1. Smart growth: from indicators to policy
Statistics and evidence-based decision-making
About the unit: DG ENTR has one unit dealing with Europe It coordinates the a team of 27 country desk officers in the Directorate Industrial policy and Economic analysis.
Task force on South East Europe 2020
3 July 2012
José Angel Becerra
Europe 2020 and National Competitiveness Policies
Enterprise and Industry DG

2. Objectives, indicators, policy
Indicators to describe the competitive performance of the MS
Policy recommendations to improve performance
Two forums for policy messages:
Country-specific recommendations of the European Semester (May)
Report on Member States' competitiveness performance and policies (September)
- Industrial Policy Flagship (Communication of 2010) proposes among the key actions to follow more closely the industrial policies of MS since they have most of the tools to improve the competitiveness of EU Industry.
This has translated into an annual report on Member States competitiveness performance and policies that we publish around the autumn.
At the same time the Europe 2020 requires to develop a country knowledge.
For the assessment we need a number of indicators to measure level and progress
we need to translate results into recommendations.

3. Competitiveness and its indicators
Report on MS competitiveness
Article 173 TFEU
Published yearly as part of the industrial policy package
Horizontal chapters focusing on policy areas
26 indicators per Member State divided in four areas
Comparison to the EU average
New in 2012: industrial performance scoreboard
Art 173 gives mandate to develop industrial policy at EU level.
Industrial Policy package has 3 main docs: 1) Communication on strategy at EU level; 2) MS report

4. Horizontal focus in 2012 Industrial innovation
Sustainability of industries
Business environment
Access to finance
Regulatory burden
Services
Quality of public administration
We look at the 4 broad areas we think are the most relevant for the industrial/enterprise competitiveness in the EU = for smart growth.
Innovation: the emergence of new nations with a great economic potential as competitors in global markets is a new challenge to the competitiveness of EU businesses.
The coming to age of new technologies with revolutionary industrial possibilities makes innovation and indispensable need for the future of our industry.
Sustainable: We have passed the "peak-oil" point and the industrial paradigm based on oil has begun its decline. Access to raw materials has become critical for the competitiveness of Europe in a number of industries.
Investing in resource and energy efficient technologies and in the production of new innovative products is necessary if we want to remain a major actor in the world economy and provide jobs and high living standards to European citizens.

5. Horizontal focus area: access to bank lending
Analysis process
Identify countries that have a serious problem – based on both indicators and other evidence
Explore the reasons for the underperformance
What policy actions could improve the situation?
Inside the business environment. This has gained in relevance with the crisis due to the credit crunch. It has become "the" most important concern of enterprises in many Member States. EU enterprises rely in 70% from the banking financing: little diversitification in financing instruments.
Since the beginning of the financial crisis, SMEs have been particularly affected by tightening credit conditions and face difficulties in accessing financing. As a result of the slowdown, debt financing has become more expensive and difficult to obtain, and alternative financing instruments are often not fully developed in Member States.
According to the survey, since 2009 the overall situation has deteriorated in more than half of the Member States. This was mainly caused by the overall tightening of credit standards due to the higher risk aversion of the banks. The results show that just under a fifth (19 %) of EU SMEs applied for a bank loan in the last 6 months of 2011, down from 26 % in Applications for bank loans were most common in France (31%) and Slovenia (30 %), while for SMEs in Germany, Italy and Poland there were significant drops in the proportion of firms applying for bank loans from SMEs in Ireland (12%) and Greece (11%) were most likely not to apply because of possible rejection. SMEs in Finland and Sweden were more likely than those in the other Member States to get access to bank loans. In Greece and Ireland the proportions that were rejected was significantly higher than the EU average.
Score calculated from the Eurobarometer survey data with six indicators expressed as the percentage of respondents to the following questions: Net increase in the need for bank loans in the past six months; Not applying for a loan in the past six months for fear of rejection; Applying for a loan in the past six months but being rejected, or rejecting the offer because of too high costs; Net improvement in the availability of loans in the past six months; Net increase in the size of bank loans in the past six months; Net improved willingness of banks to provide a loan in the past six months. 0 indicates the worst possible situation and 1 the best possible one.
Evidence: indicators and fact-finding missions in MS. Also surveys, dialogue with stakeholders (business associations).
Data source: ECB/European Commission, DG ENTR calculations.

