Page 28 - bne IntelliNews monthly magazine October 2024

28 I Cover story bne October 2024
underutilised last year. Stakes are high for EU economies: the automotive sector accounts for about 7% of EU GDP and more than 13mn jobs.
American brands Ford and General Motors, as well as Swedish Volvo, have found themselves in the same boat, announcing large-scale revisions of their plans to produce fully electric models in an effort to cut costs. In
the US things have got so bad that
in addition to a hefty import tariff, the Biden administration moved to completely ban all Chinese cars from the road with rules that "prohibit car manufacturers from selling cars in the US with important components or software from China", The Guardian reported on September 23.
“This effectively is the US admitting it is too weak to compete and retreating by shielding itself with protectionist rules under the guise of "national security". But paradoxically this will undoubtedly make it even weaker, as firms that are protected will have even less incentives to be competitive,” China watcher Arnaud Bertrand said in a post on social media.
German is not the only one that needs to pull its socks up. A revamped industrial policy is essential for the Central
and Eastern European EU members (EU-CEE) if they are to escape the so-called "middle-income trap”, says a new report from the Vienna Institute for International Economic Studies (wiiw).
Having served as an "extended workbench" for Western firms by hosting labour-intensive production, the EU-CEE countries must now
pivot toward innovation to maintain economic momentum. “The old model is exhausted,” wiiw says.
Like the rest of Europe, one of the key challenges facing EU-CEE countries
is insufficient investment in research and development (R&D). While R&D expenditure is slowly rising, particularly in Poland, Czechia and Croatia, the region remains far behind the EU
target of spending 3% of GDP on R&D.
“Above all, they are spending nowhere near enough money on research and development, which impairs their ability to innovate,” Zuzana Zavarská,
economist at wiiw and co-author of the study, told bne IntelliNews.
Only Slovenia and Czechia currently exceed 2% of GDP R&D expenditure, with other countries such as Slovakia, Bulgaria, Latvia and Romania spending less than 1%. Although some countries export medium- to high-tech products, much of this is driven by foreign multinational companies, and domestic firms struggle to benefit from advanced technological expertise.
In a rough comparison of unit costs in Germany against those of the US and China, and assuming that it takes one hour to make a widget out of one kilo
of steel, using 5kWh of power, then assuming average 2023 industrial wages in Germany were €23.73 per hour, in the US the figure was $18.31 and in China $6; Germany’s unit cost for the widget is €26.73, the US’ $20.16 and China’s $7.55.
Defence and the peace dividend
Europe is at war with Russia, even
if it doesn’t want to admit to it. The economic war began in the first week of the invasion, but as the Nato allies have scaled up their military support to Ukraine, this war has become increasingly classical and kinetic.
Europe has already dug deep into its stockpiles of weapons and ammunition and is now scrapping the barrel – a problem that is being made worse by the US’ increasing reluctance to supply Ukraine from its own extensive stockpile. New deliveries of things such as tanks or Patriot missile batteries, and especially F-16s, are all coming from Europe, not the US, despite the fact it maintains a huge surplus of nearly 1,000 planes vs the 72 in the EU. So far a total of only 10 F-16s have been sent to Ukraine, one of which was immediately destroyed.
Europe’s industry in general is under pressure, but the war has only highlighted the even more decrepit state of the European defence sector. It has atrophied after decades of sheltering under the US security umbrella through under-investment and preparing for the wrong war – the so-called “peace dividend.”
A Third of Europe's Major Car Plants at Half Capacity or Less
Auto factories producing passenger vehicles for BMW, Mercedes, Renault, Stellantis and Volkswagen, 2023 data
www.bne.eu