Before we focus China and the US as threats to European growth, we should consider how firms’ capital, labour and technology are distributed in Europe.
Capital has long been more mobile than labour and technology. Whereas a Banking Union is seen as primordial, the coordination of social security systems enabling cross-country mobility and wage adjustment still restrains mobility.
European citizens may receive unemployment benefits in a different Member-State for up to three months (even if their home country pays for a different duration); yet only 5% to 43% of those unemployed find a job in a Member-State in three months. This transition rate implies a probability of finding a job between 40% (Denmark) and 7% (Greece). In Czechia, where 5.2% of job vacancies were unfilled in Q4 2018 there’s a 32% probability of finding a job within 3 months.
Whereas collective action clauses were promptly imposed on sovereign debt issued by European Member-States, intellectual property rights are not protected by a single EU patent across the European Union.
Even the European Budget is biased against intellectual property, attributing technology grants only to those most able.
That is precisely the problem with BDI’s plan to create European firms that dominate a segment of the European market: it’s not necessarily a European juggernaut, it is a juggernaut from Europe.
Preventing industrial concentration is at the crux of social market economy and underpins the European Union’s Single Market.
To ensure fair competition, consumer welfare and price competitiveness while diluting competition rules the European Commission must ensure wage competitiveness is in equal standing with capital competitiveness (it could do so by demanding longer unemployment benefit exportability and actively encouraging relocation, by reshaping the posted workers directive to ensure social security and income tax exemptions match at 24 months of posting, so as not to suppress comparative advantage). The Commission should also review State Aid rules to prevent such juggernauts from recurrently emerging in wealthier Member-States or that at least ensure that debt originated in this process is added to public debt according to Maastricht.
Figure 1: correlation between consolidated debt and household wealth
Finally, the Commission should restrict exceptions to competition rules to European juggernauts when 75% of value added is produced in at least three Member-States other than that of ownership to prevent capital concentration and worsening inequality between Member-States.
No such firm exists in Europe – yet.
EUnomics 