Final Report Observatory On Europe 2013

OBSERVATORY ON EUROPE 2013
Improving European Integration and Competitiveness
OBSERVATORYONEUROPE2013-ImprovingEuropeanIntegrationandCompetitiveness
June
2013

OBSERVATORY ON EUROPE 2013
Improving European Integration and Competitiveness

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Advisory Board OBSERVATORY ON EUROPE 2013
Improving European Competitiveness and Integration
Advisory Board Members – Scientific Committee:
José Maria Aznar President, FAES – Foundation for Economic and Social Analysis;
Former Prime Minister, Spain
Antonio Borges Professor of Economics at Catolica Lisbon School of Business and
Economics; Former Director of the European Department
of the International Monetary Fund
Valerio De Molli Managing Partner, The European House - Ambrosetti;
Chairman, Advisory Board “Observatory on Europe”
Wolfgang Schüssel Former Federal Chancellor of Austria
Advisory Board Members – Business Leaders:
Nani Beccalli-Falco President and Chief Executive Officer, GE Europe;
Chief Executive Officer, GE Germany;
Senior Vice President, GE and Member of the Group’s
Corporate Executive Council
Hendrik Bourgeois Vice President European Affairs, GE
Nicolas Denis Vice President, Philip Morris Italy
Dario Caprioli Vice President, Legal Risk and Regulatory Affairs, Ing Direct Italy
Damiano Castelli Chief Executive Officer, Ing Direct Italy
Cliff Corso Chief Executive Officer & Chief Investment Officer,
Cutwater Asset Management
Christopher Keating Managing Director, Global Sales & Distribution,
Cutwater Asset Management
Livio Vanghetti Vice President EU Corporate Affairs, Philip Morris International
This report is a research study coordinated by the Advisory Board and carried out by the The European House
- Ambrosetti project team composed of: Emiliano Briante, Costanza Monari, Ilaria Russi, Brian Terracciano.

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INDEX
PREFACE by Valerio De Molli ....................................................................................................................................................................................... 6
1 INTRODUCTION ....................................................................................................................................................................................................... 11
1.1 The Observatory on Europe .................................................................................................................................................................... 11
1.2 The 2013 project aims and methodology ................................................................................................................................... 12
2 EU-27 COMPETITIVENESS INDEX .................................................................................................................................................................. 17
2.1 Introduction and methodology ............................................................................................................................................................ 17
2.2 External Openness ...................................................................................................................................................................................... 20
2.3 Innovation & Education ............................................................................................................................................................................ 26
2.4 Macroeconomic Stability ........................................................................................................................................................................ 32
2.5 Business Environment .................................................................................................................................................................................. 38
2.6 Labour Market ................................................................................................................................................................................................. 43
2.7 People & Wellbeing .................................................................................................................................................................................... 48
2.8 Finance ................................................................................................................................................................................................................ 55
2.9 Public Sector ...................................................................................................................................................................................................... 61
2.10 Environment ................................................................................................................................................................................................... 66
2.11 Networks ............................................................................................................................................................................................................. 71
2.12 The EU-27 Competitiveness Index final ranking ..................................................................................................................... 76
3 MONITORING THE IMPLEMENTATION OF THE SINGLE MARKET ACT .................................................................................. 81
3.1 Twenty years of Single Market: main achievements ............................................................................................................ 81
3.2 Completing the Single Market: a work in progress .............................................................................................................. 83
3.3 The Single Market Act (SMA) ............................................................................................................................................................... 84
3.4 The Observatory on Europe’s assessment of the implementation of the Single Market Act ................ 85
3.5 The Single Market Act II (SMA II) ....................................................................................................................................................... 92
BOX - Citizens’ and businesses’ 20 main concerns ...................................................................................................................... 92
BOX - Many actions recommended by the Observatory on Europe last year are now included
in the Single Market Act II ................................................................................................................................................................ 94
3.6 The Observatory on Europe’s assessment of the implementation of the Single Market Act II ............ 94
4 THE AGENDA FOR THE COMPETITIVENESS OF EUROPE’S ECONOMY AND FINANCIAL SYSTEM
by Antonio Borges ............................................................................................................................................................................................. 103
4.1 The economic rationale behind the introduction of the Euro .................................................................................. 103
4.2 Failures and success stories: what went right and what wrong ............................................................................. 103
4.3 The effective causes of the financial crisis ............................................................................................................................. 106

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4.4 How to recover in those countries which face difficulties? ......................................................................................... 107
4.5 How to stimulate the development of capital markets in the EU? ........................................................................ 110
5 MANUFACTURING EUROPE: the challenge of reindustrialisation ................................................................... 113
5.1 The changing face of manufacturing .......................................................................................................................................... 113
BOX - Re-shoring in the US ........................................................................................................................................................................... 116
5.2 Structural change, competitiveness and economic crisis: the state of the art
of manufacturing in Europe ................................................................................................................................................................ 118
5.3 The 7 pillars to re-launch manufacturing competitiveness ........................................................................................... 125
BOX - The German apprentice system ............................................................................................................................................... 136
6 INNOVATION: A CRUCIAL ENABLER TO PUSH EUROPE’S COMPETITIVENESS FRONTIER
TOWARDS THE FUTURE ....................................................................................................................................................................................... 143
6.1 Why innovation today .............................................................................................................................................................................. 143
BOX - Horizon 2020: a potential game changer? .................................................................................................................... 144
6.2 The EU innovation deficit in international perspective ..................................................................................................... 147
BOX - Some paradigmatic European business stories: Nokia and Skype .................................................................. 151
6.3 The building blocks of the EU innovation gap ....................................................................................................................... 152
6.4 The role of the private sector ............................................................................................................................................................ 156
BOX - Innovation as the magic concept for growth today – by Wolfgang Schüssel ....................................... 160
6.5 Conclusions ..................................................................................................................................................................................................... 163
7 A CRUCIAL LEVER FOR RELEASING THE EU’S GROWTH POTENTIAL: ENTREPRENEURSHIP ................................. 165
7.1 The challenge of entrepreneurship in the EU .......................................................................................................................... 165
7.2 Measuring the “Entrepreneurial” gap between the EU and the US ........................................................................ 166
7.3 The key determinants of entrepreneurship .............................................................................................................................. 170
7.4 Conclusions ...................................................................................................................................................................................................... 178
8 THE EUROPEAN BUSINESS LEADERS SURVEY ..................................................................................................................................... 181
8.1 Why and how ................................................................................................................................................................................................. 181
8.2 Main results ...................................................................................................................................................................................................... 182
9 POLICY RECOMMENDATIONS ................................................................................................................................................................... 191
9.1 Manufacturing sector: towards a European business model ...................................................................................... 191
9.2 Regulatory environment: developing a common and facilitating framework for business .................. 192
9.3 Entrepreneurship: promoting a pro-business culture and the framework conditions
for the creation and growth of enterprises ............................................................................................................................. 193
9.4 Innovation: push Europe’s competitiveness frontier towards the future .............................................................. 194
9.5 Capital and financial markets: new channels for credit ................................................................................................ 195
BIBLIOGRAPHY ................................................................................................................................................................................................................ 197