6. Horizontal focus area: government effectiveness rank
Government effectiveness captures perceptions of the quality of public service; the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. A 'x percentile rank' implies that x percent of 213 countries in the world have a lower ranking on the indicator in that year.
Data source: World Bank Governance Indicators 2011.
The WGI summarize information from 30 existing data sources on view and experiences of citizens, entrepreneurs, and experts in public, private and NGO sectors.

7. Horizontal focus area: efficiency of public administration
The quality of public administration and institutions that govern economic and social interactions within a country is a fundamental factor in improving competitiveness and social well-being. At a time when governments are confronted with numerous challenges, including fiscal pressures and a decrease of trust in government.
Member States’ administrations have also to deal with rapid economic change, complex regulatory issues, new technologies and services, and calls for openness, transparency and increased citizen participation.
Firms interact with public administration in a variety of ways, for instance when registering the business, applying for licences, settling legal disputes or paying taxes. The efficiency and predictability of these interactions are important to economy-wide competitiveness, because they have a substantial impact on the costs and risks that companies face in investment decisions. In addition, firms indirectly depend on the public administration, as they are the prime beneficiaries of public goods and bear a large part of the overall tax burden.
The high number of interactions between the public administration and enterprises, as well as the various channels of transmission through which administrative quality has an impact on a country's competitiveness make it difficult to fully capture the complexity of this relationship. Nevertheless – based on the elements of public administration which appear the most important for competitiveness – the quality of an administration to the business environment could be captured through the following categories of links (see Figure 1
All these forms are caught in the graph of the slide.
Data source: DG ENTR calculations

8. Country indicators - Slovenia
Modern and competitive industry
Sustainable industry
Business environment
this chapter focuses on recent innovation policy developments in the Member States, with particular attention paid to the business sector. Analysis based on performance indicators regarding innovation and research per Member State can be found in other publications of the European Commission (e.g.: the country reports of the Innovation Trendchart available at provide detailed information about innovation policies of the Member States).
Entrepreneurship and SMEs

9. Country indicators - Slovenia
Modern and competitive industry
Sustainable industry
Business environment
Sustainable competitiveness refers to the promotion of economic growth and development while at the same time improving resource efficiency, minimising waste and strengthening energy security. The Annual Growth Survey 2012 highlighted the importance of unleashing the potential of green growth through enhancing structural reforms to create a new policy mix of regulatory, market and voluntary measures to promote investment in greening the European economy.
Business environment: Business environment can be described as a set of conditions that affect a company's operations and include customers, competitors, suppliers, legislation and economic and political factors. The World Bank Report "Doing Business in 2012", confirms that OECD high income economies, by a large margin, have the world's most business-friendly environment. A good business environment requires rules that are efficient, transparent and provide certainty. The regulatory framework must contribute to achieving growth and jobs, while continuing to take into account the social and environmental objectives.
Entrepreneurship and SMEs

10. Country indicators - Slovenia
Modern and competitive industry
Sustainable industry
Business environment
Part of Public Administration
Entrepreneurship and SMEs

