Smart growth: from indicators to policy Statistics and evidence-based decision-making About the unit: DG ENTR has one unit dealing with Europe 2020. 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

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.

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

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.

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 2009. 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 2009. 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.

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.

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

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 http://www.proinno-europe.eu/inno-policy-trendchart/repository/country-specific-trends provide detailed information about innovation policies of the Member States). Entrepreneurship and SMEs

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

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

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 20-64 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 25-34 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

EU targets agreed for 2020 EMPLOYMENT 75% of the population aged 20-64 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.

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

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.

EU recommendations for national action in 2012/13 Note: Recommendations proposed by the Commission in May 2012 for 2012-2013. 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: http://ec.europa.eu/europe2020/index_en.htm

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: 260 000 (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: http://ec.europa.eu/europe2020/index_en.htm

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: 580 000 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: http://ec.europa.eu/europe2020/index_en.htm 17

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: 40 000 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: http://ec.europa.eu/europe2020/index_en.htm

Are we likely to meet our targets for 2020? EMPLOYMENT 75% of the population aged 20-64 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 2009. 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 2012. 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.

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

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 2020. 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 http://www.proinno-europe.eu/inno-policy-trendchart/page/innovation-policy-trends * EL: 2007; AT, FI: 2010. **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

Long-term performances vary across the EU Productivity levels in 2011 and growth over 2000-2011 RO EU average LV LT EE SK CZ (in %, annual average 2000-2011) 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

Links Report on MS competitiveness Monitoring Europe 2020 http://ec.europa.eu/enterprise/policies/industrial-competitiveness/monitoring-member-states/index_en.htm Monitoring Europe 2020 http://ec.europa.eu/europe2020/reaching-the-goals/monitoring-progress/index_en.htm