Benoît Cœuré, the outgoing European Central Bank Executive Board Member – and an individual some thought was the best person to lead ECB before Christine Lagarde was selected, has delivered an interesting speech in Brussels lambasting the state of the European Union and the lack of progress when it comes to the single market.
The presentation entitled “The single currency: an unfinished agenda,” points a stern finger at Europe’s inability to deliver on a vision of a unified economy, one where innovation and entrepreneurship blooms and the population prospers.
Cœuré blames the “absence of a Schumpeterian process of creative destruction [that] weighs on innovation and growth.” Risk-taking entrepreneurs are key to building an innovation-driven economy.
He notes that not a single Euro area country is in the top 30 of countries where it is easy to business:
“A consequence of a less business-friendly environment is that business dynamism in Europe is weak. Compared with the United States, European countries have, on average, larger shares of “static” firms and smaller shares of both growing and shrinking firms.”
Entrepreneurship and creativity are hampered by the “misallocation of resources” in the Euro area. Additionally, convoluted regulations and systemic hurdles further impede the flow of capital.
“Empirical evidence shows that an increasing proportion of capital is concentrated in firms that are less productive. In Italy and Spain misallocation is currently higher than at any point in time before the crisis,” says Cœuré… “There is overwhelming evidence that new firms are more likely to adopt new technologies. There is a significant link between business entry rates, technology creation and diffusion, and productivity growth. New and young firms also contribute disproportionally to job creation relative to their share in employment.”
So what clearly needs to be done to “unclog” innovation channels?
Cœuré bullets it out:
- Efficient allocation of resources
- Completing the Single Market
- Launching a capital markets union
In Cœuré’s opinion, these are the specific policy areas that require immediate attention. But can Brussels get the work done?
The vision of Europe has always been a grand one, but in reality, the single market concept has suffered from national fragmentation and parochial politics. Cœuré’s testament is absolutely spot on. His vision is clear and the goal is simple but politics tend to muck things up.
Cœuré’s speech may be the best outline of Europe’s inability to accomplish its goals and the underlying cause. All of Europe suffers because of it.
Perhaps the ECB ended up with the wrong President? Schumpeter would be proud.
You may download a copy of the speech here.