New European growth model: facing modern challenges and risks

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In March 2022, the European Commission introduced a new concept of the EU and the member states development model with shifts in national economies towards unprecedented in history transformations facing present major global/regional challenges and risks. New growth model includes “twin transition” and inclusive social patterns needed in new priorities, investments and reforms in national recovery/resilience plans, in line with the EU’s political guidance. The new model will be also stimulating to the corporate activities. The new model will be stimulating to the corporate activities. 

New European growth model includes such novice political economy’s aspects as green and digital transition (so-called “twin transition”), as well as strengthening states’ social and economic resilience and recovery programs. Basically, this unprecedented Europe’s economy transformation relies on two equally important pillars: investments and reforms: thus, first, investments are vital for sustainable growth, as they are a prerequisite for an accelerated green and digital transition; second, investments have to be accompanied by reforms in almost all other growth sectors. Therefore, the whole concept of new growth model needs adequate changes in the EU legislation (according to EU’s key political objectives) in order to create right incentives in the social and economic context for all social partners, including households and businesses.

Towards green and digital economy
First part of the EU’s new growth model is about green transition, as an opportunity for the member states to enter a new path of a sustainable and inclusive growth; this part of transition is coped with the climate change efforts, which will, correspondingly, help reducing energy and fossil fuel dependency and costs, and thus improving energy and resource security of the Union member states.
Main aspects of green transition are revealed in the European “Green Deal”, which is based on the annual increase in financial resources for EU-27 by around €520 billion during next decade. These additional investments are split into two directions: a) about €390 billion per year would be devoted to a fundamental process of national economy’s “decarbonisation”, particularly in the energy sector; b) about €130 billion per year will be devoted to climate and environmental quality’s objectives. For the green transition to be successful, it has to prioritise people first and care for all those who might be affected by the changed growth patterns. With this in mind, the Commission has put fairness at the heart of the EU’s “green deal” concept the so-called “fit for 55-package” aimed to make the European climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Achieving these emission reductions in the next decade will help the EU to become the world’s first climate-neutral continent by 2050. Besides, the “green deal” is followed by the Commission new legislative tools to deliver on the targets agreed in the European climate law associated with fundamental social and economic transformation towards fair, green and prosperous future.
The EU’s long-term budget for the next seven years will provide support to the green transition: thus, 30 percent of all the programs under the €2 trillion 2021-2027 Multiannual Financial Framework and NextGenerationEU are dedicated to supporting climate action; besides, 37 percent of the €723.8 billion Recovery and Resilience Facility, which will finance the EU states’ national recovery/resilience programs under NextGenerationEU associated with the climate actions.
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Second, the digital transformation in a new growth pattern highlights the importance of digital technologies for national and European future economic growth. The Digital Compass proposed by the Commission in March 2021sets out the Union’s digital targets for 2030.
The “digital plan” includes complex measures to step up investments in key digital technologies, including cyber security, cloud computing, artificial intelligence, data spaces, blockchain and quantum computing, and semiconductors, as well as in the relevant skills. To foster the digital transition, it is estimated additional investment of around €125 billion per year.
The plan includes the following four main “targets”: a) digital skills, i.e. to prepare 20 million ICT specialists, with minimum 80 percent of EU citizens to get basic digital skills; b) digital transformation in businesses, targeting 75 percent of EU companies using cloud/AI/big data technologies; growing scale-ups and finances to double EU’s unicorns; and more than 90 percent of SMEs shall reach at least basic level of digital intensity; c) getting secure and sustainable digital infrastructures in the member states with digital connectivity (e.g. 5G everywhere), double share of semiconductors in global production, and producing first computer with quantum acceleration, etc.; d) digitalisation of public services, with transforming all key public services online; with 100 percent of citizens having e-health service and access to medical records, and 80 percent of citizens using digital ID.
These and other aspects in the EU-27 digital transformation are having strong potential to increase the innovation and productivity of the European economy, while offering huge new opportunities for people and businesses. The digital transition will also contribute to the green objectives, with synergies in many areas of a smart circular economy.
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Then, the third reform’s direction includes recovery and resilience measures in the EU states, providing adaptability to possible risks and crises, particularly in the context of the present geopolitical instability. While most companies and supply chain showed a high degree of resilience and adaptability during the post-pandemic period, the crisis and the subsequent recovery have revealed a number of vulnerabilities in certain socio-economic sectors, which include, e.g. logistics and supply chain bottlenecks, labour and skills shortages, cyber threats and security of supply in key energy sectors.
To further enhance European technological edge and support the member states’ industrial development, the EU will increase investment in European defence and space industries and continue to strengthen risk management and emergency response to future shocks and/or crises.
In a context of complicated geopolitical tensions and the need to finance the green and digital transitions, the role of European capital market union’s institutions and facilities will be increased in order to facilitate retail investment in the member states and making capital markets more accessible to companies of all sizes and at all stages of their development. Capital Markets Union, CMU is a vital instrument in supporting green, digital, inclusive and resilient economy patterns in the states. The CMU also supports national economies to recover from the pandemic, help companies raise the funds they need, channel private funds into the much-needed investments in the twin transitions, and enable consumers to put their savings to work for their life projects and to invest responsibly.
Presently, three main issues are discussed in the EU institutions concerning the CMU’s role: a) in supporting European and member states’ competitiveness in the global markets, b) in making the EU a safer place for companies and individuals on saving and in long-term investment, and c) in making financial services in general more accessible to the European companies.
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Fair and inclusive economic transformation is a vital addition to the previously mentioned transitional measures, as European new growth model needs a strong social dimension that focuses on jobs and skills for the present and future wellbeing. As soon as the European capitalism’s pattern is based on “social market economy” concept, the welfare effects of digitalisation and decarbonisation are having primary attention in regional political economy.
It is quite likely that twin-transition’s advantages will be unequally distributed among various societies’ groups in the absence of adequate accompanying measures. Hence, labour reallocation within and between sectors will require reforms and large-scale investment in re-skilling and up-skilling; it means, a strong national policy response will be needed to effectively address the social and cohesion misbalances.
For example, at the EU level, the European Pillar of Social Rights and numerous associated actions are going to provide a coherent framework for adequate reforms. Thus, the EU budget and the NextGenerationEU program are going to provide support to reduce regional and social disparities, in particular through such EU-wide means as cohesion policy, the Just Transition Mechanism, the Recovery and Resilience Facility and the proposed Social Climate Fund.