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PREFACE
Preface
The Eurozone economy shrank more than expected in 2013: the 17-nation currency bloc has now been in
recession for six consecutive quarters – even longer than the deep recession following the global financial
crisis of 2008.
There is no doubt that Europe needs its real economy now more than ever to underpin the economic re-
covery. Thus, EU actions should be designed to reverse the current downward trend and promote a path of
reindustrialisation for Europe.
The phrase ‘Industrial Revolution’ may be hundreds of years old, but it will be reborn in the 21st
century. Europe
should invest in – and rely on – reindustrialisation to foster economic recovery, ease environmental strains
and consolidate Europe’s standing as a global industrial leader. And while the last Industrial Revolution gave
birth to modern technology, the next Industrial Revolution will help create future technology.
In a fast-changing world, if the EU wants to maintain its position as one of the world’s leading economic
blocks, it must provide the right framework conditions capable of attracting companies to invest in Europe.
Having said that the Observatory on Europe very much welcomes the European Commission’s recent clear
message stressing that industry is vital for economic recovery, that industrial output must grow and reach
20% of GDP and that the policy focus has shifted towards reaching this target, in terms of growth and job
creation1
.
As European Commission Vice-President Antonio Tajani, Commissioner for Industry and Entrepreneurship, re-
cently underlined, “We cannot continue to let our industry leave Europe. Our figures are crystal clear: European
industry can deliver growth and can create employment […] By working together and restoring confidence,
we can bring back industry to Europe”.
The Observatory on Europe is eager to participate in the debate on how to achieve this goal: in this report
we outline what we perceive as the right framework conditions and how Europe should operate to attain
them. We highlight hereafter a number of core issues for our industry, as we believe improvements will help
to trace the path towards a stronger manufacturing economy in Europe: we cover the areas of the internal
market, the EU’s policies on regulation, labour market reforms, finance, innovation, human resources, skills
and entrepreneurship, ultimately suggesting concrete recommendations to the European decision-makers.
We continued to make the results of all of our analyses available online. The website www.observatory-
oneurope.eu allows everybody to access, in an interactive manner, the data and rankings developed by the
Observatory on Europe, such as the EU-27 Competitiveness Index. Search criteria and a very user-friendly visu-
al interface facilitate information retrieval and comparisons among States’ performances. We think this could
1 - Communication from the Commission to the European Parliament, the Council, the European economic and social committee and the Com-
mittee of the Regions, “A Stronger European Industry for Growth and Economic Recovery, Industrial Policy Communication Update” Brussels,
10.10.2012

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PREFACE
be a very useful tool for policy makers, researchers, officials, and everybody actively involved in building a
stronger and more competitive European Union.
We would like to express our deepest gratitude to our outstanding Scientific Committee for their work of
guidance and supervision. It is composed of:
- José Maria Aznar (President, FAES – Foundation for Economic and Social Analysis; Former Prime
Minister, Spain);
- Antonio Borges (Professor of Economics at Catolica Lisbon School of Business and Economics; Former
Director of the European Department of the International Monetary Fund);
- Wolfgang Schüssel (Former Federal Chancellor of Austria).
In addition we would like to thank very much Mr. Markus Kerber (CEO and General Director, BDI - Federation
of German Industries) and Mr. Neville Reeve (Senior Policy Analyst, DG Research and Innovation, European
Commission) for their contribution during our Advisory Board meetings.
As always, the Observatory’s approach was very practical in trying to meet business leaders’ expectations in
the best possible way. Therefore, a special thanks goes to the business leaders that believed in this project
and actively participated in the Advisory Board: Ferdinando “Nani” Beccalli Falco (President and Chief Execu-
tive Officer, GE Europe; Chief Executive Officer, GE Germany; Senior Vice President, GE and Member of the
Group’s Corporate Executive Council), Hendrik Bourgeois (Vice President European Affairs, GE), Alessandro
Coppola (Director Government Affairs and Policy, GE Italy), Livio Vanghetti (Vice President EU Corporate Af-
fairs, Philip Morris International), Nicolas Denis (Vice President, Philip Morris Italy), Eleonora Santi (Corporate
Affairs, Philip Morris Italy); Damiano Castelli (Chief Executive Officer, Ing Direct Italy), Dario Caprioli (Vice
President Legal Risk and Regulatory Affairs, Ing Direct Italy), Cliff Corso (Chief Executive Officer & Chief Invest-
ment Officer, Cutwater Asset Management) and Christopher Keating (Managing Director, Global Sales &
Distribution, Cutwater Asset Management).
Since its foundation, the Observatory has always adopted a pro-European position, with the clear objective
of contributing to create a stronger Europe from an economic, social and political standpoint. For these
reasons we are deeply concerned by the rising scepticism – of citizens and enterprises – towards Europe.
Recent data shows that public confidence in the European Union has fallen to historically low levels in the
six biggest EU countries. After financial, currency and debt crises, wrenching budget and spending cuts, Euro
scepticism is soaring, as figures from Eurobarometer – the EU’s polling organisation – show a vertiginous de-
cline in trust in the EU in countries such as Spain, Germany and Italy that are historically very pro-European.

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PREFACE
Figure 1. Nationals who said they tended not to trust the EU, as an institution (% of total respondents), 2007-2012 –
Source: The European House - Ambrosetti re-elaboration on Eurobarometer data, 2013
On the contrary we believe that the crisis has amplified the urgent need for a stronger co-operation and
governance at European level and bold reforms at national level.
In this sense, we sincerely hope that the 2013 Observatory on Europe’s analyses and recommendations – as
well as the debate we would like to encourage during our annual Forum – can contribute to face the dif-
ficult challenges we are experiencing and orient policy making towards a stronger and more united Europe
in the near future.
To conclude, I would relish the opportunity to quote the inspiring words that Winston Churchill addressed to
the academic youth, at the end of his speech at the University of Zurich in 1946:”There is a remedy which ...
would in a few years make all Europe ... free and ... happy. It is to re-create the European family, or as much
of it as we can, and to provide it with a structure under which it can dwell in peace, in safety and in freedom.
We must build a kind of United States of Europe.”
Valerio De Molli
CEO & Managing Partner, The European House - Ambrosetti
Chairman, Observatory on Europe

