The economic crisis has wiped out long-term progress and Europe must react to avoid decline, the president of the European Commission, José Manuel Barroso, warned in a presentation to the European Council in February.

GDP growth in the EU stood at -4% in 2009, the worst figure since the 1930s, while industrial production was at -20% during the crisis, taking it back to 1990s’ levels. Mr Barroso stated in his presentation that the region’s growth potential has been halved by the crisis and, if nothing is done, the decade will end with very low economic growth.

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Productivity trends are lagging behind; two-thirds of the EU’s income gap with the US is down to lower productivity. Mr Barroso said public finances have been severely affected, with deficits at 7% of GDP on average and debt levels at more than 80%, and added that 20 years of consolidation has been wiped out in the past two years.

As global competition intensifies, the EU’s share of exports is declining relative to China and India’s growth; in 1996, the EU’s global export share was about 23% compared with China’s 5% and India’s 2%. By 2007 the EU’s share had dropped to about 21%, while China had grown to 15% and India to about 3%.

Mr Barroso implied that lessons needed to be learned and quickly put into action. The economies that make up the EU are interdependent. Up to 70% of car components for each car manufactured in the EU come from member states and for every €1000 of growth in an EU country, about €200 goes to other members via inter-European trade. Mr Barroso stated that the crisis highlighted the need for co- operation between EU countries as decisions on one country can have a direct impact on another.

The EU spends less than 2% on R&D, compared to the US’s 2.6% and Japan’s 3.4%; Europe’s smaller share of high-tech firms explains half of the gap with the US. While the world market in information and communication technologies is worth €660bn and employs a third of the global research workforce, EU companies account for about 23% of that sum.

Despite progress being made, less than two-thirds of the EU’s working age population is employed (66%), while in the US and Japan the figure is 70%. By 2020, 16 million more jobs will require high qualifications while the demand for low-skilled jobs in the EU will fall by 12 million, yet less than one person in three aged between 25 and 34 has a university degree, compared to 40% in the US and 50% in Japan.

Ginanne Brownell