11. Europe 2020: the EU’s growth strategy
Strengthened EU economic governance
Macro-economic & fiscal surveillance
Regulation of financial services
Targets and guidance for structural reforms
Flagships for smart, sustainable and inclusive growth
Digital Agenda
Youth on the Move
Innovation Union
New Industrial Policy
New Skills and new Jobs
Platform against Poverty
Resource
Efficiency
Smart growth means improving the EU's performance in:
education (encouraging people to learn, study and update their skills)
research/innovation (creating new products/services that generate growth and jobs and help address social challenges)
digital society (using information and communication technologies)
EU targets for smart growth include:
1. combined public and private investment levels to reach 3% of EU's GDP as well as better conditions for R&D and Innovation
2. 75% employment rate for women and men aged by 2020– achieved by getting more people into work, especially women, the young, older and low-skilled people and legal migrants
3. better educational attainment – in particular: – reducing school drop-out rates below 10% – at least 40% of 30-34–year-olds with third level education (or equivalent)
> All EU-level targets
Top
How will the EU boost smart growth?
Through 3 flagship initiatives:
1. Digital agenda for Europe Creating a single digital market based on fast/ultrafast internet and interoperable applications:
by 2013: broadband access for all
by 2020: access for all to much higher internet speeds (30 Mbps or above)
by 2020: 50% or more of European households with internet connections above 100 Mbps.
2. Innovation Union
refocusing R&D and innovation policy on major challenges for our society like climate change, energy and resource efficiency, health and demographic change
strengthening every link in the innovation chain, from 'blue sky' research to commercialisation
3. Youth on the move
helping students and trainees study abroad
equipping young people better for the job market
enhancing the performance/international attractiveness of Europe's universities
improving all levels of education and training (academic excellence, equal opportunities)
> All Europe 2020 flagship initiatives
Why does Europe need smart growth?
Europe's lower growth than its main competitors is largely due to a productivity gap caused in part by:
lower levels of investment in R&D and innovation
insufficient use of information/communications technologies
difficult access to innovation in some sections of society
For example:
European firms currently account for just a quarter of the €2 trillion global market for information/communication technologies.
Slow implementation of high-speed internet affects Europe's ability to innovate, spread knowledge and distribute goods and services, and leaves rural areas isolated.
Education/training
Some 25% of European school children have poor reading skills
Too many young people leave education/training without qualifications
Numbers attaining medium-level qualifications are better, but the qualifications often fail to match labour market needs
Under a third of Europeans aged have a university degree (40% in the US, over 50% in Japan)
European universities rank poorly in global terms – only 2 are in the world top 20 (see Shanghai index (ARWU))
Ageing populations
As Europeans live longer and have fewer children, fewer people in work have to support higher numbers of pensioners, as well as fund the rest of the welfare system.
The number of over-60s is now increasing twice as fast as it did before 2007 – by some 2 million a year instead of 1 million previously.
A better knowledge economy with more opportunities will help people work longer and relieve the strain.
Modernised EU levers for growth and jobs
Single Market Act
Trade and external policies
Structural Funds and future EU budget

12. EU targets agreed for 2020
EMPLOYMENT 75% of the population aged should be employed
INNOVATION 3% of the EU's GDP should be invested in R&D
CLIMATE / ENERGY A reduction of greenhouse gas emissions by 20%
A share of renewable energies up to 20%
An increase in energy efficiency by 20%
EDUCATION The share of early school leavers should be under 10%
At least 40% of the younger generation should
have a degree or diploma
POVERTY Lifting at least 20 million people out of poverty
Proposed by the Commission and agreed by the European Council in March 2010: all Member States were invited to set national targets on this basis.

13. The European Semester timeline
January
February
March
April
May
June
July
Annual Growth Survey and other reports
Proposals for country-specific recommendations
European Commission
Council of Ministers
Debate & orientations
Discussion in Council formations
Autumn:
Monitoring and peer review at European level
European Parliament
Debate & orientations
European Semester & national Semester.
The policy recommendations of the European Semester should feed into the national budgets of MS which are usually prepared in the summer for adoption by the autumn in the Parliaments.
To give sufficient time to MS, the Annual Growth survey is usually adopted in December and endorsed in the Spring EU summit.
Spring EU summit: overall guidance on EU priorities
European Council
Endorsement of country-specific recommendations
Adoption of National Reform Programmes (NRPs) & Stability and Convergence Programmes (SCPs)
Autumn:
Implementation at national level
Member States