11
INTRODUCTION
1
1 INTRODUCTION
1.1 The Observatory on Europe
The Observatory on Europe is a European think tank conceived and set up in 2005 by The European House -
Ambrosetti with the contribution of an outstanding Scientific Committee1
.
Mission of the Observatory on Europe
The aim of the Observatory is to pragmatically contribute to the success of the European Union, provi-
ding its political and economic leaders, as well as its citizens, with high-quality studies, analyses and pro-
posals in order to help them build a stronger Europe from an economic, social and political standpoint.
This mission is particularly important today, given the slow and weak recovery following the global crisis in
many European countries and the Eurozone tensions.
The Observatory’s activity is overseen by an Advisory Board, made up both of European experts on the
issues being analysed (Scientific Committee) and business leaders representing the international sponsor
companies.
The Observatory on Europe aims to proffer concrete recommendations to enhance the EU’s integration
process and European competitiveness. These recommendations are always accompanied by a fact-driven
analysis of the competitive scenario at the Member State level and of the EU as a whole. Over the years,
the Advisory Board has selected and focused on the critical issues that present significant risks and/or op-
portunities for Europe.
The Observatory on Europe organises Forums in Brussels during which the work of the Advisory Board is pre-
sented to an international audience and discussed with leading members of national and European institu-
tions as well as business leaders.
Furthermore, since 2008, a Central and Eastern European “spin-off” of the Observatory has operated with a
distinct focus on the newest European Member States, with a Forum held in Budapest (see Figure 1).
1 - It included Mario Monti, who advised the project up to the very moment that he accepted to become Prime Minister of Italy in November
2011, Laurent Fabius, and the late Loyola de Palacio.

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INTRODUCTION
1
Figure 1. The Observatory on Europe Milestones
The Reports that were presented in past Forums are available online, on the think tank’s website (www.ob-
servatoryoneurope.eu), which also contains a collection of tools, animated graphs and data resulting from
the quantitative analyses of the project.
1.2 The 2013 project aims and methodology
The Observatory on Europe 2013 developed its analyses with the following aims:
- Update the Observatory on Europe EU-27 Competitiveness Index, which aims at measuring the cur-
rent level of competitiveness of the EU-27 Member States and their trend over the past 5 years, iden-
tifying strengths and weaknesses of the EU-27 MSs in relation to the diverse competitiveness factors
and having a better understanding of the European competitive environment.
- Monitor the implementation of the Single Market Act and Single Market Act II proposals and to draw
up a list of recommendations to be implemented in order to enforce the Internal Market.
- Carry out a survey addressed to a restricted sample of top managers of European-based companies
in order to better understand what practitioners think about European integration and competitiveness.
- Study the performance of the European manufacturing sector and identify the key elements for its
future development, focusing on some key pillars of manufacturing competitiveness, particularly:

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• the financial system;
• innovation;
• entrepreneurship;
• the regulatory environment.
- Draw up a list of recommendations that Europe should implement in order to improve its world-
wide competitiveness (particularly regarding the manufacturing sector) and enhance the integration
process.
As in the past editions, these topics have been studied and developed with the contribution of an Advisory
Board comprising a qualified mix of experts who combine scientific knowledge with practical and pragmatic
experience.
The Advisory Board guaranteed the scientific accuracy of the work carried out as well as its link to the busi-
ness perspective. It comprises a Scientific Committee, business leaders and The European House - Ambro-
setti team.
Some eminent external experts either took part in the Advisory Board meetings or were interviewed in func-
tion of the needs that emerged over the course of the project2
.
The Scientific Committee comprises:
- José Maria Aznar (President, FAES – Foundation for Economic and Social Analysis; Former Prime
Minister, Spain)
- Antonio Borges (Professor of Economics at Catolica Lisbon School of Business and Economics; Former
Director of the European Department of the International Monetary Fund)
- Wolfgang Schüssel (Former Federal Chancellor of Austria)
Business leaders are:
- Ferdinando “Nani” Beccalli Falco (President and Chief Executive Officer, GE Europe; Chief Executive
Officer, GE Germany; Senior Vice President, GE and Member of the Group’s Corporate Executive
Council) and Hendrik Bourgeois (Vice President European Affairs, GE)
- Livio Vanghetti (Vice President EU Corporate Affairs, Philip Morris International) and Nicolas Denis (Vice
President, Philip Morris Italy)
- Damiano Castelli (Chief Executive Officer, Ing Direct Italy) and Dario Caprioli (Vice President Legal Risk
and Regulatory Affairs, Ing Direct Italy)
- Cliff Corso (Chief Executive Officer & Chief Investment Officer, Cutwater Asset Management) and
Christopher Keating (Managing Director, Global Sales & Distribution, Cutwater Asset Management)
This Report contains the analyses developed by and discussed among the Observatory on Europe’s Advisory
Board members between October 2012 and May 2013 (Figure 2).
2 - In particular, we would like to thank very much Mr. Markus Kerber (CEO and General Director, BDI - Federation of German Industries) and Mr.
Neville Reeve (Senior Policy Analyst, DG Research and Innovation, European Commission) for their contribution.

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INTRODUCTION
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Figure 2. The Observatory on Europe 2013 Project Framework

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EU-27
Competitiveness
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2 EU-27 Competitiveness Index
2.1 Introduction and methodology
The EU-27 Competitiveness Index measures, compares and examines the competitiveness of Europe’s coun-
tries.
Competitiveness is defined as the capability of an economy to maintain increasing standards of living for
those who participate within it, by attracting and maintaining firms with stable or rising market shares in an
activity. As such, the competitiveness of a country will depend on its ability to anticipate and successfully
adapt to internal and external economic and social challenges, by providing new economic opportunities.
The importance of the concept of competitiveness is now firmly embedded within economic policymaking in
Europe, and indeed around the world. Consequently, measuring, understanding and analysing competitive-
ness at a number of geographic levels has become a vital factor in creating an informed dialogue that can
contribute to a policy environment attuned to enhancing the economic performance of Europe’s nations.
The Observatory on Europe decided to focus its analysis on 10 Competitiveness Factors that are essential
for measuring a country’s level of competitiveness (Figure 1).
Figure 1. EU-27 Competitiveness Index: Competitive Factors and Weights
Each Competitiveness Factor was analysed by measuring specific Key Performance Indicators (KPIs). These
are basic quantitative indicators, chosen as suitable proxies for estimating the level of competitiveness of
each considered Member State. Both the significance of the KPI and the availability of a complete data-
base for all EU countries were considered very important. The logic followed was to select the “best” indica-
tors for describing the current European situation in each Competitiveness Factor.
As shown in Figure 2, 55 KPIs were selected and analysed.

