European growth model in a transitional period

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Due to the post-pandemic and the global challenges’ consequences, the EU institutions have revised traditional socio-economic model. Modernised approach includes such new factors as green and digital transition, strengthening socio-economic recovery-resilience in the member states, climate mitigation and numerous others.  

  In order to understand the pace of reforms, it is necessary to look at the existing European socio-economic model and initial steps in expected transformations.
Thus, already in March 2022, the European Commission has put forward a draft of the “EU-wide growth model” that included new priorities, such as “green and digital transition and strengthening social and economic resilience”. The draft acknowledged that the European economy had undergone unprecedented transformations in the context of major uncertainties linked to the global and security outlook, and confirmed the need to cooperate closely with “all relevant actors” including the EU institutions, the member states and the private sector to reinforce the long-term sustainable growth agenda.

  More on the EU growth model general issues in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022DC0083&qid=1655798743597; and press release: https://economy-finance.ec.europa.eu/economic-and-fiscal-governance/european-growth-model_en

Main directions in changes
The Commission has set out some key recommendations for four main directions required to achieve the EU-wide objectives.
= First, the “new EU-economy’s transformation” relies on two equally important pillars: investment and reforms; the former is vital for sustainable growth and serves as a prerequisite for an accelerated green and digital transition; the latter is to ensure that the EU-wide priorities are aligned with the EU’s key objectives, creating the right social and economic context and incentives contributing to households and businesses.
= Second, green, digital, and resilient economy is regarded as a “transitional opportunity” to put Europe on a new path of sustainable and inclusive growth: in addition to tackling climate change, it will help reduce energy bills and dependence on fossil fuel imports, thus improving energy and resource security of the Union.
In the green transition, there are e.g. such legal measures as the “green deal” and “fit for 55 package” among other measures; in the digital one, it is the “digital decade” measures and the “digital compass”; in the recovery/resilience spheres, it includes overcoming logistics and supply chain bottlenecks, labour and skills shortages, cyber threats and security of supply concerns linked to vital economy sectors, such as energy, and further enhancing the states’ technological security and support industrial development.
While private funds are regarded to account for the major share of investments, public intervention may be needed, for instance by de-risking innovative projects or overcoming market failures.

    Note. On green deal in: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en.
On digital decade in: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/europes-digital-decade-digital-targets-2030_en.
On digital transformation in: https://economy-finance.ec.europa.eu/system/files/2022-03/com_2022_83_1_en_act_part1_v5_0.pdf .

   = Third, mobilizing coordinated action at all governing levels in order for the investments and reforms to fully contribute to the EU priority objectives to ensure synergy effect by all relevant economy sectors (national public authorities, European and regional governance and private sector). These actions have to be mutually reinforcing, preventing divergences among the member states and strengthening the EU-wide single market. The EU budget and the recovery instrument NextGenerationEU, with a joint amount of over €2 trillion, are a substantial firepower in support of long-term growth. In the national “transitions”, the EU Recovery and Resilience Facility (RRF) has been instrumental in aligning the states’ priorities in reforms and investment around a set of EU-wide goals. In particular, the RRF Regulation requires each EU state to dedicate at least 37% of its recovery and resilience plan to climate objectives and 20% to digitalisation objectives. Such investments and reforms at national and the EU-wide level will need to be sustained over time in order to achieve the desired goals.

  More in the “NextGenerationEU” recovery plan: https://next-generation-eu.europa.eu/index_en. On RRF in: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility_en

   = Fourth direction is about ensuring a fair and inclusive economic transformation, which only succeeds if every citizen can reap the benefits offered by the green and digital transitions. The welfare effects of digitalisation and decarbonisation are likely to be unequally distributed in the absence of accompanying measures. Labour reallocation within and between sectors will require reforms and large-scale investment in reskilling and upskilling. A strong policy response at all levels will be needed to effectively address the social and cohesion challenges.

  On “just transition mechanism” in: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_17; on recovery/resilience in: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility_en
General reference: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1467

Digital aspects in growth
As everyday online connections among people and communities, sectoral governance and businesses, numerous ICT-devices and data processing, etc. the digital economy has become a vital part of national agenda. Main components in digital economy, such as e-business and infrastructures, e-commerce, e-banking and e-governance make the concept an attractive tool in dealing with modern challenges.
Digital economy provides numerous benefits to modern national politico-economic governance, e.g. it contributed to rapid ICTs expansion in all walks of life with positive effect on a variety of industries and businesses while increasing competitiveness and productivity. It has been already evident that efficiency in business can be improved greatly by using digital technology devices to automate their operations and processes, and reduced running costs.