14. Annual Growth Survey 2012 Five priorities Key areas for action
Pursuing differentiated growth-friendly fiscal consolidation
Restoring normal lending to the economy
Promoting growth and competitiveness
Tackling unemployment and the social consequences of the crisis
Modernising public administration
Pursue country-specific strategies to fit national fiscal and macro-financial situation
Adopt right mix of expenditure and tax shifts to maximise positive impact on growth
Strengthen capital positions of key banks
Facilitate more direct access to financing
Tap into existing sources: digital single market, internal market for services, trade
Mobilise EU funds in support of growth
Fast-track key EU initiatives (cf. AGS annex)
Pursue reforms for a growth-rich recovery
Supporting employment, notably through a Youth Opportunities Initiative
Protecting the vulnerable
Improve business environment
Facilitate absorption of EU funds
- Put forward by the Commission on 23 November 2011 to map out the EU’s growth and jobs priorities in 2012 and launch a new European Semester.
- The AGS sets out what the Commission believes must be the EU’s priorities for the coming 12 months in terms of economic and budgetary policies and reforms to boost growth and employment. Its presentation marks the opening of the second European Semester of economic governance.

15. EU recommendations for national action in 2012/13
Note: Recommendations proposed by the Commission in May 2012 for For IE, EL, PT and RO, the only recommendation is to implement existing commitments under EU/IMF financial assistance programmes.
Full text of recommendations at:

16. BULGARIA Europe 2020 targets Euro Plus Pact commitments
European semester recommendations for 2012/2013
Employment/labour market
active labour market policy: public employment services
social transfers and access to social services
education reform
Structural policies/competitiveness
competition in electricity/gas markets
public services: public procurement, administrative capacity, independence of judicial system
energy efficiency/energy connections
absorption of EU funds
Public finances
sound public finances
pension, education and health systems
strengthen fiscal framework
tax compliance and shadow economy
Financial Sector
access to finance start-ups and SMEs
Employment: 76%
R&D: 1.5%
Tertiary education: 36%
Early school leaving: 11%
Greenhouse gas emissions: +20%
Renewable energy: 16%
Energy efficiency: 3.20 Mtoe
Reduction of people at risk of poverty or social exclusion: (national definition)
Employment
increase labour participation, particularly of youth, elderly, disadvantaged groups
undeclared work
life-long learning
lower labour taxes
employment services
Competitiveness
wage setting mechanisms
public sector wage developments
competition in services
education, R&D and innovation
business environment
Sustainability of public finances
align pensions to demography
incentives for older workers
national fiscal rule
Financial stability
national legislation for banking resolution or other measures
Source: European Commission. For more information, see:

17. ROMANIA Europe 2020 targets Euro Plus Pact commitments
European semester recommendations for 2012/2013
Employment:70%
R&D: 2%
Tertiary education: 26.7%
Early school leaving:11.3%
Greenhouse gas emissions: +19%
Renewable energy: 24%
Energy efficiency: 10.0 Mtoe
Reduction of people at risk of poverty or social exclusion:
Employment
flexicurity
increase labour participation
undeclared work
life-long learning
Competitiveness
wage setting mechanisms
public sector wage developments
education, R&D and innovation
business environment
Sustainability of public finances
align pensions to demography
incentives for older workers
national fiscal rule
Financial stability
national legislation for banking resolution or other measures
The only recommendation is to implement existing commitments under EU/IMF financial assistance programmes
Source: European Commission. For more information, see: 17

18. SLOVENIA Europe 2020 targets Euro Plus Pact commitments
European semester recommendations for 2012/2013
Employment: 75%
R&D: 3%
Tertiary education: 40%
Early school leaving: 5%
Greenhouse gas emissions: +4%
Renewable energy: 25%
Energy efficiency: no target
Reduction of people at risk of poverty or social exclusion:
Employment
flexicurity
increase labour participation
life-long learning
Competitiveness
wage setting mechanisms
public sector wage developments
competition in services
education, R&D and innovation
business environment
Sustainability of public finances
national fiscal rule
Financial stability
national legislation on banking resolution or other measures
Employment/labour market
labour market participation (older workers)
active labour market policies
wage setting mechanisms
flexicurity
education, vocational education- matching skills to labour market needs
Structural policies/competitiveness
regulated professional services
public services and regulation
Public finances
sound public finances
pension system
fiscal framework
Financial sector
measures in the banking sector
access to finance
Source: European Commission. For more information, see:

