The EU's medium-term competitiveness goals and the Central European countries

English2020. jan. 4.Zsolt Becsey

Recently, several analyzes have been published on how the EU Member States are  performing in those sustainability indicators and programs, which have been defined in order to ensure the smooth functioning of the internal market and implement key objectives and to appreciate, praise or send critics to Member States. (Specific penalties have not been typical so far.)

Among these I would mention the EU 2020 program launched in 2010 where objectives were set out in  five areas  and towards the final date, overall and per Member State evaluation is due to be performed.

But building on this and preventing it, we cannot ignore that as one of the last acts of the European Commission left office at the end of November is the release of  a macroeconomic review report on the discipline of its Member States, which is barely in mid-November followed  the usual semi-annual economic forecast. As these programs are also closely linked to sustainability in different pillars, some findings in a brief analysis is worth doing, as the new European Commission is imminent to step up with new ideas. Let us start with the financial sustainability.

Perhaps the first source of satisfaction on the continent is that no EU member state is under official excessive deficit procedure (EDP) by the European Commission. It is true that already in 2013, Hungary came out of this negative category and became not much later a country recommended for investment by the big credit rating institutes, but -for example -France has just long  been in this position, and  the Spaniards for a long time played with the 3% threshold.

Nowadays the list of the bad guys and the list of the undisciplined Member States begins with Romania,

where all kinds of  calculations have challenged the equilibrium indices, be it general government deficit or current account, structural deficit (ie. deficit relative to potential GDP and not to actual GDP ratio).

That is why the new national liberal government in Bucharest is awaited by major corrective measures. Especially if we know that Romania wants by 2024 to become a member of the Euro-zone. By another judging category, but the Hungarian government is also expected to make adjustments, especially  on the high structural deficit. However, Commission is satisfied with the Greek government performance so far, since the budget balance here is positive and Athens has started slow economic growth that can be sustained by the coupled external balance. At the same time, Europe does not seem to really know what to do with the Italian crisis. Rome is in a stagnant position, neither forwards nor backwards.

I wouldn't be surprised if with the seven-year budget debate for the first time in recent decades other countries would help them, for example, by creating from Italy a net beneficiary Member State  which for decades has not been the case.

At the same time, little attention is paid to the fact that through the EU Member States’ discipline EU states reduced their debt-to-GDP ratio. The ratio is noticeably decreasing every year, reaching below 80% again this year. If we compare this to the US ,with  more than 100% and also with a rising index (not to mention the same  number above 200 % in Japan), the success of this  consolidation phase even with  the relatively slow growth rate in the EU , is evident.

That may soon bear fruits because of the higher economic growth rate in the future and through better performance  in the field of the big EU  structural goals, as the EU 2020 program indicators are additionally getting  stronger budget support. In this situation, our country is not performing badly, in addition to the high growth rate, the government debt ratio also continues to decrease. Although the deficit ,mainly  its structural dimension,  due to external factors, is significant, and there are still risks in the event of a potential crisis, but that is already diminishing government debt, and in a few years we can go down  under the 60% of  the so-called Maastricht criteria, as it was in the early 2000s. Maybe by then we have more reserves for an external slowdown or stagnation to counterbalance.

If we look at the sustainability aspects of public finances, then the same is true for other strategic aspects of the  EU competitiveness goals, which the so-called EU 2020 Strategy contain, adopted at the summit in summer 2010. This is a much more viable strategy than the  2000-2010 so-called Lisbon Strategy, with the same  set of objectives established for all Member States.. That is why the Lisbon Strategy wanted to see R&D at 3%/ GDP in each Member State’s expenditure regardless the economy is advanced and even if it is underdeveloped or is still adopting technology through incoming FDI. The same is the idea of full employment, which is moreover difficult to define, just as the goal, that the EU needs to be the most competitive region in the world.

The latter is difficult to grasp because the Swiss institutes (WEF or IMD) very much rely on subjective criteria against the relatively objective ones.

(Moreover several institutes in Hungary have shown that it is much better for our country to be ranked only by objective metrics). That's why in the meantime - and especially after the 2008 crisis – it was noticeable the failure of the initiative, which was emerging particularly quickly from the crisis .