  Most obvious, the digital finance has acquired EU’s legislators closer attention. Thus, it has been acknowledged that the new financial-type digital technologies can facilitate access to financial services and improve the efficiency of the financial system. These technologies can benefit both consumers and companies by enabling greater access to financial services, offering wider choice and increasing efficiency of operations; they can also contribute to bringing down national barriers and spurring competition in areas such as: – online banking, online payment and transfer services; – peer-to-peer lending; and – personal investment advice and services.
More in: https://finance.ec.europa.eu/digital-finance/overview-digital-finance_en

   In the digital financial system the following four components has been visible:
= Crypto-assets as a comprehensive framework for crypto-assets and related services to ensure that the Union financial services are fit for the digital age. A crypto-asset is a digital representation of value or a right that can be transferred or stored electronically using distributed ledger technology or similar technology. Crypto assets are a digital innovation that can streamline capital-raising processes, enhance competition and create an innovative and inclusive way of financing for consumers and SMEs. Crypto-assets can also be used as a means of payment and can present opportunities in terms of cheaper, faster and more efficient payments, in particular on a cross-border basis, by limiting intermediaries.
Source: https://finance.ec.europa.eu/digital-finance/crypto-assets_en

  = Digital euro as digital form of central bank money, would offer greater choice to consumers and businesses in situations where physical cash cannot be used. The digital euro would be a complement to cash, which would remain widely available and useable. If the proposal for a framework for a possible digital euro is agreed upon by the European Parliament and Council, the ECB would need to take the final decision on whether to issue it. Therefore, it may still take a few years before the digital euro is issued.
More in: https://finance.ec.europa.eu/digital-finance/digital-euro_en

  = Framework for financial data access. EU is bringing the wider financial sector to the digital age: it proposes a new framework for secure and open access to customer data across a wider range of financial services. This framework places consumers’ interests, competition, security and trust at their centre. Thus, “open finance” proposal will establish a framework for responsible access to individual and business customer data across a wide range of financial services.
Source: https://finance.ec.europa.eu/digital-finance/framework-financial-data-access_en

  = Cyber resilience. The framework on digital operational resilience focuses on managing the risks associated with the financial sector relying more on software and digital processes. Cyber resilience means being prepared for, as well as being capable of enduring, recovering from, and adapting to cyber threats. The EU adopted in 2022 a Regulation on Digital Operational Resilience (DORA), in order to strengthen companies’ capacity, both for preventing incidents and for minimising disruptions and ensuring swift recovery after ICT-related disruptions. It also includes an oversight mechanism on service providers, such as Big Techs, which provide cloud computing services to financial institutions.
More on cyber security in: https://finance.ec.europa.eu/digital-finance/cyber-resilience_en
On digital finance in general: https://finance.ec.europa.eu/digital-finance_en

Ranking in competitiveness: European view
The competitiveness ranking among some of the EU member states in 2023 looks the following way:
= in some Nordic countries: Denmark with about $392 bn GDP (and about $70.000 per capita) is the first among 64 states in the world; Sweden with about $585 bn GDP and $65.000 per capita at eighth place; and Finland with about $280bn GDP and $58.000 per capita at 11th place.
= in other Baltic Sea States: Estonia with $38 bn GDP and $46.000 per capita at 26th place; Latvia with $38,4 bn GDP and $38.000 per capita at 51st place; Lithuania with $70 bn GDP and $46.000 per capita at 32nd place.
= among EU countries in the “trillion category”: – Germany with $4 trillion GDP and $63.000 per capita at 22nd place; – France with about $2,8 trillion GDP and $54.000 per capita at 33rd place; – Italy with $2 trillion GDP and $51.000 per capita at 41st place; – Spain with about $1,4 trillion GDP and $46.000 per capita at 36th place; – the Netherlands with about $925 bn GDP and over $68.000 per capita at 5th place in the world.
Additionally: Austria with over $470 bn GDP at 24 place in the world; and Poland with $688 bn GDP and $42.000 per capita at 43rd place.

