplace, as its performance has remained stable throughout the fiveyears. However the Netherlands have taken Finland’s 3rdplace, thus gaining 1 position. In general, the chartwas subject to few relevant changes during the considered time period: major variations regard Hungaryand Portugal. Portugal has lost 4 positions due to a significant deterioration of the performance under theKPI “Venture Capital” and an overall worsening of stock market’s conditions, ultimately landing in 17thposi-tion. Conversely, Hungary has arrived in 18thposition, thanks to an improvement of the KPI related to venturecapital.The last 3 positions of the chart remained relatively stable: if Slovenia, Slovakia and Estonia faired ratherpoorly five years earlier, the same could be said today.Figure 56. Finance Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
  62. 62. 61EU-27CompetitivenessIndex22.9 Public SectorThe Competitiveness Factor “Public Sector” measures the quality and efficiency of public institutions. Thecompetitiveness of a country cannot ignore the quality of its public institutions: their proper functioning hasstrong social and economic implications.Accordingly, the Competitiveness Factor “Public Sector” was constructed using the following KPIs and weights:- Share of Enterprises Interacting Online with Public Authorities (% of total) – relative weight 20%- Government Effectiveness Index – relative weight 20%- Regulatory Quality Index – relative weight 20%- Cost Effectiveness of Public Servants (GDP on Public Servants ratio multiplied for the Government Ef-fectiveness coefficient) – relative weight 20%- Share of unspent EU Structural Funds, % of Total Allocation for the Period 2007-2013 – relative weight20%Figure 57. Public Sector – Share of enterprises interacting online with public authorities (% of total), 2011 – Source: TheEuropean House - Ambrosetti re-elaboration on Eurostat data, 2013
  63. 63. 62EU-27CompetitivenessIndex2Figure 58. Public Sector – Government Effectiveness Index11, 2011 – Source: The European House - Ambrosetti re-elabo-ration of World Bank data, 2013Figure 59. Public Sector – Regulatory Quality Index12, 2011 – Source: The European House - Ambrosetti re-elaboration ofWorld Bank data, 201311 - The Government Effectiveness Index reflects perceptions of the quality of public services, the quality of the civil service and the degree ofits independence from political pressures, the quality of policy formulation and implementation as well as the credibility of the government’scommitment to such policies (World Bank).12 - The Regulatory Quality Index reflects perceptions of the ability of the government to formulate and implement sound policies and regulationswhich enable and foster private sector development (European Commission).
  64. 64. 63EU-27CompetitivenessIndex2Figure 60. Public Sector – Cost Efficiency of Public Servants (GDP on Public Servants ratio multiplied for the GovernmentEffectiveness coefficient13), 2011 – Source: The European House - Ambrosetti re-elaboration on Eurostat and World Bankdata, 2013Figure 61. Public Sector – Share of unspent EU Structural Funds (% of Total Allocation for the period 2007-2013), 2011– Source: The European House - Ambrosetti re-elaboration of European Commission data, 201313 - The ratio serves as a proxy of efficiency in the public sector. The higher the ratio, the higher the efficiency (as the numerator is less affected bythe denominator). The ratio has been then multiplied for a coefficient that takes into account the government effectiveness index developedby the World Bank.