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Figure 2. EU-27 Competitiveness Index: KPIs and Weights

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EU-27
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2

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EU-27
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2
The purpose of the EU-27 Competitiveness Index is to estimate the current level of competitiveness of the EU
and its Member States. Through the comparison with the competitiveness levels reported five years ago, it is
also possible to understand whether there were significant changes (both improvements and setbacks).
To allow comparisons and present an overall picture of the European Countries’ Competitiveness Index, the
scores were consolidated as follows:
- The Observatory on Europe assigned a weight to each Competitiveness Factor / KPI according to its
relative importance from a competitiveness standpoint (Figure 2).
- For each KPI, the best performer among the EU-27 Member States received a score of 10 (max
score) and the worst performer received a score of 1 (min score).
- The remaining Member States’ scores varied between 1 and 10, according to their relative perfor-
mance. The “scale” drove the scoring process and was calculated as follows:
Scale = (max value – min value) / (max score – min score)
- Having fixed the “scale”, each Member State’ score was computed as follows:
Score = [(country value – min value) / scale] + 1
- The Competitiveness Factors’ scores (i.e. each Member States’ level of competitiveness in that factor)
were calculated as a weighted sum of the KPIs’ scores.
- The Final Competitiveness score was calculated as a weighted sum of the Competitiveness Factors’
scores.
The following paragraphs will present the analysis of the indicators for each of the ten Competitiveness Fac-
tors. Each paragraph will close with an overall analysis of the Competitiveness Factor and a comparison with
the countries’ past rankings.
2.2 External Openness
The purpose of the Competitiveness Factor “External Openness” is to understand how European Member
States interact with foreign entities, and particularly:
- whether EU Member States attract investments from abroad or not (i.e. can European countries be
seen as an interesting business area?);
- whether EU Member States show a positive external balance on goods and services or not (i.e. can
European countries be successful in foreign markets?);
- whether EU Member States have favourable conditions for exports or not (i.e. is there a low cost to
export from European countries?).
Accordingly, the Competitiveness Factor “External Openness” has been analysed using the following KPIs
(Figure 3-7) and weights:

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- Imports and Exports, as a percentage of Gross Domestic Product – relative weight 20%
- External Balance of Goods and Services, as a percentage of Gross Domestic Product – relative weight
20%
- Foreign Direct Investment Stocks, as a percentage of Gross Domestic Product – relative weight 20%
- Foreign Direct Investment Flow Income, as a percentage of Gross Fixed Capital Formation – relative
weight 20%
- Cost to Export, US Dollar per container – relative weight 20%
Figure 3. External Openness – Imports and Exports (% of GDP), 2012 – Source: The European House - Ambrosetti re-
elaboration on Eurostat data, 2013

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Figure 4. External Openness – External Balance of Goods and Services (% of GDP), 2012 – Source: The European House
- Ambrosetti re-elaboration on Eurostat data, 2013
Figure 5. External Openness – FDI Stocks (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaboration on
UNCTAD data, 2013

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Figure 6. External Openness – FDI Flow Income (% of Gross Fixed Capital Formation), average 2008-2010 – Source:
The European House - Ambrosetti re-elaboration on UNCTAD data, 2013
Figure 7. External Openness – Cost to Export (US Dollar per container), 2012 – Source: The European House - Ambrosetti
re-elaboration on Eurostat data, 2013
BRIEF
ECONOMIC
OUTLOOK

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The overall ranking of the Competitiveness Factor “External Openness” (Figure 8) is calculated as the weight-
ed sum of the KPIs’ scores.
Figure 8. External Openness Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
Luxembourg still tops the rank this year, thanks to a good performance under almost every KPI: the size of
the economy has a considerable impact on the final score. However, as small as it may be, the economy of
Luxembourg is impressively open and integrated within the EU. Malta also performs very well under this Index
(2nd
), thanks to an impressive volume of “FDI Stocks” which is 187% bigger than the country’s GDP. After Malta,
we find Ireland in 3rd
position with a score of 5.8 mainly related to the positive external balance of goods and
services in 2012. The economies following Hungary all fair similar scores, ranging from 4.4 to 3.2. What is rather
surprising is the performance of Poland (20th
), which is comparable with the UK’s. Under this competitiveness
factor Bulgaria (22nd
) scores higher than economies such as France (23rd
), Spain (24th
) and Italy (25th
). These
countries are traditionally referred as closed economies and, in fact, all score rather poorly under the KPIs “Im-
ports + Exports”, “FDI Stocks” and “FDI Flow income”. We find Greece (26th
) and Romania (27th
) at the bottom
of the list: understandably Greece’s position was heavily penalised by performance areas related to exports,
external balance and FDIs, while Romania obtains very low scores under practically every KPI.
By going 5 years back in time, we register that both Luxembourg and Malta managed to maintain their
positions. However, one of the most interesting findings is Ireland, which has gained 11 positions thanks to a
substantial improvement of its external trade balance and to an impressive increase in FDI income.
Slovenia has also gained 11 positions, entering in the EU’s top ten best performers: in five years, the cost of
exporting has gone down by 25% (from 971$ to 745$), this had powerful implications on the country’s overall
performance.

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Figure 9. External Openness Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2012
Lithuania has opened considerably its economy, gaining 10 positions (from 21st
to 11th
): if in 2007 the
country’s imports and exports accounted for approximately 120% of its GDP, today the economy trades a
volume of goods and services close to 170%.
The Czech Republic has lost ground in these years, going from 8th
position down to 14th
: FDI flow income has
shrunk from an average of 20% of Gross Fixed Capital Formation (GFCF) down to 9%. Furthermore, export-
ing costs have risen by almost 50% going from 775 up to 1,145 US $ per container.
A very similar situation has been reported in Slovakia which, in fact, has lost 8 positions: FDI flows have gone
from 25% down to 7% of GFCF and exporting costs have risen by more than 50%.
A significant deterioration of the external trade balance costs 9 positions to Bulgaria which lands at 22nd
position.
France, Spain and Italy hardly improved their positions in the ranking and in fact they remain at the bottom
of the ranking, right before Greece and Romania.
BRIEF
ECONOMIC
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BRIEF
ECONOMIC
OUTLOOK

