Long-term global challenges and opportunities for Europe

HM Treasury is today publishing a new analysis: Long-term global economic challenges and opportunities for Europe. The paper sets out the global economic challenges that Europe must meet to deliver high employment for its citizens and address its global responsibilities in the decade ahead, and sets out the economic priorities that will shape and inform the UK Presidency of the EU later this year.

Building on the detailed analysis in the Pre-Budget Report on global economic trends, the paper looks at the implications of six key long-term global economic trends facing Europe in the decade ahead:

the changing balance of global economic activity, with an increasing proportion of global output produced in the rising Asian economies. Within a decade, China's economy is likely to be the second largest in the world and the EU will account for a steadily diminishing share of world output;
the increasing integration of global economic activity, intensifying competition among producers and offering more diverse sources of foreign direct investment (FDI). Compared to the EU15, the US has in recent years received about 50 per cent more FDI;
the increasing relocation of economic activities, with estimates suggesting that around 5 million services jobs from the US and Europe could be relocated abroad by 2015;
the need to take advantage of the increasing rewards from innovation. Innovation activity and R&D in the EU is lower than in other developed economies, while emerging economies are moving up the value chain, and the time and cost required to start a business is high in many Member States;
rapid technological and market changes which require the reform of Europe’s labour markets. Countries will require effective education and training systems to provide the higher skill levels, which underpin strong and flexible labour markets. Skill levels vary significantly between Member States and often lag behind other developed economies; and
the increasing pressure placed on resources and the natural environment, and the need for Europe to take a leading role in finding solutions and promoting multilateral action to tackle climate change.

The paper argues that putting in place the foundations for economic success in this new global economy, and delivering growth, jobs and rising living standards for all, will require:

a stable macroeconomic environment that promotes growth, investment and fiscal sustainability in the face of long-term demographic challenges and increased global flows. The UK has consistently argued for reform to promote a prudent interpretation of the Stability and Growth Pact, which takes into account the economic cycle, debt sustainability and public investment;
the right climate for enterprise and innovation, including support for research and development and intellectual property, and a new approach to regulation;
a dynamic and competitive Single Market which reaches its full potential, allowing growth of high value added activities, including through more proactive competition policy and reduction of distortive state aids which hinder change;
efforts to shape global trends and be more outward-looking, taking a lead in multilateral trade liberalisation to deliver benefits for the developing world and Europe alike, strengthening economic cooperation with major partners such at the US; and playing a leading role in raising the resources needed to reduce international poverty and ensure globalisation can be of benefit to all;
modern social policies, respecting Europe’s historical commitment to matching enterprise with fairness: including active and responsive welfare states, which equip people with the necessary skills to respond flexibly to change, underpin high levels of economic growth and employment, and tackle inequalities and ensure social cohesion; and
enhanced environmental sustainability through more efficient use of energy resources while at the same time reducing costs to the environment, particularly in the context of global climate change, with Europe playing a leading role in promoting market-based solutions.

Notes for editors

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