urope's economy is in good shape - and that's official. In its review of the economy in the year 2000(1), the European Commission points out that, despite reversals due to factors such as the Asian financial crisis, growth in the EU has experienced a strong upturn in the last three years, reaching a peak of 3.5% in the first half of 2000. Employment is benefiting as a result - employment growth is expected to be around 1.25% over the next two years, implying the creation of around 4 million new jobs. The unemployment rate is expected to drop to 7% by the end of 2002, the lowest figure for 20 years.
Increased use of alternative energy sources has helped to shield Europe from the worst effects of oil price volatility.
Part of the reason for this robust performance is Europe's decreasing dependence on oil, due to such factors as the substitution of alternative energy sources and the shift in economic activity towards services rather than energy-intensive industries. This has insulated it somewhat from the effects of wildly fluctuating crude oil prices. And a culture of stability is emerging - expectations of low inflation are now entrenched, and are reflected in a reduced tendency to detrimental inflationary spirals.
'New economy' for a new century
Many economists are postulating a new model - the so-called 'new economy' - to explain Europe's new-found prosperity. The definition of this new economy emerging from economic research is one of permanent increases in productivity, reduction in structural unemployment, low inflation, and more stable output growth. For them the scenario is strikingly similar to the conditions prevalent in the United States during the late 1990s, which were responsible for its phenomenal growth in that period.
So, is Europe entering an equivalent phase of economic expansion, and what other factors are at work? The jury is still out on whether we can match recent US growth performance. Some indicators suggest that Europe is lagging behind the USA by around five years, so we may just be entering a period of rapid growth - it is simply too early to tell. But many experts agree that if this does happen information and communication technologies (ICT) will be among the major factors of growth performance.
The increasing use of ICT by business and the public sector contributes to lower production and transaction costs and raises productivity. Evidence suggests that the production and use of ICT products and services accounts for around three-quarters of the growth in US GDP witnessed over the last five years.
It is clear that Europe is behind the USA in embracing ICT - in 1999, expenditures on ICT in Europe and the USA were 7% and 8% of GDP respectively. Expressed as expenditure per capita, this means that levels in Europe are just 60% of those in the USA. Figures for the EU's ICT sector point to a contribution of 0.5%-0.7% to output growth in the second half of the 1990s - similar to that in the USA before 1995, again pointing to a gap of around five years.
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Boom or gloom?
It therefore seems that Europe could be on the verge of a US-style boom. But does it have the technical and human resources to succeed, and is the business environment sufficiently supportive? Further, do the Commission and Member States have a role to play in encouraging RTD and innovation in the ICT sector? In the Research DG, ICT is considered a well-established industry. Priorities are oriented towards promising long-term scientific and technological areas. ICT is among the high-tech and knowledge-intensive activities, so it is taken into account at the same level as other EU priorities. The fact that there is a Directorate-General specifically responsible for the information society shows that the Commission is conscious of the importance of this sector. Technical developments take place at breakneck speed, but firms are now able to organise their own RTD programmes. They do not need administrators to tell them what to do.
But Europe may have a problem. Across the various high-tech sectors, there are fewer industrial research scientists and engineers (RSEs) in Europe than in either the USA or Japan - respectively, 2.5, 7 and 6.3 per thousand labour force (see figure)(2). In the Research DG's view, the problem is not confined to ICT - most high-tech industries are suffering. Member States recognise this and are trying to encourage more students to study technological subjects at university level. But there is no immediate 'supply and demand' solution. It takes between five and six years to train a researcher, so efforts today will only bear fruit in the medium term.
Include me in
Europe is, of course, a very different place from the US, and there is no guarantee that a given set of economic circumstances will produce a similar result here.
European values are, historically, more inclusive than American ones. Europe may not choose to follow the US path, preferring to promote social cohesion by ensuring that the knowledge-based society is open to all. As Swedish Minister for Education and Research Thomas Östros stated in a recent interview(3): "What drives employment is the knowledge-based industry. Resources in research and education are the most important growth-stimulating instrument today. Education can create a flexible labour market and contribute to entrepreneurship."
(1) European Economy No 71. 2000 Review, downloadable from
(2) Science Technology and Innovation,
Key Figures 2000 (EUR 19396).
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(3) See ERA News