SUPPLIER AND TECHNOFIN®

European reforms: A window of opportunity for businesses

Europe and the European Union are critical to the success of the British economy. In sheer trading terms, the single market is by far the UK’s biggest trading partner.

Over 50 per cent of Britain’s exports go to the EU, more than three times those to the US.

And although everyone is very properly preoccupied with the rapidly growing markets of China and India, the fact is that these markets today represent just about a fiftieth of our export and import markets compared to the EU.

The importance of the Eurozone to Britain’s economy today There remains enormous untapped potential for tomorrow – and we have to work with the Commission to identify where action is most needed.

That’s the mission of the CBI office in Brussels, under the very effective new leadership of my colleague Anthony Thompson. And the opportunities are there.

It has become almost a cliché to suggest that the changing of the political guard in Europe’s capitals – taken together with the current economic upswing – presents what might be a once-off opportunity for change. Chancellor Merkel has shown herself to be a formidable operator, with a thirst for tackling the big global issues.

We have a new French President, Nicholas Sarkozy, who is talking the language of reform and showing a willingness to throw the political cards in the air to get the momentum he is going to require.

And a fresh start here in the UK as well. Gordon Brown has yet to show his hand on many of the big European questions, but my guess is that he would endorse the line advanced by Ed Balls in his recent CER pamphlet, making the case for what Ed called a hard-headed pro-Europeanism.

We are unlikely to have a more liberal and outward looking leader of the Commission than President Barroso. Most commissioners and directorates general now subscribe to a broadly free market philosophy.

The tide of federalism – defined as the push to an ever closer political union – has turned and is on the retreat, at least for the time being. Brussels is making the right noises about cutting back on bureaucracy.

Unemployment is falling, and consumer confidence is rising. It may be a long time before there is a better opportunity for actions to strengthen Europe’s competitive position.

And to start with, that means delivering on the promises that Europe’s leaders have already made. It’s been seven years since the Lisbon agenda set out a bold programme of the reforms necessary for Europe to hold its own in a globalising world.

Progress since then has been painfully slow: a degree of liberalisation in telecoms, financial services, and air travel. Pensions reform here and there. Some of the Lisbon targets now look like fantasy land.

But we shouldn’t be laying the blame for this at the Commission or Parliament’s doorstep. It’s the Member States that have been so disappointing in slowing progress. Why, for example, are we still talking about the need for a more open and competitive European energy market?

There are difficulties in the energy debate but the strong Member State position in Council means we’ve lost the political momentum needed for reform. We need to see a concerted effort from national governments to get this debate back on track, and have some decisions made. Telecoms and postal services could also do with a further dose of reform.

Rather than pointing the finger at the Commission, once again it’s the Member States who will ultimately decide these issues. And where we need to see leadership from the new European power-brokers with the strong backing and encouragement of business.

An important part of the Lisbon agenda was to do with better regulation and the reduction of administrative burdens, and here some initiatives have been put in place.

Commissioner Verheugen has set stringent targets to reduce administrative burdens. Commissioner McCreevy has said EU regulation should be about focusing on results – not just acting for the sake of it – and he has a good track record of doing just that.

And the Commission has set up a new Impact Assessment Board, designed to critique and challenge the implications of new legislation. Markets are much more likely than bureaucrats to come up with the conditions required for a competitive economy.

So I liked the emphasis in Ed Ball’s recent essay on supporting the Commission’s shift away from a regulatory approach towards a focus on the functioning of markets and the monitoring and measuring of impacts.“ Indeed, with much of the legislation required to establish the single market already in place, increasing the use of proactive competition policy, rather than relying on regulation, should become a key feature of single market policy.”

All good stuff – and business has to be in there telling the policymakers where its priorities lie.

Member States also have a vital role to play. One of the biggest concerns of British business is the consistency of implementation and enforcement of single market rules across Europe.

A determination not to over-complicate EU regulations in national law and to enforce new rules when they came in: that would give business – especially SME’s – a real confidence boost in the single market.

So far, I have painted a rather limited picture of the role of the EU. My fourth line of thought is that Europe needs to focus on those areas where collective action can make a real difference in a globalising world.

As the CER itself has pointed out, Europe’s core economic problem is weak productivity growth. This is a function of skill levels, open markets and competition, innovation and the overall business environment.

For example, its recent green paper on the European Research Area sets out in terms the need to create an adequate flow of competent researchers, to remove barriers between cross border collaboration, and to increase public and private investment in research and innovation.

It’s time for action – and not just on the supply side. Policymakers everywhere should be considering the demand side as well –creating intelligent demand for innovation.

The biggest potential driver of change here is public procurement, which represents anything up to about a fifth of GDP in the EU. Governments across the Union should be more open to novel solutions in public procurement, identifying challenges and communicating those to the market early.

Engaging with potential suppliers to discuss solutions – rather than specifying technologies. Engaging in the pre-commercial procurement of new technology and seeking whole-life value rather than solutions with the lowest up-front cost. Business should be pushing hard on this door, and the Commission should be facilitating and supporting smarter and more innovative procurement wherever it can.

Another example is climate change. No need to spell this out – it’s so obviously a challenge and an opportunity for the whole of Europe.

The conclusion is that there is a window of opportunity ahead - not as a result of treaty change, but through the shifting forces of European politics. For business that means getting involved in European debates where they matter.

Being clear about what would make the Single Market more effective. Being clear where it is Member States that need to raise their game, and where we want Europe to act - and not to act.

Focusing on those areas where collective action will do more to further Europe’s position on the global stage than if we all go along on our own merry way. It is these issues the business community needs to get really stuck into.

Let’s hope that this will be possible once the dust raised by this week’s meeting has started to settle.

Richard Lambert Director General Confederation of British Industry

Entry Filed under: SUPPLIER AND TECHNOFIN®, Legal & Regulatory Issues