1. The case for a Microeconomic European Policy September 6, 2012, London Stock Exchange Policy Network meeting Miguel Sebastián, Universidad Complutense de Madrid

2. 2 The case for a Microeconomic European Policy It is indubitable that a Macroeconomic European Policy is needed, at least for the euro area It should include: A Monetary Policy, with a real lender of last resort, a new governance and new goals for the ECB A real Fiscal Policy coordination, including eurobonds Financial Stability issues, including a banking union and an European regulator, to avoid asymmetric bubbles.

3. 3 The case for a Microeconomic European Policy But a Microeconomic Policy at the European level is also needed, not only because of the current global and euro crises, but for “structural reasons” as well. Such a Policy should include: An Energy and Raw materials European policy A Tourism European Policy An Industrial European Policy, including not only the Manufacturing sector, but the ICT sector as well.

4. 4 The case for a Microeconomic European Policy The “structural reasons” for such an European Policy are: 1.The EU is steadily loosing weight in the world economy 2.The European energy dependence is worsening. And the raw materials dependence is dramatic 3.The EU share of world exports is shrinking, and so is the relative European manufacturing sector. 4.Tourism is a stronghold, but action is needed.

5. EUUSABRICS Rest of the World 198032%25%12%31% 199029%25%15%31% 200025%23%18%34% 201020%19%25%36% 2040 (E)?? 50%?? Europe is shrinking at a faster pace than the US 5 The BRICS (Brazil, Russia, China, India and South Africa) have more than doubled their share in world GDP in the last 30 years and, according to several forecasts, by 2040 they will become almost half the World's GDP. Share of World GDP 1. The EU is steadily loosing weight in the world economy

6. In the last ten years the EU’s energy dependence has increased almost 10 points. 6 Energy dependence, together with rising oil prices, have multiplied the EU’s energy import bill by 5 in the last 10 years An increase of 30 € in oil prices (what the IEA expects for the next 10 years) will mean an additional annual transfer of 132.000 M€ to oil producing countries. The EU annual budget sums up to 140.000 M€. 2. The European energy dependence is worsening

7. Critical raw materials 7 AntimonyDisplay panels, micro capacitors China 91% Bolivia 2% Russia 2% South Africa 2% IndiumDisplays, Thin layer photovoltaic China 58% Japan 11% South Korea 9% Canada 9% BerylliumMilitary applications EEUU 85% China 14% Mozambique 1% MagnesiumSpace, manufacturing China 56% Turkey 12% Russia 7% CobaltLithium-ion batteries, synthetic fuels D.R. Congo 41% Canada 11% Zambia 4% NiobiumMicro capacitors, ferroalloys Brazil 92% Canada 7% FluorsparLenses China 59% Mexico 18% Mongolia 6% Platinum Group Metals Fuel cells, catalysts, seawater desalination South Africa 79% Russia 11% Zimbabwe 3% GalliumThin layer photovoltaic, Led N.A. Rare Earths Permanent magnets, laser technology China 97% India 2% Brazil 1% GermaniumFiber optic cable, IR optical technology China 72% Russia 4% EEUU 3% TantalumMicro capacitors, medical technology Australia 48% Brazil 16% Ruanda 9% D.R. Congo 9% GraphiteSteelmaking China 72% India 13% Brazil 7% TungstenDrills, steelmaking China 78% Russia 5% Canada 4% The study considers 14 of 41 raw materials as critical. This is due to their high relative economic importance and to high relative supply risk. According to a recent study, developed by a group of experts in the framework of the EU Raw Materials Initiative, Europe is on a critical position to ensure the supply of some raw materials. 2… and the raw materials dependence is dramatic

8. Global Trade of Goods The EU’s share in goods trade, as an approximation of industrial production, has decreased in the last years, mainly because of emerging economies growth 8 3.The EU share of world exports is shrinking Share in world trade of Goods

9. Example 1: Shipbuilding The global market for new ships has increased one and a half times in the last 10 years but the production in European shipyards has remained almost constant, reducing notably the EU share in the shipbuilding global market. 9 3. ….and so is the relative European manufacturing sector. Rest of the World Europe

10. Example 2 : Automotive Sector In 1999 European factories produced 3 in 10 of all the cars and trucks built in the world. Ten years later they produce 2 in 10 and the tendency is a further decrease. 10 3. ….and so is the relative European manufacturing sector.