  65. 65. 64EU-27CompetitivenessIndex2The overall ranking of the “Public Sector” Competitiveness Factor (Figure 62) was calculated as the weightedsum of the KPIs’ scores.Figure 62. Public Sector Current Competiveness Index – Source: The European House - Ambrosetti, 2013Luxembourg is firmly in first place with a score of 8.7. The Nordic countries follow closely with excellent perfor-mances: Finland is 2ndwith a score of 8.4, Sweden is 3rdwith a score of 8.3 and Denmark is 4thwith a scoreof 8.1. Danish and Finnish citizens perceive their governments as particularly effective, while Sweden achievesexcellent performance in the financial execution of Structural Funds.Ireland is in 5thplace just after the Netherlands. Ireland is often regarded as a successful case of StructuralFunds implementation: by the end of 2011, the country has managed to effectively spend 53% of its avail-able budget against the EU average of 40%. It comes to no surprise that Ireland obtains the maximumscore under the KPI “Share of unspent EU Structural Funds”.Thanks to a good performance under the KPIs “Government Effectiveness” and “Share of Enterprises Inter-acting Online with Public Authorities”, Austria lands in 7thposition with a score 7.3. The United Kingdom alsoperforms rather well in almost every indicator, ranking 8thwith a score of 7.2.Germany (6.7), France (6.1) and Spain (5.4) occupy the 9th, 13thand 16thpositions. The regulatory environ-ment and cost efficiency of public servants penalises Spain in its final score.Greece and Italy rank respectively 24thand 25th: both countries suffer from poor performance under the KPIs“Government Effectiveness Index” and “Regulatory Quality Index”. Italy’s position is even more aggravatedby the historical issue of Structural Funds implementation (especially in Southern Italy): at the end of 2011,the country has managed to spend 27% of the allocated funds against an EU average of 40%. The least
  66. 66. 65EU-27CompetitivenessIndex2competitive European country regarding the Public Sector is Romania. The country performed poorly in al-most all indicators.Making a comparison with the data from five years ago we notice that there has been an interesting switchof positions between Luxembourg and Ireland: Luxembourg indeed has climbed 4 positions landing in 1stplace, whereas Ireland has gone from 1stposition down to 5th. In fact, while Luxembourg has significantlyaccelerated Structural Fund’s implementation, the “Regulatory Quality Index” of Ireland has sensibly deterio-rated.Finland remained stable in 2ndposition, while Sweden has managed to climb 3 positions, ultimately landingin 3rdplace.Figure 63. Public Sector Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013Austria has lost 4 positions, due to a significant deterioration of the “Regulatory Quality Index”: this being saidthe country still ranks 7th, with a satisfying score of 7.3.Thanks to performance improvements related to almost every KPI, Lithuania has gone from 18thto 14thposi-tion, right after France (13thposition).
  67. 67. 66EU-27CompetitivenessIndex2The Czech Republic has sensibly worsened its position within the chart, going from 13thdown to 19thposi-tion. Poland, which has actually improved its position by 5 places, also ties in for 19thposition: the outcome isdue to a considerable improvement of the “Government Effectiveness Index” and the financial execution ofStructural Funds. On the other hand, a sensible deterioration of the “Regulatory Quality Index” has caused animpressive deterioration of Greece’s position, which has gone from 16thto 24thplace. Bulgaria and Romaniahave remained stable in 26thand 27thposition.2.10 EnvironmentThe Competitiveness Factor “Environment” is fundamental since environmental policies have a direct impacton the global competitive arena. Environment protection should be a key competitive issue for all players,but unfortunately, it is often ignored by many countries. Nevertheless, the Observatory on Europe believesthat it is important to praise environmentally friendly behaviours since they are essential to sustainable de-velopment for future generations.Accordingly, the Competitiveness Factor “Environment” was analysed using the following KPIs and weights:- Treatment of Waste, tonnes per inhabitant – relative weight 15%- Ecological Footprint, global hectares per capita – relative weight 15%- Air Pollution, Kg per inhabitant – relative weight 15%- Forest Area, as percentage of total land area – relative weight 15%- Electricity from renewable sources, as percentage of total energy – relative weight 20%- Greenhouse Gas, indexed to Kyoto base year – relative weight 20%Figure 64. Environment – Treatment on Waste (tonnes per inhabitant), 2010 – Source: The European House - Ambro-setti re-elaboration of Eurostat data, 2013
  68. 68. 67EU-27CompetitivenessIndex2Figure 65. Environment – Ecological Footprint14(global hectares per capita), 2012 – Source: The European House - Am-brosetti re-elaboration of NFA data, Global Footprint Network, 2013Figure 66. Environment – Air Pollution (Kg per inhabitant), 2010 – Source: The European House - Ambrosetti re-elaborationof Eurostat data, 201314 - The ecological footprint is a measure of human demand on the Earth’s ecosystems. It is a standardized measure of demand for natural capitalthat may be contrasted with the planet’s ecological capacity to regenerate. It represents the amount of biologically productive land and seaarea necessary to supply the resources a human population consumes, and to assimilate associated waste (Global Footprint Network).
