Ideas Economic recovery

Looking within as a growth model for Europe

The EU is the world’s largest and most elaborate internal market. If it is to survive, it has to look within to see its potential as a driving force to trigger growth, writes Italian economist Innocenzo Cipolletta.

Published on 13 March 2015 at 08:41

[The] model of economic growth driven by exports was predominant during the entire post-war period of reconstruction in the countries of Western Europe and was then extended to the Eastern European countries after the fall of the Berlin wall.

And it could not have been otherwise, since every single European country was too small to have an internal market capable of driving its own recovery, which meant that every national effort was devoted, for more than fifty years, to making exports grow.

This model of growth lasted for a long time and is still ingrained in European memory, behaviour and mentality, to the point where a great part of the system of economic policies in Europe is still based on it, that is to say, on measures that favour competition and, consequently, exports.

When Europe enacted the project of the internal Single Market and of the Euro, one of the goals was precisely to transform an area of economic growth where the countries were driven by exports into an area with a significant internal demand that would be relatively indifferent to the fluctuations in the exchange rates of its currency.

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However, [[the logic that presided over the establishment of the EU merely replicated the export-led national models on a continental scale]].

The engine and fuel

Europe cannot follow a model of export-led growth, even if the individual European countries have lived so far according to this model. The establishment of an internal market and the adoption of a single currency imply a transition towards a Europe that has in its internal demand the engine and fuel for its growth.

An intelligent regulation, aimed at improving the quality of life and designed for the future of our generations, may be an important growth factor in our economies.

By means of an example, the regulations for containing the atmospheric emissions shall not only pursue a goal of pollution reduction, but also support the research of new solutions and new technologies that may bring about substantial changes in the processes of consumption and production, resulting in changes and replacements for many products and services. These solutions can be the mainstay of European internal demand.

Advanced countries, such as those in Europe, will not grow in the future because they will need greater consumption, more housing as well as more infrastructure. Rather, they will grow insofar as they will replace goods, houses, services and infrastructure with others of superior quality and level, thanks to technological innovation.

Production environments

This does not mean giving up exports and competitiveness. On the contrary: it means moving upwards in the spectrum of production, opening up new fields of research and developing new living demands that will then be exported in the other countries and geographical areas.

Further, such focus on internal growth is necessary also to keep our export businesses growing. In fact, if we want to give continuity to the development process and sustainable competitiveness, the production structure must be solid in all its parts.

A country’s export capacity lies not only on the costs and quality of the products of the exporting businesses, but also and most of all on the surrounding production environment that provides them with the necessary parts, services, professionalism, knowledge and so forth.

[[Policies that only favour exports would end up drying up the surrounding environment]], which, rather, is based essentially on internal demand. Cutting down on wages, seeking subcontractors in countries with lower costs of labour, cutting down on public expense so as to reduce taxes and costs of production ends up making a desert of the environment surrounding the export businesses, with the risk of killing them off progressively too, by the lack of productive factors or because they will eventually move where those factors still exist.

The European Union will either be a great internal market that will drive the rest of the world to growth, or it will be the sum of many small markets that wage war on each other so as to hold on to their quota of the international market at the expense of the emerging countries: and this would mean the end of United Europe.

Translated from the Italian by Nicolò Crisafi

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