Information about other states can be easily obtained from: https://www.imd.org/centers/wcc/world-competitiveness-center/

     Our comment. For about a century, the most widely accepted measure of national economic growth has been the Gross Domestic Product, GDP as an indication of marketed economic activity, but not a real socio-economic sustainability and peoples’ wellbeing. The GDP gives quite incomplete picture of the system within which socially-just economy should operate. However, still up to the present time, the economic growth is measured by the GDP-notion and i s regularly referred to by economists, politicians, decision-makers, etc. as an ultimate denomination of an overall national progress. Even internationally, such prestigious bodies as the IMF and the World Bank use GDPs to depict national “efficient policies” and determine the countries’ progress in the world. It has been already widely recognized that the GDP-based activities encourage rapid depletion of natural resources, as well as degrading and devastating ecosystems. Besides, it doesn’t include volunteering and socially-organised work towards sustainability and doesn’t pay attention to the growing income disparities in societies, both nationally and globally.

Open AI and ChatGTP-4
The digital economy is set to carry more weight in the future, as the “Internet of Things” IoT, artificial intelligence AI, virtual reality, blockchain, self-driving cars, and other digital technologies have already shown. The latest developments in digital transformation include hybrid work, intelligent search through AI and OpenAIs, as well as robotic process automation to drive industrial processes, customer data platform solutions to drive customer value and experience, integrated Agile DevOps to drive innovation, and IT Service Management, to name a few…
OpenAI is a by-product of a widespread use of artificial intelligence’s means; it first entered social agendas at the end of November 2022 by releasing innovative ChatGPT as a “research preview”.
Already in January 2023, the OpenAI has been the fastest-growing user base, achieving an estimated 100 million active users: e.g. Similarweb, an internet analytic firm, estimated that ChatGPT attained an average of 13 million unique visitors per day. ChatGPT had many successes over the ensuing months, including powering Microsoft Bing, the second most popular search engine in the world. ChatGPT is an internal artificial intelligence (AI) project that OpenAI initiated in December of 2015; there were many evolutionary releases starting with GPT-1 in June 2018, GPT-2 in February 2019 and GPT-3 in June 2020. Through this rapid and continual advancement, ChatGTP is currently in its fourth generation.

  The national economies that want to develop a solid roadmap for digitalization should invest in talent, training and education, as well as into scientific research, concentration and innovation.
In 2022, five most digital economies were in Denmark (it ousted the USA for the first time since 2017), USA, Sweden, Singapore and Switzerland.
Denmark’s triumph is in large part due to its outstanding performance in future resilience: i.e. global competitiveness council, WCC defined the degree of a state’s priorities as “preparedness to exploit digital transformation”. Denmark has been regarded as a global leader (among 63 states); it has performed strongly in such parameters as, e.g. business agility, IT integration and education. It has also reached the fifth rank in such a category as “governing adaptive attitudes”; besides, Denmark remains among the world’s leading economies in digital talent and training. As the WCC confirms, “progressive digital nations” appear as a “result of combination” of such digital parameter as talent, optimal digital regulation, data governance, digital “attitudes” and the availability of capital.
Reference to: https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-digital-competitiveness-ranking/

Example: Belgian digital plan
Belgian’s legislators in the beginning of December 2023 discussed the proposed “digital Brussels plan” drafted by the country’s digitalization ministry. The proposal aims to make administrative services fully available online, though dozens of associations and unions heavily protested saying that the plan “will deepen the digital divide and social inequality” in the country. According to protesters, many of whom have a vested interest in keeping jobs in the sector, transferring public services online would exacerbate the digital divide and thus social inequality as well.

Thus the main argument was that the plan would make life harder for those who do not own a computer or do not know how to use the internet claiming that “more than 40 percent of adults in Belgium do not have the digital skills that would allow them to access online services”. According to the EU-wide Digital Economy and Society Index, Belgium offers around 84 percent of administrative procedures online, compared with 75 percent for the EU average.
Citation and source: https://www.politico.eu/article/farewell-brussels-bureaucracy-digital-brussels-proposal-creates-controversy-protests/

  There are certain digital competitiveness factors defined by the world competitiveness council; thus recent global competitiveness report underlined three main factors determining digital economy’s “potentials”, among them are:
1. Knowledge, as the necessary know-how needed to discover, understand and build new technologies with the availability of such sub-factors as: talent; training and education, and scientific “concentration”.
2. Technology, as the background of an overall politico-economic context that enables the development of digital technologies; with such sub-factors as: regulatory framework, available capital, and technological framework.
3. “Future readiness”, which is regarded as the level of country preparedness to exploit digital transformation; with sub-factors as: adaptive attitudes, business agility, and IT Integration.
Generally, in national competitiveness the following factors shall be included: – economic performance, – government efficiency, – business efficiency, and – infrastructure.

 

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