  69. 69. 68EU-27CompetitivenessIndex2Figure 67. Environment – Forest Area (% of total land area), 2010 – Source: The European House - Ambrosetti re-elab-oration of World Bank data, 2013Figure 68. Environment – Electricity from renewable sources (% of total energy), 2011 – Source: The European House -Ambrosetti re-elaboration of Eurostat data, 2013
  70. 70. 69EU-27CompetitivenessIndex2Figure 69. Environment – Greenhouse Gas (indexed to Kyoto Base year), 2010 – Source: The European House - Ambro-setti re-elaboration of Eurostat data, 2013The overall ranking of the “Environment” Factor (Figure 70) was calculated as the weighted sum of the KPIs’scores.Figure 70. Environment Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
  71. 71. 70EU-27CompetitivenessIndex2Latvia tops the chart with a score of 7.3, thanks to an excellent performance in the KPIs “Air Pollution” (10.0),“Ecological Footprint” (8.2) and “Greenhouse gas” (9.4). On the other hand, Sweden – which is in 2ndplace– achieved outstanding performances under the KPIs “Air pollution” (9.7), “Forest Areas” (9.4) and, most im-portantly, “Electricity from Renewable Sources” (10.0).Thanks to extensive forest areas, intense resorting to waste treatment and low air pollution, Finland achieveda score of 6.3 thus reaching the 4thplace.Austria’s electricity provision relies for more than 55% on renewable sources and the air pollution in thecountry is among the lowest in the EU: thus, the economy ranks 5th.From Lithuania’s 7thplace (with a score of 5.8) down to Italy’s 15th(with a score of 5.1), country scores followclosely each other. With some few exceptions, all these countries are rather penalised by low resorting towaste treatment and low reliance on renewable sources for electricity generation. France ranks only 17thdueto poor performance under the KPIs “Waste Treatment” (2.7) and “Electricity from Renewable sources” (3.0).The United Kingdom and Spain follow closely each other and rank respectively 19thand 20th: the formereconomy’s score is affected by low amounts of forest areas and renewable energy production, while thelatter fairs poorly due to the increase in greenhouse gas emissions (from Kyoto base year 2005).In the last 3 positions we find Ireland (25th), Malta (26th) and Cyprus (27th): all these countries perform ratherpoorly in every indicator of the competitiveness factor.Comparing the findings with the ranking from five years ago, we notice that Sweden now shares the firstposition along with Latvia, which has climbed one position thanks to a sensible improvement of its ecologi-cal footprint. On the other hand Romania has lost one position and has landed in third position due to areduction of available forest areas.Lithuania, Estonia and Portugal have all gained 3 positions during the time lapse considered: the Baltic coun-tries owe their positions to an improvement of their ecological footprint, while Portugal has gone from 16thto13thposition thanks to higher resorting to renewable sources for electricity generation.Conversely Slovakia, France and the Netherlands have all lost 3 positions: the performance of the KPI “ForestAreas” has deteriorated in all these countries.The last 3 positions were subject to marginal changes: Malta and Cyprus remained stable in 26thand 27thplace, while Ireland has lost 1 position and ended up 25th.
  72. 72. 71EU-27CompetitivenessIndex2Figure 71. Environment Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 20132.11 NetworksNetworks are certainly a Competitive Factor for fostering economic and social growth. Global economiesindeed need networks that allow efficient exchange of goods and services, not to mention the fact thatenergy costs are rising sharply. These crucial problems, which noticeably affect the competitiveness of mostcountries, are all somehow related to the potential weaknesses of the network system.The Observatory on Europe decided to analyse the “Networks” Competitive Factor, as it believes they arepivotal to the functioning of the EU internal market as well as to linking the EU system to the rest of the world.Accordingly, the Competitiveness Factor “Networks” was analysed using the following KPIs and weights:- Energy Dependency, as a percentage of net imports on inland consumption – relative weight 20%- Energy Price for Industrial Consumers, Euro per Kilowatt hour – relative weight 20%- Broadband Penetration, per 100 inhabitants – relative weight 30%- Road, Rail, Navigable Waterways, Km per inhabitant – relative weight 30%
  73. 73. 72EU-27CompetitivenessIndex2Figure 72. Networks – Energy Dependency (% of net imports on inland consumption), 2011 – Source: The EuropeanHouse - Ambrosetti re-elaboration of Eurostat data, 2013Figure 73. Energy Price for Industrial Consumers (Euro/kWh), 2012 – Source: The European House - Ambrosetti re-elabo-ration of Eurostat data, 2013
  74. 74. 73EU-27CompetitivenessIndex2Figure 74. Broadband Penetration (per 100 Inhabitants), 2011 – Source: The European House - Ambrosetti re-elaborationof Eurostat data, 2013Figure 75. Networks – Roads, Rails, Navigable Waterways (Km per 100 Inhabitants), 2010 – Source: The European House- Ambrosetti re-elaboration of CIA Factbook data, 2012
