The Draghi report, to strengthen European competitiveness and not lose the race against the United States and China, highlights one of the bloc’s weaknesses: the lack of innovation. The rescue fund warns that member states with low levels of the decline in R&D investments has led to a reduction in this element even more so during budgetary consolidation processes, as is the case in Spain.
“Countries with lower R&D spending reduce it more than their counterparts during budget consolidation processes,” the authors of the European Stability Mechanism (ESM) point out in a report to which El Economista had access. A situation that is getting even worse, the gap and fragmentation within the EU.
Therefore, when preparing the adjustment plans that governments must present to the European Commission by mid-September, countries must seek a balance between the need for consolidation and strengthening competitiveness, the article says. “The medium-term perspective of the new economic governance is conducive to break this vicious circle,” consider.
In fiscal consolidation processes, countries with moderate levels of research and development (R&D) have seen a greater reduction in their spending in this area than Member States that are leaders in innovation. “Fiscal consolidation has led governments to prioritize immediate budgetary needs compared to long-term investments in innovation, especially in countries where innovation is less developed,” the authors of the bailout fund article point out.
The situation ends up becoming a whiting that bites its own tail. The countries least advanced in terms of innovation spending find themselves in a vicious circle in which the gap between the most advantaged countries widens, their competitiveness is reduced, which perpetuates even more cuts in R&D&I. This is why the rescue fund emphasizes that maintain stable spending levelsIt is important to act during a process of budgetary consolidation to avoid further technological fragmentation in the euro area.
Indeed, in the Member States most advanced in terms of innovation, The private sector is a fundamental part of the equation since it efficiently allocates resources to compensate for the decline in public investment levels. A situation that evolves completely in the opposite direction in countries with low levels of innovation, where private investment goes hand in hand with public investment and therefore the innovation gap widens.
The authors of the article believe that fiscal policy has a lot to do with this process. Consolidations that use spending cuts do not reduce funding for public research, but if it is a consolidation that relies on tax increases to balance the budget, it tends to reduce the resources that companies allocate to R&D.
This second path, the ESM authors point out, is associated with “a reduction in the growth rate of investments and a decline in consumer confidence” and, at the same time, reduces public and private spending. Conversely, expenditure-based fiscal consolidation “tends to encourage private investment and offset reductions in public spending.”