19. Are we likely to meet our targets for 2020?
EMPLOYMENT 75% of the population aged should be employed
INNOVATION 3% of the EU's GDP should be invested in R&D
CLIMATE / ENERGY A reduction of CO2 emissions by 20%
A share of renewable energies up to 20%
An increase in energy efficiency by 20%
EDUCATION The share of early school leavers should be under 10%
At least 40% of the younger generation should
have a degree or diploma
POVERTY 20 million fewer people should be at risk of poverty
Europe 2020, the EU's ten-year strategy for smart, sustainable and inclusive growth, is more relevant than ever given the current economic climate. Yet progress by Member States towards the Europe 2020 targets has so far been disappointing. Moreover, the Commission's assessment is that at this point in time, national targets set by Member States are insufficient to meet most of the EU-level targets, particularly for energy efficiency. The latest statistics indicate that only in the area of education has some progress been made:
-       Education: The EU's target of not more than 10% early school leavers will not be reached on the basis of current commitments, which would bring it down to a level of 10.5%. In 2010, early school leaving dropped to 14.1% from 14.4% in But this masks wide variations between Member States.  
-       Employment: If all Member States achieved their national targets, the EU as a whole would still be 1-1.3% points short of the agreed target employment rate of 75%. No substantial progress has been registered in 2011.
-       Research and Development: If national targets were reached, the EU would still fall about 0.3% short of the 3% 2020 target. R&D investment in 2009 stood at 2.01% of GDP, with little progress foreseen in 2011.
-       Poverty reduction: Based on current national targets, around 12 million people would be lifted out of poverty and social exclusion, short of the EU's 2020 target of 20 million.
-       20/20/20 climate/energy targets: The EU as a whole is expected to meet the target of a 20% reduction in greenhouse gas emissions compared with 1990 levels. Some Member States though will have to amend their policies in order to reach their binding national targets. On energy efficiency, work is ongoing on the analysis of Member States' targets and a report will be presented in early The legally binding renewable energy target of 20% should be met if Member States fully implement their renewables action plans. At EU level, the share rose from 10.34% in 2008 to 11.6% in 2009.

20. The EU is lagging behind its R&D target
EU investment in R&D as a % of GDP in 2000, 2010 and 2020
Business as usual*
If national targets are met**
EU target***
≈ 2.7% %
≈ 2.2%
ii) 3% of the EU’s GDP should be invested in R&D
On the basis of current commitments, the Europe 2020 target will not be met.
* Scenario based on the continuation of on-going reforms and financial efforts.
** No targets set by CZ, EL and the UK: 2020 figures were estimated by Commission services. *** The EU target includes R&D expenditure by intergovernmental research infrastructures
which is not included in the R&D expenditure of the Member States.
Source: European Commission

21. Levels of ambitions for R&D vary a lot
R&D investments in the EU as a % of GDP
2010 performance*
2020 national target**
EU target %
Research, development and innovation are key sources of economic and productivity growth in the medium run and the EU has confirmed its commitment to spend 3 % of its GDP on research and development by 2020.
Meanwhile, our competitors are pursuing very ambitious innovation policies as well: Japan has set itself the target of increasing its R&D expenditure to 4 % of its GDP by South Korea aims at an R&D intensity of 5 %, Singapore of 3.5 % and China of 2.5 %. It predicted that China is likely to overtake the EU by 2014 in terms of R&D intensity Innovation Policy Trends in the EU and Beyond, December 2011, available at
* EL: 2007; AT, FI: **No targets set by CZ, EL and the UK. For CZ: a target (of 1%) is available only for the public sector. For IE: the target is 2.5% of GNP which is estimated to be equivalent to 2.0% of GDP. For LU: the target is between 2.30% and 2.60% (2.45% was assumed).
Source: European Commission

22. Long-term performances vary across the EU
Productivity levels in 2011 and growth over RO
EU average LV LT EE SK CZ
(in %, annual average )
Hourly productivity growth BG PL HU SI IE US JP UK FI SE EL EU AT
EU average MT DE NL PT ES CY EA FR DK IT BE LU
Hourly productivity level (2011)
Source: European Commission

23. Links Report on MS competitiveness Monitoring Europe 2020
Monitoring Europe 2020