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2.3 Innovation & Education
The Competitiveness Factor “Innovation & Education” analysed the variables that directly affect Europe’s
future. Among these are the following two fundamental concepts:
- current investments in education, lifelong learning, etc., will result in higher levels of human capital in
the future;
- new technologies, products and processes currently are a prerequisite for future international competi-
tiveness.
Accordingly, the Competitiveness Factor “Innovation & Education” was analysed using the following KPIs and
weights:
- R&D Expenditure, as a percentage of Gross Domestic Product – relative weight 20%
- ICT Expenditure, as a percentage of Gross Domestic Product – relative weight 10%
- High-tech Exports, as a percentage of Total Exports – relative weight 10%
- Patents, per million inhabitants – relative weight 20%
- Tertiary Education, as a percentage of total population – relative weight 20%
- P.I.S.A. Score in Math & Science – relative weight 20%
Figure 10. Innovation & Education – R&D Expenditure (% of GDP), 2011 – Source: The European House - Ambrosetti re-

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Figure 11. Innovation & Education – ICT Expenditure (% of GDP), 2010 – Source: The European House - Ambrosetti re-
Figure 12. Innovation & Education – High-tech Exports1
(% of total exports), 2011 – Source: The European House - Am-
brosetti re-elaboration on Eurostat data, 2013
1 - This indicator is calculated as share of exports of all high technology products of total exports. High Technology products are defined as the
sum of the following products: Aerospace, Computers-office machines, Electronics-telecommunications, Pharmacy, Scientific instruments, Elec-
trical machinery, Chemistry, Non-electrical machinery, Armament (Eurostat).
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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Figure 13. Innovation & Education – Patents (per million inhabitants), 2010 – Source: The European House - Ambrosetti
re-elaboration on European Patent Office data, 2012
Figure 14. Innovation & Education – Tertiary Education (% of total population), 2012 – Source: The European House -
Ambrosetti re-elaboration on Eurostat data, 2013

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Figure 15. Innovation & Education – P.I.S.A. Score in Math & Science2, 2009 – Source: The European House - Ambro-
setti re-elaboration on OECD data, 2012
The overall ranking of the “Innovation & Education” Competitiveness Factor (Figure 16) was calculated as the
weighted sum of the KPIs’ scores.
Figure 16. Innovation & Education Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
2 - The Programme for International Student Assessment (PISA) is a worldwide study by the Organisation for Economic Co-operation and Develop-
ment (OECD) in member and non-member nations of 15-year-old school pupils’ scholastic performance on mathematics, science, and reading.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
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OUTLOOK

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The Nordic countries obtain very high scores under this competitiveness factor: Finland is 1st
with a score of
8.8, Sweden is 2nd
with a score of 7.4 while Denmark is 5th
with a score of 6.6. These high scores are mainly
the result of large investments in R&D and a high number of issued patents. The strong educational systems
of these countries confirm their positions.
Germany ranks 3rd
with a score of 7.0: the country has been investing a considerable portion of GDP in
R&D in the last years and an impressive volume of patents have been issued by the economy. The German
educational system is also commonly referred as very effective and performing: the PISA study confirms that
German students perform outstandingly under maths and sciences.
Shortly after Denmark, we find the UK and Luxembourg, both tied in 6th
position with a score of 6.4: while
the former scored very well in “ICT Expenditure” and “Tertiary Education”, the latter registers an outstanding
performance as for “High Tech Exports” and “Patents”.
France is in 10th
place (6.0), followed closely by Belgium (5.9): the overall performance of these countries is
average, even though Belgium obtains an excellent mark under “Tertiary Education”.
Scrolling down the ranking we see that Spain ranks 15th
(score 4.3), Italy ranks 23rd
(score 3.1), and Greece
ranks 25th
(score 2.9). All of these countries had a low number of issued patents, scarce exports of high-tech
products, and limited R&D.
The least competitive European economy in terms of Innovation and Education is Romania. The country
performs poorly in almost all KPIs.
Making a comparison with the results from five years ago, we may observe that the first 7 positions have
been stable throughout the period: Finland, Sweden, Germany, the Netherlands, Denmark, Luxembourg and
the United Kingdom all managed to maintain their respective positions.

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Figure 17. Innovation & Education Current and Past Competitiveness Index – Source: The European House - Ambrosetti,
2013
The central section of the chart (from the 8th
to the 19th
position) has been subject to marginal variations.
However, Portugal (from 23rd
to 20th
position), Poland (from 24th
to 21st
position) and Slovakia (from 25th
to
22nd
) have managed to climb 3 positions thanks to a moderate but comprehensive improvement of all KPIs:
in particular Portugal’s performance under the “ICT Expenditure” KPI has improved significantly.
Lastly, the comparison with 5 years ago underlines that Greece and Bulgaria have lost ground under this
crucial competitiveness factor: Greece has gone from 21st
to 25th
position while Bulgaria from 26th
to 22nd
.
The two countries have registered some minor improvements; however these were not sufficient to keep up
with the rest of the EU Member States.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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2.4 Macroeconomic Stability
The purpose of the Competitiveness Factor “Macroeconomic Stability” is to analyse the stability of economic
systems, and particularly:
- whether EU Member States have sustainable debt or not (i.e., if European Countries may be at risk to
default);
- how EU Member States are assessed by rating agencies;
- whether the progressive aging of the population will be sustainable or not (i.e. if the number of work-
ers will support the increasing number of retirees).
Accordingly, the Competitiveness Factor “Macroeconomic Stability” was analysed using the following KPIs
and weights:
- Inflation Rate – relative weight 12.5%
- Government Gross Debt, as a percentage of Gross Domestic Product – relative weight 25%
- Government Deficit/Surplus, as a percentage of Gross Domestic Product – relative weight 25%
- S&P’s Rating – relative weight 12.5%
- Old Age Dependency Ratio, ratio of 65 years old or over / 15-64 years – relative weight 25%
Figure 18. Macroeconomic Stability – Inflation Rate, 2012 – Source: The European House - Ambrosetti re-elaboration of
Eurostat data, 2013

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Figure 19. Macroeconomic Stability – Gross Government Debt (% of GDP), 2012 – Source: The European House - Am-
brosetti re-elaboration of IMF data, 2013
Figure 20. Macroeconomic Stability – Gross Deficit/Surplus (% of GDP), average 2009-2012 – Source: The European
House - Ambrosetti re-elaboration of IMF data, 2013
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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Figure 21. Macroeconomic Stability – S&P’s Rating, 2013 – Source: The European House - Ambrosetti re-elaboration of
S&P’s data, 2013
Figure 22. Macroeconomic Stability – Old Age Dependency ratio (65 years old or over / 15-64 years old), 2012 – Source:
The European House - Ambrosetti re-elaboration of Eurostat data, 2013