  75. 75. 74EU-27CompetitivenessIndex2The overall ranking of the “Networks” Competitiveness Factor (Figure 76) was calculated as the weightedsum of the KPIs’ scores.Figure 76. Networks Current Competitiveness Index – Source: The European House - Ambrosetti, 2013Sweden and Denmark top the chart with scores of 8.3 and 7.5. More specifically, Sweden achieved a scoreof 10 in the KPI “Roads, Rails, Navigable Waterways” while Denmark reached an impressive 10 for the “En-ergy Dependency” index. Denmark shares its 2ndplace with Estonia, whose score under the KPI “Price forIndustrial Consumers” was 10.France and Finland place 5thand 6th, respectively, thanks to a satisfying performance in the KPI “Energy Pricefor Industrial Consumers”.The UK achieved a score of 5.3 reaching 7thplace thanks to low energy prices (for industrial consumers) andhigh broadband penetration. For the same reasons, Germany also ties in for 7thposition. In general, it shouldbe noted that from Finland’s (score 5.8) 6thplace down to Latvia’s (5.1) 11th, score differentials are quite small:with the exception of Slovenia and Latvia all the countries comprehend within this interval excel in the KPIs“Energy Price for Industrial Consumers” and “Broadband penetration”.Both Poland and Spain rank 17th: the two countries share a rather weak physical infrastructure but achievehigh scores in the KPI “Energy Price for Industrial Consumers”. More specifically, Spain presents a higher de-gree of broadband penetration while Poland a lower energy dependency.
  76. 76. 75EU-27CompetitivenessIndex2Greece suffered from poor physical and broadband infrastructures, which contributed greatly to the lowranking (21stplace).In 23rdplace we find both Italy and Portugal: the countries perform rather poorly in every indicator. Morein detail, however, the former presents a slightly higher degree of broadband penetration while the latterpresents a lower energy dependency ratio.At the bottom of the chart we find Malta (25thplace), Slovakia (26thplace) and Cyprus (27thplace). Slova-kia’s score is undermined by the low performance under the KPIs “Roads, Rail, Navigable Waterways” and“Broadband penetration”. Undoubtedly geography constitutes a factor of disadvantage for Cyprus andMalta: the two islands have a very high energy dependency and are forced to charge comparatively higherenergy prices for the industrial sector.Comparing these findings with the data from five years ago, we observe that the first 3 positions have re-mained stable: Sweden, Estonia and Denmark are exactly where they were 5 years earlier.Figure 77. Networks Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
  77. 77. 76EU-27CompetitivenessIndex2The impressive improvement under the KPI “Energy dependency” has allowed the Netherlands to jump 3positions and land 4th, right after Denmark. The same finding applies to the UK which has climbed 4 posi-tions, thus reaching the 7thplace. Germany has sensibly reduced its energy dependency and improved itsbroadband penetration (which has improved by 150%): these two improvements have induced Germanyto climb 11 positions of the ranking, from 18thto 7th.Even Luxembourg has climbed 7 positions by reducing its energy dependency ratio: the country has gonefrom 19thto 12thposition. Austria and Poland did not significantly worsen their performances, however, by notimproving their infrastructures they have both lost 4 positions ending respectively from 11thto 15thpositionand from 13thto 17th.The significant increase of energy dependency and the resulting increase in energy prices (107% in fiveyears) are behind Lithuania’s fall in the ranking: the country has lost 8 positions, going from 8thto 16th.With the exception of Malta, which has dropped 3 positions (due to rising energy prices), the last placeshave remained relatively stable during the considered time period: Slovakia and Cyprus did not improvetheir positions by any means.2.12 The EU-27 Competitiveness Index final rankingThe EU-27 Competitiveness Index (Figure 78) was calculated as the weighted sum of the Competitive Fac-tors’ scores.On a final analysis, the Competitiveness Index shows just how much EU economies differ from one another.Luxembourg, having obtained the highest score in the Competitiveness Factors “External Openness”, “Mac-roeconomic Stability” and “Public Sector”, is 1stin the standings with a score of 7.07. Despite the excellentscore, it is necessary to operate some caution with this benchmark: Luxembourg constitutes an outlier, as itseconomy is very small compared to others. In other words, the country’s economic structure is completelydifferent from almost all of the other European countries and may not be comparable.The real best performers are the Scandinavian countries: Sweden, Denmark and Finland are respectively in2nd, 3rdand 4thplace. These countries have excelled in 8 out of 10 Competitiveness Factors15. Their impressiveresults show that their government model is to be considered a best practice.The Netherlands have also done rather well: ranking 5thwith a score of 6.43. The economy appears to havethe most competitive labour market and claimed relevant positions in many other competitiveness factorssuch as “Innovation & Education”, “People & Wellbeing”, “Finance”, “Public Sector” and “Networks”. In variousoccasions, the country was never too far off from the 1stof each competitiveness factor.The United Kingdom also maintains a good ranking: with a score of 6.18, it ranks 6thin the standings. Thegood result is mainly due to an excellent performance in the Competitive Factor “Finance”, where the UnitedKingdom was the leader.15 - Innovation & Education, Macroeconomic Stability, Business Environment, Labour Market, People & Wellbeing, Finance, Public Sector and Net-works.
