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Productivity and competitiveness developments

Competitiveness is at the top of the Commission’s political agenda as it is the basis for strong and sustained economic growth and improving living standards.

Today, the European economy faces the challenges of an ageing society and of an increasingly integrated world economy where technological progress is continuously accelerating. In this context, promoting productivity growth is crucial to improving competitiveness in Europe.

We adopt a broad concept of competitiveness by which we mean the ability of the European Union to thrive in the global economy providing its citizens with high and rising standards of living and high rates of employment on a sustainable basis.

The need for reform

To meet the challenge of enhancing competitiveness, the EU must use more resources and in better ways. Therefore, it must enhance the utilisation of its labour force by increasing employment rates, which are still low in many Member States. However, with an ageing and slowly growing population the scope for increasing the utilisation of labour is limited in the long run. This means that, over the longer term, EU competitiveness must rely on productivity growth – we must produce more with less.

However, in recent years EU productivity growth has been low compared to the US. Despite some positive developments, the Union continues to face a number of structural problems that hold back productivity growth, namely the difficulty in developing high-tech sectors, especially in Information and Communication Technologies (ICT) producing industries and ICT-using services, where prospects for productivity growth are higher.

Supporting productivity growth

Therefore, the EU aims to put in place the right conditions to enable companies to realise their full business potential in high-productivity-growth activities. For this, while appropriate macroeconomic policies are important, the ongoing implementation of EU-wide structural reforms is fundamental, as the Union needs to improve market functioning. By markets we mean markets for goods and services, and capital and labour markets. To improve the functioning of markets means ensuring that they are open and well integrated and that competitive pressure is sufficiently strong to make firms strive for more efficiency. Reforms also aim at boosting the technological capacity of EU companies, given that only innovation can guarantee their success in the increasingly integrated world markets.

The role of DG ECFIN

While the implementation of these reforms is to a great extent the responsibility of each Member State, the Commission has an important role to play in three fundamental areas:

  • Ensuring the success of the Lisbon Strategy's objective of a coordinated EU-wide agenda of structural reforms that will maximise the potential interaction and synergies between the reforms implemented in the different Member States;
  • Improving the functioning of Economic and Monetary Union (EMU); and
  • Completing the internal market to ensure that markets function well across the EU enabling consumers and business to reap the full benefits of the process of economic integration.

DG ECFIN is directly involved in these three policy areas and assists the Member States and other Commission services in designing and analysing the impact of policy instruments tools aimed at promoting EU competitiveness.

DG ECFIN also closely analyses the competitive performance of the EU economy and of the different Member States. It does this by continuously monitoring their performance in terms of productivity, prices and costs, trade and foreign direct investment.