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Europe is marred by falling competitiveness says EIB

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Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

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The European Investment Bank (EIB) has been deploying capital in Ireland for years, but it's only since the financial crisis took hold that the Government has pounced on the agency's involvement in the economy as a signal that at least someone believed in our future.

Within the past few years, the EIB has helped fund a variety of projects in Ireland, including €150m being provided by it to finance an investment fund for social housing. The Government is matching that funding through the Housing Finance Agency.

Last year, the EIB also provided a €200m credit line to the Government's new Strategic Banking Corporation.

In its new annual economic report, the EIB said that Europe faces the "long-lasting challenge" of declining productivity and competitiveness, which has made it more vulnerable to economic turmoil.

This is undermining the recovery and threatens Europe's economic well-being over the longer term. Quite simply, the EIB argues that Europe isn't investing enough - literally - in its own future.

It pointed out that European Union gross fixed capital formation (GFCF) - a fancy macroeconomic term for improvements in tangible assets such as land; investment in plant and machinery, and infrastructure construction - remains weak and is growing at only half the rate it is in the United States.

"Depressed investment in dwellings and other structures, including infrastructure, continues to weigh heavily on overall investment figures," according to the EIB.

In Ireland, that GFCF performance is accelerating faster than in Europe as a whole, with domestic GFCF having expanded by a heady 11.3pc in 2014, albeit coming off a lower base as the economy emerges from the doldrums.

Ireland is a standout in this regard compared to a group of vulnerable countries the EIB considers it to be part of and which also includes Cyprus, Greece, Italy, Portugal, Slovenia and Spain.

"Fixed investment in these countries plummeted in 2009 and continued to fall unabatedly until early 2013, when it stabilised at about two-thirds of the 2008 average level," it notes in its report published this month.

"Fixed investment has clearly picked up only in Ireland and has stagnated in the rest of the countries in this group."

The bank also points out that investment in research and development within Europe lags that of other advanced countries such as the US and Japan, and at 2pc of GDP remains well below a 3pc target that was set to be reached by 2020.

The EIB said that undermines the ability of EU firms to compete at the high value-added technology frontier.

The bank insists that innovation; being at, or moving towards, the technological frontier; and the ability of economies to adapt quickly to new growth opportunities are essential for creating dynamic economies.

Irish Independent