A more profound initiative was the Europe 2020 target, where overall, EU has  set ambitious, but perhaps already realistic targets. Within this, there was a bargain with Member States about who and under what capabilities it can assist the general goal with national efforts by 2020. Thus, not all Member States have defined as an impossible target to spend 3% of GDP on R&D, and that mainly not that two thirds of this will come from business.

The goal for  employment, is in average 75% (for 20 to 64 year old generation) . After all, the Southern states -because of their own capabilities- can give quite different (worse) numbers – especially when we look at youth unemployment - then the Nordic members. The foggy field, however, in the realm of goals ,is the total number of 20 million people, whom we are lifting out of poverty in the EU. (Who's poor here and there? EU Commission states, that  there are  about 110 million people in this categorisation, which is in my view  the Commission and consequently the Council wanted to be more than just black and white, quantifiable targets, but this serious ambition they set themselves in the social sphere was a gesture for the European Left. In this area we have succeeded in showing the slightest progress.)

The seven-year budget debate, which is about to begin in early 2020, is almost certain to bring a “Europe 2030”  (whatever name it will have ) competitiveness and sustainability strategy, in the meantime the targets of the Paris climate summit and the UN  goals for 2030 will  have been to be achieved. They are binding on the Union, indeed, Brussels itself has set ambitious goals, including: carbon neutrality for 2050, which in itself assumes further stringent objectives and adherence to it by Member States, and should be accompanied by real financial sanctions.

The Commission recently reviewed the status of the  common and individual ( Member State level) 2020 targets.

They  found that in three of the five large target areas (employment, climate goals+energy efficiency and education) there are progress, but in the other two -research+ development and social cohesion - we didn't really work out  progress.

Over 110 million people continue to live in poverty- their number have fallen by just a few million over the last decade.

We spent at EU level only 2%/ GDP in 2017 on research and development to maintain our competitiveness at the developed world level .Few member states –it is  true for the Scandinavian states and for some in the West-  brought it in the core, and many people think that's the point for every state.

In energy field targets, both the proportion of renewables in the energy mix and for greenhouse gases we did well, although in the field of energy efficiency, we could not achieve as hoped consumption reduction in absolute terms. In today's European mood it is perhaps not an irrelevant aspect to see the human conditions performance - employment rate, early school leaving, poverty - immigrants from outside the EU are still below average. This really poses a challenge to the Union's immigration policy appreciation, as it is often noted in the East, where in addition to the hunger for new workforce, in all fields -including  crime -  it influences the  comfort of the society.

How do the new member states, including Hungary, perform in this issue? Most of the goals we set out are well different. This usually means lower targets than for Western Member States.

A good example of this is R&D commitment and the result. Hungary has committed in 2010 to spend 1.8% of its GDP by 2020, but in 2017 we achieved 1.35%, not just two-thirds of it, but much of it spent by the state.

If we watch Hungary’s ratio of the  renewable sources within the energy mix of the assumed 13.3% , that's still below the current EU average of 17.5%. Plus, it's surprising ,not only Austria achieved one-third of the renewable share in its energy consumption ,but also some Baltic or Southern peripheral countries. Here the Visegrád countries are  even further back. The same peripheral situation can be observed in the proportion of graduates among the related populations.

The Baltics or Slovenians are even at European level, they bring in near-EU-average numbers, while the Visegrád countries and Hungarians lower. Our country has ,however, achieved a good result in tertiary education graduates compared to the goals they have undertaken - even if regionally behind the Baltics - and  Hungary is relatively weak even in Visegrád mirror in accomplished early school leaving, but  Hungary brought below the agreed ratio the number of poor people  according to his own statistics.

In the case of Central European countries we can state that economically the more advanced a state is, the easier it is to fulfil the quality numbers and the more lagging in development indicator - especially in Romania - the harder the quality catching up.

But it would be very wrong to say that first  the catching-up numbers have to be solved compared to the GDP level parallel with the increasing employment, and then we can deal with the so-called quality catching up. This could lead to a situation like ten years ago for the Greeks (next can be Romania), where the quantitative catching up had to be cut back to the quality advancement level.

The writer was state secretary for foreign economy.