  78. 78. 77EU-27CompetitivenessIndex2Figure 78. EU-27 Current Competitiveness Index – Source: The European House - Ambrosetti, 2013Core economies of the EU, such as Germany and France have not excelled in any of the foreseen Competi-tiveness Factors, however their balanced performances guaranteed respectable scores: reaching respec-tively 9thand 11thplace in the final ranking. A similar situation was registered in Austria, which was never faroff from the 15thposition in the rankings of the competitiveness factors. The economy ranks 10thin the finalrankings.The results for Spain are more disappointing: with a score of 4.39, it ranks 20th. The lack of external open-ness, macroeconomic stability and a labour market which is considerably under pressure, have significantlypenalised the economy.The last three positions in the ranking are occupied by Italy, Romania and Greece, which were often at thebottom of the rankings of the single Competitiveness Factors. Despite the apparent recovery of the Greekeconomy, it is still too early to appreciate any improvement in the structural factors: Greece ranks still at the27th.Making a comparison with the ranking of five years ago (Figure 79), we immediately notice that there havebeen some changes in the first positions of the ranking: Luxembourg has climbed two places, topping thefinal chart. On the other hand Sweden and Denmark have given up one position each, ending respectively2ndand 3rd.
  79. 79. 78EU-27CompetitivenessIndex2Figure 79. EU-27 Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013Thanks to significant improvements of its labour market and macroeconomic stability, Germany has climbedthree positions, finally entering in the EU’s top ten (at 9thplace). Slovenia has also managed to jump from 17thposition to 13th, thanks to a substantial improvement of its business environment and to a more consistentinvestment in Innovation and Education.The greatest improvement in the ranking has been made by Hungary, which has gone from 23rdpositionall the way up to 17th. Indeed the country has improved many of its Competitiveness Factors and the mostimportant are undoubtedly: “Macroeconomic Stability” (from a score of 3.5 to 6.9), “Networks” (from a scoreof 3.6 to 4.7), “Public Sector” (from a score of 4.0 to 4.9), “Finance” (from a score of 2.8 to 3.6) and “BusinessEnvironment” (from a score of 5.3 to 6.1).On the other hand, the most noticeable “fall” in the ranking is, unsurprisingly, Cyprus: despite an average per-formance in most of the observed factors, the strong deterioration of the country’s macroeconomic stability(from 6.6 down to 4.0) and external openness (from 4.9 down to 3.9) has pushed the island further down inchart. As a matter of fact, Cyprus has lost 5 positions, going from 11thdown to 16th.
  80. 80. 79EU-27CompetitivenessIndex2Understandably, Spain and Portugal were seriously affected by the events of the current crisis: scores relatedto “Macroeconomic Stability” and “Labour Market” have seen a substantial deterioration during the consid-ered time period. As a result, Spain has gone from 16thplace down to 20th, while Portugal has gone from21stto 23rdposition.The last four positions in the ranking have remained stable throughout time: Bulgaria, Italy, Romania andGreece have hardly improved their performances under any competitiveness factor.Figure 80. GDP per Capita and Current Competitiveness Level Correlation – Source: The European House - Ambrosetti,2013The Competitiveness Index final ranking seems to accurately represent the current economic situation ofthe European countries. In fact, as shown in Figure 80, making a comparison with GDP per capita a highcorrelation can be seen16.16 - Luxembourg and Greece were excluded from the comparison because they can be considered outliers: Luxembourg is difficult to compare tothe other countries because it is so small and Greece had an extremely negative performance, which was heavily influenced by the impend-ing risk of default.
  81. 81. 80EU-27CompetitivenessIndex2

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