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The overall ranking of the “Macroeconomic Stability” Competitiveness Factor (Figure 23) was calculated as
the weighted sum of the KPIs’ scores.
Figure 23. Macroeconomic Stability Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
Luxembourg is the undisputed leader of this ranking. However an interesting finding is the impressive score of
Estonia (7.7) which ties in for 2nd
place with Sweden. Estonia’s performance is mainly due to its government
gross debt, which is only 8.2% of its GDP. Eastern European countries like Slovakia (4th
position) and the
Czech Republic (5th
position) but also Poland (tied in 5th
position with the Czech Republic) score very well
thanks to low government debt and good surpluses.
Despite excellent scores under almost every KPI, the performance of Nordic countries is undermined by cur-
rent demographic trends: the extension of life expectancy in these countries also implied a higher old-age
dependency ratio.
With a very good government surplus and rating, Austria reaches the 11th
position with a score of 6.8.
France and Germany are tied for 14th
place. France performs well in the KPI “Inflation Rate” while Germany’s
overall good performance is somewhat undermined by the old-age dependency ratio.
The United Kingdom ranks 19th
with a score of 5.9, while Spain falls back to the 21st
position with a score of 5.3.
In the case of Italy, the most penalising factors are undoubtedly gross government debt (126% of national
GDP) and old–age dependency ratio which is, by the way, the highest in Europe (32%). The recent struc-
tural reforms have improved substantially the governments surplus, however the final score (4.5) places Italy
at 24th
position.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
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The economic crisis also had serious repercussions on the macroeconomic stability of Greece which, in fact,
scores 3.3 and ranks last under this competitiveness factor.
With respect to five years ago, the ranking has substantially changed: only Luxembourg has managed to
keep its position.
Sweden has gained 5 positions thanks to a general improvement of all the observed KPIs (with the excep-
tion of old age dependency ratio). In 5 years time, Estonia has managed to climb 8 positions, tying in with
Sweden at 2nd
: the impressive result is mainly due to a remarkable improvement of the country’s credit rating
and government surplus. A very similar situation happened in Poland, which has managed to climb 12 posi-
tions in 5 years: from 17th
to 5th
position.
Austria has gained 8 positions landing from 19th
to 11th
thanks to a general improvement of the government’s
gross debt and surplus indicators.
Belgium (13th
position) and Germany (14th
position) have gained 9 positions under this competitiveness fac-
tor: the former has sensibly improved its performance under the KPI “Gross Government Debt” while the latter
has reduced its government net deficit.
Hungary has gone from the 26th
position up to the 17th
with a score of 5.9. The performance is mainly related
to the dramatic reduction of the government’s deficit, which has gone from -7.16% of national GDP down to
-1.87%. A relevant improvement has also been registered under the KPI “Government Gross Debt”.
The economic crisis had an impressive impact on Ireland, which went from 1st
: the
country’s performance was undermined by the significant deterioration registered under the KPIs “Gov-
ernment Gross Debt” and “Government Deficit/Surplus”. In fact, between 2004 and 2007 the average
balance of the government was +1.5% while the average between 2009 and 2012 was -16.5% of the
economy’s GDP. The deterioration of Ireland’s financial stability also had an impact on the S&P rating, which
has gone from AAA to BBB+. A similar pattern was registered in Spain, which has gone from 5th
position
down to 21st
: the deterioration of the government’s deficit and the downgrading performed by S&P cost 16
positions to the country.

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Figure 24. Macroeconomic Stability Current and Past Competitiveness Index – Source: The European House - Ambro-
setti, 2013
Ageing population had a significant impact on Lithuania’s score: due to poor performance under the KPI
“Old-age Dependency Ratio”, the country has gone from 13th
position down to 23rd
(10 positions).
Rising inflation and the recent credit downgrade issued by Standard and Poor’s are the main reasons for Cy-
prus’ poor performance: the country has lost 15 position going from 11th
down to 26th
with a final mark of 4.0.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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2.5 Business Environment
The Competitiveness Factor “Business Environment” measures the comfort of doing business in the European
Member States, and more specifically:
- the amount of time and money required to start a business;
- the tax burden;
- the business environment dynamics.
Accordingly, the Competitiveness Factor “Business Environment” was analysed using the following KPIs and
weights:
- Time to Start a Business, days – relative weight 10%
- Cost to Start a Business, percentage of Gross National Income per capita – relative weight 10%
- Total Tax Rate – relative weight 35%
- Time to Enforce a Contract, days – relative weight 10%
- Labour Freedom Index – relative weight 35%.
Figure 25. Business Environment – Time to Start a Business (days), 2012 – Source: The European House - Ambrosetti re-
elaboration of World Bank data, 2013

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Figure 26. Business Environment – Cost to Start a Business (% of GNI per capita), 2012 – Source: The European House
- Ambrosetti re-elaboration of World Bank data, 2013
Figure 27. Business Environment – Total Tax Rate3
, 2012 – Source: The European House - Ambrosetti re-elaboration of World
Bank data, 2013
3 - Total tax rate measures the amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductions
and exemptions as a share of commercial profits. Taxes withheld (such as personal income tax) or collected and remitted to tax authorities
(such as value added taxes, sales taxes or goods and service taxes) are excluded (World Bank).
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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Figure 28. Business Environment – Time to Enforce a Contract (days), 2012 – Source: The European House - Ambrosetti
re-elaboration of World Bank data, 2013
Figure 29. Business Environment – Labour Freedom Index4
, 2013 – Source: The European House - Ambrosetti re-elabora-
tion of Heritage Foundation data, 2013
4 - Quantitative measure that looks into various aspects of the legal and regulatory framework of a country’s labour market. Six quantitative fac-
tors are equally weighted, with each counted as one-sixth of the labour freedom component: Ratio of minimum wage to the average value
added per worker; Hindrance to hiring additional workers; Rigidity of hours; Difficulty of firing redundant employees; Legally mandated notice
period; Mandatory severance pay (The Heritage Foundation).