Coordinated actions
Reaching common goals requires a long-term vision and a coordinated approach: thus, EU ambitious green, digital and resilience targets can be successfully achieved by fruitful efforts involving all relevant “actors” to ensure coordinated actions, i.e. by all public authorities at European, national and regional level, as well as those in the private sector and business. Only in this way, the actions towards new European growth model will become mutually reinforcing, preventing divergence across the member states and strengthening the EU single market.
It is been underlined that the main share of investments needed in order to complete the twin transitions and to enhance resilience will need to come primarily from the private sector. The EU and national authorities should ensure a favourable business environment that attracts investment. This can be achieved by strengthening the Single Market, completing the banking union and making swift progress on the capital markets union. Other cross-cutting policies, such as taxation, trade, and competition policy, should also continue to support the Union’s favourable business environment and help attract investments to successfully implement the EU’s political priorities.
The EU-wide investment strategy has also an important signaling effect for business community in the states: the EU long-term budget and the recovery instrument in the NextGenerationEU program, with a joint amount of over €2 trillion, are a substantial firepower in support of long-term growth.

Thus, the Recovery and Resilience Facility (RRF) has been instrumental in aligning the EU and national priorities for reforms and investment around a set of common goals. In particular, the RRF Regulation requires each EU member state to dedicate at least 37% of its recovery and resilience plan total allocation to climate objectives and 20% to digitalisation objectives.
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Sustainable business in Europe: initiatives and perspectives
The new content of the European growth model provides enormous opportunities for businesses and elevation of the spirit of entrepreneurship. For example, the EU institutions have been planning the implementation of the new circular economy agenda with a focal point on the sustainable products initiative (SPI), through which the European Commission wants to impose new requirements on manufacturers to make certain products more durable and sustainable.
It means that the member states shall install the regular practice by “making products sustainable”, as well as making “greener products” the norm in the EU-27.
The European Institute of Innovation and Technology (EIT) is involved in business management and provision of supporting funds as part of the Horizon Europe Framework Program for Research and Innovation; it is presently governed by a new regulatory framework, i.e. EIT Strategic Innovation Agenda 2021-2027.
Main conditions for support of innovative businesses include sixteen topics divided into three types of EIT’s knowledge and innovation actions during 2023-25: a) preparing innovative and sustainable business plans, b) activating cross-cutting knowledge innovation communities (KICs) strategic activities, shared services and cross-KIC thematic innovations, and c) facilitating national higher education institutions’ initiatives.
EIT financial contribution to the knowledge innovation communities (KICs) is based on the criteria and processes in line with the decisions of the EIT Governing Board.
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Thus, national contact points (NCPs) play a vital role in the success of the European Vocational Skills through yearly “weeks”, which are spreading the importance of various forms of vocational training and helping local organisations to increase the labour force’s competence. Source:

More information in the following Commission weblinks: – Factsheet Towards a green, digital and resilient economy: Our European Growth Model; – The European Green Deal; – Europe’s Digital Decade; – The European Pillar of Social Rights Action Plan; – The Just Transition Mechanism; – NextGenerationEU; – Recovery and Resilience Facility; and – Social Climate Fund.

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