“How to correct the handicaps of the euro zone”

Lhe eurozone suffers from multiple structural handicaps, in particular the absence of raw material resources, low levels of education and skills, and insufficient investment in new technologies and research and development (R&D).

The absence of raw material resources results in a strong deficit in the trade balance in energy – 2.2 points of gross domestic product (GDP) at the end of 2023 – and in minerals and metals – around 0.2 points of GDP – and, therefore, a competitiveness problem. The price of energy in Europe (around 30 euros per megawatt hour) is almost four times higher than in the United States, which encourages companies to relocate to countries where basic products are abundant and cheaper energy, for example the United States.

The second structural handicap is the poor performance of the education and vocational training system. The latest survey from the OECD’s Program for International Student Assessment (PISA, 2022) shows a very significant gap in overall scores (mathematics, reading, science) between Japan (533 points), South Korea ( 523) or even the United Kingdom (494) and the Eurozone (481). The same is true for scores on the Program for the International Assessment of Adult Competencies (PIAAC) survey.

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However, a high PISA score and a high PIAAC score are associated, when comparing OECD countries, with a high employment rate and rapid productivity gains. The employment rate is lower in the euro area (67.2%) than in Japan (79%), Sweden (78%) or the United Kingdom (76%), and productivity gains are lower (+5% from 2010 to 2023) than, for example, in the United States (+20% from 2010 to 2023).

Negative correlation

The third structural handicap of the euro zone is the weakness of investment in new technologies and R&D spending. In 2022, the rate of investment in new technologies compared to GDP was 3.7% in the United States compared to 2.7% in the euro zone, that of R&D spending was 3.5% in the United States and 2.3% in the euro zone. These two gaps between the United States and the euro zone explain at least 0.5 point of difference in productivity gains between the first and the second, and the very weak increase in manufacturing productivity in the euro zone (9% in twenty years, between 2002 and 2023, against 71.6% in the USA).

We could add demographics to this list: the working age population (15 to 64) will increase by 0.15% per year in the United States between 2024 and 2030, while it will decline by 0.62%. per year in the euro zone. However, there is a negative correlation between the change in the average age of the working-age population and productivity gains: the aging of the working-age population, with the decline in the number of new entrants to the market of work, also contributes to the decline in productivity gains.

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