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The overall ranking of the Competitiveness Factor “Business Environment” (Figure 30) is calculated as the
weighted sum of the KPIs’ scores.
Figure 30. Business Environment Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
Denmark, with a score of 9.4, undoubtedly tops the rank: the economy excels under almost every KPI. In sec-
ond place we find Ireland with a score of 8.3: the country performs very well under the KPIs “Cost of Starting
a Business” and “Total Tax Rate”. Bulgaria also performs very well under these KPIs and lands in 3rd
position with
a score of 7.9. The United Kingdom and Cyprus are often regarded as economies with a business friendly
environment, and in fact, they rank respectively 4th
and 5th
.
After Cyprus, the economies follow closely each other: from Latvia’s 6th
position down to Spain’s 17th
, scores
range from 6.9 to 5.7. Overall, it should be noted that Eastern European and Baltic countries perform rather
well under this competitiveness factor: the Czech Republic ranks 7th
(with a score of 6.7) along with Luxem-
bourg, while Slovakia, Lithuania and Romania are right after the Netherlands which is in 9th
position.
Unexpectedly, Finland (16th
position), Sweden (18th
position) and Germany (20th
), all fall back into the chart
due to poor performance under the KPI “Labour Freedom”.
At the bottom of the chart we find France, Greece and Italy respectively in 25th
, 26th
and 27th
position. All
these countries present rigid labour markets and in fact perform poorly under the KPI “Labour Freedom”, how-
ever there are also individual factors which explain such scores. For instance the French economy requires
low costs to start a business but then presents a total tax rate close to 66% of business profits. Conversely,
total tax rate in Greece is on the EU average, while the cost of starting a business is particularly high.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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The least performing country is Italy. The economy is burdened by a total tax rate of 68% on business profits
and detains Europe’s negative record for time to enforce a contract: 1,210 days.
Figure 31. Business Environment Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
In the comparison with 5 years ago, Denmark and Ireland have remained stable at 1st
and 2nd
positions.
Bulgaria gained 2 positions thanks to a significant reduction in costs to start a business and total tax rates.
By going from 14th
to 7th
, the Czech Republic has gained 7 positions. The result is largely explainable by the
substantial improvement of the labour freedom index, which has gone from 66.1 to 85.5.
Spain has also climbed 9 positions, landing at 17th
position with a score of 5.7: the economy has reduced its
total tax rate from 50.2% of business profits to 38.7%. Furthermore, Spain has reduced the costs to start a
business by 48%. Similarly, Slovenia gained 6 positions, tying in for 18th
place with Sweden which has actually
lost 6 positions.
On the other hand, Estonia has fallen back by 7 positions: a 36% increase in tax rates and the increased
time to start a business have undermined the country’s performance under this indicator.

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2.6 Labour Market
The Competitiveness Factor “Labour Market” is fundamental since companies demand skilled and adapt-
able human capital. Labour economics seeks to understand the functioning and dynamics of the labour
market. Moreover, labour economics studies the supply and demand of labour services, in order to predict
the resulting pattern of productivity and employment.
Accordingly, the Competitiveness Factor “Labour Market” was analysed using the following KPIs and weights:
- Employment Rate – relative weight 25%
- Labour Productivity Index, per person employed – relative weight 35%
- Unemployment Rate – relative weight 20%
- Youth Participation, (employment rate for persons aged 15 to 24 years) – relative weight 20%
Figure 32. Labour Market – Employment Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of Eurostat
data, 2013
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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Figure 33. Labour Market – Labour Productivity Index (per person employed, EU-27=100), 2011 – Source: The European
House - Ambrosetti re-elaboration of Eurostat data, 2013
Figure 34. Labour Market – Unemployment Rate, 2012 – Source: The European House - Ambrosetti re-elaboration of Eu-
rostat data, 2013

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Figure 35. Labour Market – Youth Participation (employment rate for persons aged 15-24 years), 2011 – Source: The
European House - Ambrosetti re-elaboration of Eurostat data, 2013
The overall ranking of the “Labour Market” Competitiveness Factor (Figure 36) was calculated as the weight-
ed sum of the KPIs’ scores.
Figure 36. Labour Market Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
OUTLOOK

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The Netherlands are safely placed in 1st
position with a score of 8.5, thanks to a strong performance under
the KPIs “Employment” (10.0), “Unemployment” (9.5) and “Youth Participation” (10.0). Thanks to an unem-
ployment rate set at 4.2%, Austria reaches the 2nd
position with a score of 8.0. Denmark follows closely
thanks to a very good performance under the “Employment” KPI (9.2).
The other Nordic countries also perform quite well: Sweden is 4th
with a score of 7.4 and Finland is 8th
with a
score of 6.6. Both countries present very good employment and unemployment rates and present a youth
participation rate which is approximately 10 percentage points higher than the EU average.
Germany ties in 4th
position with Sweden, thanks to an impressive employment rate: 72.5%. The German
model is also particularly successful in involving younger generations into the labour market and in fact pres-
ents a youth participation close to 48%.
France is in 10th
place (5.6), followed by Ireland (5.2). Neither performed exceptionally in any KPIs.
Italy, Poland and Portugal rank respectively 17th
, 18th
and 19th
. Italy presents a rather low employment rate
(56.9%) and youth participation in the labour market (19.4%). Poland and Portugal also present low youth
participation rates and, in addition, perform poorly under the KPI “Labour Productivity”.
The most critical aspects of the Spanish labour market today are high unemployment and low youth partici-
pation. In fact, Eurostat has recently issued data which confirms the picture: Spain has the highest unemploy-
ment rate in Europe (25%, even higher than in Greece) and a very low youth participation to the labour
market. As a result, the country obtains a score of 3.1 and ranks 24th
.
The economic crisis had an impressive impact on Greece’s labour market and it comes to no surprise that
the country ranks last with a score of 2.2. Indeed Greece registers poor performances in all the observed
indicators.
Over the past five years the Netherlands have managed to maintain the 1st
position, Austria has gained one
position (2nd
) and Denmark has lost ground, still remaining, however, at the top of the rankings.
Thanks to a substantial increase of the employment rate (from 67.2% to 72.5%) and a reduction of the
unemployment rate (from 8.7% down to 5.5%), Germany has gained 6 positions, jumping from 10th
to 4th
place. A decline in all the KPIs, except “Labour Productivity Index”, brought Ireland down 8 positions: the
country now stands in 11th
place. The most staggering figure about Ireland is employment rate, which has
gone from 68.7% in 2006 down to 58.9% in 2011.

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Figure 37. Labour Market Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
Despite the economic crisis and worsening conditions, the Italian Labour Market appears to show resilience
and has lost only 1 position. In fact, despite all structural limitations and rigidities of the Italian Labour Market,
the only KPI which has registered a deterioration is “Employment”.
Five years ago, Poland presented the least competitive European Labour Market. Thanks to a relative im-
provement in the KPI “Unemployment Rate”, the country gained 8 positions and now ranks 19th
. The same
can be said for Slovakia, which has made a significant jump of 6 positions and is now 20th
.
The consequences of the sovereign debt crisis had a considerable impact on Spain and Greece which have
lost respectively 12 (from 12th
to 24th
position) and 5 positions (from 22th
to 27th
). In both cases, the main
reasons of the “fall” are a substantial reduction of employment rates and a contextual increase in unemploy-
ment rates.
BRIEF
ECONOMIC
OUTLOOK
BRIEF
ECONOMIC
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2.7 People & Wellbeing
By including a set of specific drivers, the Competitiveness Factor “People & Wellbeing” addresses the ques-
tion: “Why should professionals, business leaders, researchers, students and tourists choose this territory in-
stead of another destination?”
Accordingly, the Competitiveness Factor “People & Wellbeing” was analysed using the following KPIs and
weights:
- Fertility Rate – relative weight 15%
- Population Aged 65 and Above – relative weight 15%
- Net Migration Rate – relative weight 15%
- Immigration Rate – relative weight 15%
- Monetary Poverty – relative weight 7.5%
- Distribution of Income, Gini Index – relative weight 7.5%
- Happiness Index – relative weight 10%
- Healthy Life Expectancy – relative weight 15%
Figure 38. People & Wellbeing – Fertility Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of Eurostat
data, 2013

