05/05/2014 05:53 EDT | Updated 07/05/2014 05:59 EDT

The EU Needs a 'One In, One Out' Strategy

Most of the laws in force in Germany today originated in Brussels. If an unpopular topic is rejected in the domestic arena, politicians frequently try to push it through via the EU. This often infringes the principle of subsidiarity, which stipulates that the EU should only handle what member states cannot handle themselves.

Despite progress in some areas, the EU -- the world's largest economic zone -- faces several key challenges. Social problems such as (youth) unemployment, plus a lack of competitiveness, low growth and high levels of debt could soon require further rescue packages for Greece and other countries -- and once again jeopardize the euro's credibility. Even the often-praised Germany still has a lot to do to revive domestic demand and to lower current account surpluses as well as to reduce government debt to less than 60 per cent of GDP.

Pleasant words in the election campaign

So how can we get Europe fit for the future? The party manifestos for the European elections contain various pleasant-sounding phrases. "In 2016, the EU budget must focus more on growth, employment and innovation," say the German CDU (Christian Democrats). Their competitors from the SPD (Social Democrats) call for a "growth policy based on investment in business innovation, employment, education and training," and an "intelligent industrial policy". That all sounds great, but what does it actually mean?

My action plan for boosting growth, eliminating imbalances and stabilizing the eurozone and EU consists of four parts: first, a politically supported and privately financed program to modernize European infrastructure. The estimated one trillion euros required across the EU could be financed by the worldwide funds of around EUR 170 trillion held by private investors looking for investment opportunities. It's up to governments to create reliable conditions for private infrastructure investments. Second, a true EU domestic market for infrastructure services must be created. A lack of consolidation among infrastructure operators and a lack of economies of scale lead to high costs, to the detriment of companies and citizens alike. The task for politicians is as follows: open borders, scrap protectionism, allow privatization and cross-border consolidation, and ensure competition-friendly policies and regulation!

European innovation policy

Third, we need a coordinated pan-European policy of promoting innovation. EU countries currently spend, on average, the equivalent of 1.9 per cent of GDP on research and development (R&D), compared to 2.7 per cent in the US and 3.5 per cent in Japan. China, which currently spends 1.7 per cent, is set to overtake the EU by 2019 and the US by 2023. Germany is in a fairly good position as it invested the equivalent of 2.85 per cent of GDP in R&D in 2013. Its R&D model of close cooperation between the government, universities, research institutes and companies is paying off. Germany is one of the leading exporters of research-intensive goods, accounting for 12 per cent of world trade in these goods.

But Germany can still learn from America, where clusters drive innovation, not just in Silicon Valley. Austin, Texas, for instance, is home to a cluster of firms for high-performance materials and biotech; New York champions e-commerce, media, advertising and financial services; Boston attracts biotech and IT firms and Seattle has become a centre for aviation, software and IT. Everywhere we can see that education, intelligence, capital, business services and networks throughout the value chain create innovations.

A European innovation policy should copy this -- and provide more support to startups! In the US, innovations often originate with startups, such as Google, Facebook and Amazon. In Europe, however, these incubators often find it hard to get the necessary venture capital: Venture capital investment in Germany is equivalent to just 0.02 per cent of GDP and 0.04 per cent in the U.K. By contrast, in the U.S. this figure is 0.17 per cent and in Israel as high as 0.36 per cent. Innovative companies thus tend to be set up abroad, encouraging a brain drain. And groundbreaking innovations from European basic research rarely lead to innovative products being made in Europe. Who can think of an MP3 player made by a German company? But the technology was actually developed by the German research center Fraunhofer-Gesellschaft.

Less red tape!

The fourth part of my action plan is a traditional one: Return to the social market economy and cut red tape! As a result of the financial crisis, many people are now calling for across-the-board state intervention. Regulation is definitely important. It should be intelligently targeted at avoiding market failures, ensuring competition and maximizing prosperity in society. However, Europe is becoming less appealing to investors because of the many poorly thought out interventions in the market. Our companies are becoming less competitive; the economy is losing out on growth opportunities; people are losing jobs and prosperity.

European countries lag way behind the US, South Korea and Japan in the World Bank's Ease of Doing Business Index 2013. Germany, for example, ranks 100th out of 185 countries in protecting investors and 106th in starting a business. Take a car company, for instance: in the US, it can obtain a permit for a paint shop in two days. If the paint shop explodes, leading to injuries and fatalities, the company will face enormous claims for damages. By contrast, in Germany, the state would be responsible for the damage once a civil servant has issued a permit. That's why it takes six months to review the paint shop extremely carefully. Having the state bear the risk leads to an ever-expanding labyrinth of red tape.

The fact that we also have four levels of bureaucracy (federal, regional, local and European), each with a complementary, contradictory or competing set of rules and regulations, is proving costly: in the High Level Group on Administrative Burdens, led by former Bavarian premier Edmund Stoiber, we found out that the information-provision obligations imposed on companies by the EU will cost EUR 124 billion a year. Most of the laws in force in Germany today originated in Brussels. If an unpopular topic is rejected in the domestic arena, politicians frequently try to push it through via the EU. This often infringes the principle of subsidiarity, which stipulates that the EU should only handle what member states cannot handle themselves.

Bureaucracy has three effects: it drives up costs, as we all know. It hampers the development of companies, institutions and citizens, which in turn has a negative influence on all competitive criteria. And it hinders flexibility, making rapid adaptation impossible. So my conclusion is, first of all: One in, one out. For every new rule made, get rid of one old rule -- at EU level and in every country! Even better: One in, two out, as practiced by the British government. Secondly: Get rid of the clutter! And a social debate must be initiated, too: Which minimum tasks should be done by the member states and which by the EU -- in terms of the market economy and regulations.

This action plan will improve Europe's economic stability and sustainably promote growth and prosperity with a minimum of effort. We just have to want it...


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