For a company, being competitive means being able to produce and supply a good or service at a lower price, for the same level of quality, than other companies it competes with. Under these conditions, competitiveness—and its reflection in growth—becomes the guarantee of future resilience.
It is a term that aptly captures the evolution of other economic variables, such as productivity. A high level of productivity, with high and rising prices, can lead to low competitiveness and potential problems in the future. Productivity trends must be aligned with price developments so as to sustain investment momentum and thereby achieve greater capacity for future growth. Naturally, structural reforms are also important. Ultimately, all of this leads to competitiveness.
Competitiveness has become the key word for addressing Europe’s future. This is not new. For some economists, competitiveness has always been a mechanism for price adjustment within the Monetary Union, to make it viable over time. Now, however, competitiveness is being discussed not as a system-adjustment mechanism, but as the objective to pursue in shaping its economic future.
This is made clear by the Draghi Report: growth, based on competitiveness, is the solution to successfully address the challenges of decarbonisation, innovation and economic security, as well as to maintain the welfare state.
Over the past two decades, European economic growth has been lower than that of the US economy and has been far below China’s growth. Gradually, Europe has lost competitiveness, further hampered by the decline in global trade. Indeed, external interdependence has become a source of vulnerability for Europe in the current context of international geopolitical uncertainty and deteriorating global trade.
Raising long-term growth capacity—growth potential—requires innovation, accelerating the sustainable transition, and achieving greater security in the supply of raw materials such as energy, as well as technology. To deliver this, beyond political will and a genuine readiness to adopt common measures, substantial financing will be needed.
The European Commission’s report “A Competitiveness Compass for the EU”, published a few weeks ago, estimates annual financing needs of €750–800 billion, which will require strengthening the European capital market and the use of public funds, combined with direct bank financing. European banks are ready to finance growth and are key, as leading players, to the development of the European capital market.
For example, banks are the largest facilitators of companies’ access to the capital market through investment banking, and especially through placement and underwriting services for issuances—the best link between companies seeking market financing and retail or institutional clients that provide funds to it.
Banks also channel investors’ savings into the market, underpin the development of venture capital through financing for investors and funds that act as direct investors, and their role is key in the securitisation market.
The Draghi Report presents a roadmap to make the European economy more competitive. However, given the importance of banks, improving the sector’s competitiveness is also an objective to pursue. This is acknowledged by the Letta and Draghi reports, which refer to the constraints of regulation on the sector.
In this regard, the recommendations of the Draghi Report also cover the financial sector and are aimed at promoting cross-border mergers, simplifying regulation, and reducing bureaucracy to improve its competitiveness and capacity for innovation as well. Because improving the efficiency and competitiveness of banks is essential to advancing the competitiveness of the economy as a whole. Because the strength of the banking sector provides a sound and sustainable foundation for economic growth. One cannot come without the other.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