11. Example 3: the ITC Sector The EU shows a big gap between imports and exports in the ITC Sector. Its coverage ratio is just above 0,5. This difference is mainly due to hardware and semiconductors. Only 9,2% of the sales of the top 25 companies in this area come from Europe. 11 3. ….and other technological sectors

12. But action is needed to keep such a position The EU is currently the main destination for World Tourism This year the number of tourists will reach 1 billion, for the first time ever By 2020 this number will climb to 1,5 billion (an additional half a trillion € ). The EU must act to preserve its leadership. 12 4. Tourism is a stronghold in the EU Share in world tourism Source: UNWTO

13. 13 What should a Microeconomic European Policy consist of? The EU micro policy should be complementary, not a substitute for domestic micro policies. It is not a matter of spending more at the EU level, but spending better, shifting public investment and financing support towards EU exporting sectors A higher coordination of policies is needed We must improve EU regulation. We should change the role of EU surveillance institutions: from chasing member states (and European companies) to building an EU productive industry.

14. 14 In particular, specific targets for EC authorities and EU institutions should be established regarding 3 measurable and accountable goals: 1.The EU share of world output (its decline should be stabilized). 2.The EU share of global exports (it should be held constant). 3.The EU current account (it should improve) What should a Microeconomic European Policy consist of?

15. United, Europe may better manage its uncertainties, thanks to a stronger negotiating position through: An EU single voice More interconnections A common regulatory framework 15 The solution of the Russian-Ukraine gas crisis of 2009 is an example of our strength if we negotiate as one. The same strategy is needed when discussing with Northern African countries. Some examples Energy Dependence key regional electric connections capacity in Europe 3% 8,6% 15,2% 20,9% 7,2% 13% 9,7% X% % Cross-border electricity between regions

16. 16 Tourism In order keep the EU leadership in World Tourism, we need to compete for the new markets: the Russian, Indian and Chinese outbound travel markets Joint packages Multiple visas, exchange of information Joint promotion abroad Some examples In 1980 there were only 270M tourists world wide. This year, 2012, we will reach 1000M. By the year 2030 there will be 1800M tourists. Each visitor spends 1000$ on average. So, we are talking about a 800b $ cake. Number of tourists worldwide (M) Source: UNWTO

17. 17 Single Digital Market In order to reach a real Single Digital Market we must accomplish: Remove technical and legal barriers Accessibility: 100% population covered with basic broad band Infrastructure: Deploy of New Generation Networks Promote intra EU e-commerce Europe has a great potential in this area. In 2010 only 20% of European enterprises sold through internet to other European countries and only 7% of European citizens had bought something through internet from another European country. Some examples

18. Following the (unfortunate) years in which “the best industrial policy is no industrial policy”, the need for an active European industrial policy should be widely recognized. 18 Some examples Industrial Policy Why an European Industrial Policy? Although Industry only represents 18% of the EU GDP, it accounts for: Internationalization: Industry produces almost 75% of all exports of goods and services from the EU. Innovation: Industry is responsible from almost 80% of the R+D executed by the EU private sector. Productivity: Industry productivity is 9% higher than the productivity of the whole economy. INDUSTRY = JOBS + EXPORTS

19. We want a strong and dynamic industrial sector and we also want to be leaders in: 19 A final question for debate Climate change prevention Welfare system Fiscal discipline Monetary orthodoxy ¿? Can we make all these 5 goals compatible? ¿?

20. The case for a Microeconomic European Policy September, 2012. London Stock Exchange Policy Network meeting Miguel Sebastián, Universidad Complutense de Madrid