The Hindu Business Line : Despite reduced rankings — `EU economies manage to keep ahead of India, China'

Despite high growth rates, China and India have yet a long way to go to match European competitive edge.
Both countries have yet to go through basic economic, trading and monetary reforms backed by drastic cut in cumbersome bureaucracy and efforts to improve infrastructure.

London , Sept. 30

MAJOR European Union economies are currently passing through a phase of "statistical uncertainty" but poor record of the main economies is a "side issue" for investors. The stock markets are "certainly not depressed" and at the corporate level there is much "optimism".

This is highlighted by the latest survey of German firms by the Munich-based IFO Institute for Economic Research, which reports that the German firms are "more upbeat" about future trading and profit prospects.

The German firms are reporting "exceptionally high" export performance and the same trend is evident in France, Italy, Spain and Britain.

However, these economic powers have lost ground in the World Economic Forum's annual ranking of global competitiveness. Analysts attribute this to various causes such as sluggish economic growth (below 1.2 per cent) large budget deficits and high labour costs.

Then the gloomy state of public finances have been compounded by the European Commission's inability to "impose checks and balances" as current budget deficit in major EU economies exceed more than three per cent mark set as an outer limit by the European Commission. But despite such forebodings, the trade and export figures are healthy and by the year-end, the EU economies would have raised their economic and trading profile in the global market place.

It is also argued that the so-called "European Solidarity" is weakening, as the European Commission is unable to "police" its own basic trade rules. The cracks in European solidarity have become more pronounced as the member-states pursue policies of their own "national self-interest".

The non-European observers are often amazed at the "overt enthusiasm" displayed by individual EU states to enter into bilateral relations with emerging markets led by China and India.

Hence, according to Indian observers, the unfolding scenario also offers fresh opportunities for trade and investment.

The Indian companies have so far — with the exception of handful of global trading companies — failed to exploit these opportunities.

On other hand, China's international trading companies are busy establishing a firm foothold in the European markets. As China's exports pick up fresh momentum. China's trade surplus in 2004 reached $34-billion mark and according to current projections it may hit the psychologically sensitive $100-billion mark. Hence, there is "edgy nervousness" on both sides of the Atlantic laced by determination not to "hurt or upset" the Chinese as both Europeans and Americans want to be major beneficiaries of vast and lucrative trade and investment opportunities in China, which may report record economic growth (between 9.5 and 10 per cent) by the year-end.

Despite high growth rates, China and India have yet a long way to go to match European competitive edge and both countries have yet to go through basic economic, trading and monetary reforms backed by drastic cut in cumbersome bureaucracy and efforts to improve infrastructure. The World Economic Forum sites China and India as "greatest threat" to fast declining European competitive edge because both countries are accused of "flooding" the global markets with "cheap" goods.

This phenomenon has triggered pan-European quest to adopt more "protectionist" measures but the more enlightened public opinion on both sides of the Atlantic have pleaded for policies of free trade.

Finland topped the list of "competitive "nations in 2004 and the US was second but there are major question marks about the economic viability of the US highlighted by record trade deficit, large budget deficit and low household savings. But despite reduced rankings, major EU economies manage of keep ahead of China and India.

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