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Figure 39. People & Wellbeing – Population Aged 65 and Above, 2011 – Source: The European House - Ambrosetti re-
elaboration of Eurostat data, 2013
Figure 40. People & Wellbeing – Net Migration Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of
Eurostat data, 2013
BRIEF
ECONOMIC
OUTLOOK
BRIEF
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Figure 41. People & Wellbeing – Immigration Rate, 2011 – Source: The European House - Ambrosetti re-elaboration of
Eurostat data, 2013
Figure 42. People & Wellbeing – Monetary Poverty5
, 2011 – Source: The European House - Ambrosetti re-elaboration of
Eurostat data, 2013
5 - The at-risk-of-poverty threshold is 50% of median equivalent income.

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Figure 43. People & Wellbeing – Distribution of Income (Gini Index), 2009 – Source: The European House - Ambrosetti
re-elaboration of CIA Factbook data, 2012
Figure 44. People & Wellbeing – Happiness Index6
, 2012 – Source: The European House - Ambrosetti re-elaboration of The
Happy Planet Index data, 2013
6 - The Happiness Index reflects the average years of happy life produced by a given society, nation or group of nations, per unit of planetary
resources consumed. In other words, it represents the efficiency with which countries convert the earth’s finite resources into well-being expe-
rienced by their citizens. The Global HPI incorporates three separate indicators: ecological footprint, life-satisfaction and life expectancy.
BRIEF
ECONOMIC
OUTLOOK

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Figure 45. People & Wellbeing – Healthy Life Expectancy, 2011 – Source: The European House - Ambrosetti re-elaboration
of World Life Expectancy data, 2013
The “People & Wellbeing” Competitiveness Factor (Figure 46) was calculated as the weighted sum of the
KPIs’ scores.
Figure 46. People & Wellbeing Current Competitiveness Index – Source: The European House - Ambrosetti, 2013

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Ireland is the leader of this ranking, closely followed by Sweden and France. With a score of 7.2, the United
Kingdom ties in for 3rd
place with France. The former was the best performer in the KPIs “Happiness Index”,
while the latter achieved a score of 10 in the KPI “Immigration rate”.
Also the Netherlands (6.9) and Denmark (6.7) fair rather well, ranking respectively 4th
and 5th
. The perfor-
mance of the Netherlands is mainly explainable by the high scores in the KPIs “Immigration rate” and “Life
Expectancy”, while Denmark achieved very good results under the KPIs “Monetary Poverty” and “Distribution
of Income (Gini Index)”.
Germany and Spain obtain identical scores (5.3) under this competitiveness factor and, in fact, they both
land in 14th
position. Germany presents one of the highest percentages of over 65 population (20.62% of
total population) and this has substantial consequences on the economy’s final score. On the other hand,
Spain would have obtained a far better score if the KPI “Net Migration Rate” would not have been so low
(1.0).
Ageing population is one of the most problematic aspects of the Italian economy. Indeed, the country has
a percentage of over 65 population which is only comparable to Germany’s (20.64%). Fertility rate is also
lower than the EU average (1.40 vs. 1.57). The abovementioned elements have a considerable impact on
the country’s performance: despite the high score achieved in some areas (e.g. the Happiness Index), the
country ranks only 17th
. Also Greece and the Czech Republic rank 17th
due to poor performance in the ma-
jority of KPIs.
The least competitive European country in terms of People & Wellbeing is Bulgaria, which performed poorly
in almost all indicators.
Making a comparison with the ranking of five years ago, we notice that Ireland and Sweden have managed
to maintain their respective positions in the ranking. Denmark and France have switched positions: the former
now ranks 6th
while the latter is 3rd
. Thanks to an improvement of the Gini and Happiness Indexes, the UK has
managed to climb 7 positions, ultimately ranking 3rd
along with France.
An overall improvement of the fertility rate and of the Gini Index has moved Slovenia from 16th
to 12th
posi-
tion. In Germany, distribution of income and citizen’s happiness has improved over the observed 5 years: as
a matter of fact, Germany has gone from 18th
up to 14th
.
Poland has lost 5 positions and went from 20th
to 25th
: the Gini Index of the economy has deteriorated during
the considered 5 years. Finally, Bulgaria has lost 6 positions, going from 21st
down to 27th
. The main reason of
the downturn is the deterioration of the Gini Index, which has gone from 0,264 up to 0,3077
.
7 - A higher score implies higher inequalities in income distribution

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Figure 47. People & Wellbeing Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013

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2.8 Finance
The purpose of the Competitiveness Factor “Finance” is to measure the efficiency and pro-activeness of the
EU financial markets, and particularly:
- the dynamism of the EU’s stock markets;
- the number of Corporate Finance transactions in the EU;
- companies’ relationships with financial markets in the EU.
Accordingly, the Competitiveness Factor “Finance” was analysed using the following KPIs and weights:
- Market Capitalisation, as a percentage of Gross Domestic Product – relative weight 10%
- Stock traded (Turnover Ratio), as a percentage of Gross Domestic Product – relative weight 10%
- Investor Protection Index – relative weight 10%
- SMEs with Financing Problems, as a percentage of total SMEs – relative weight 15%
- M&A Market Activity Index – relative weight 20%
- Incidence of Insurance, Pension and Investment Funds, as a percent of Total Assets of the economy
– relative weight 15%
- Venture Capital (Funds Raised), as a percentage of Gross Domestic Product – relative weight 20%
Figure 48. Finance – Market Capitalisation (% of GDP), 2011 – Source: The European House - Ambrosetti re-elaboration
of World Bank data, 2013

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Figure 49. Finance – Stocks Traded, Turnover Ratio (% of GDP), 2011 – Source: The European House - Ambrosetti re-
elaboration of World Bank data, 2013
Figure 50. Finance – Investor Protection Index8
, 2013 – Source: The European House - Ambrosetti re-elaboration of World
Bank data, 2013
8 - The Index measures the strength of minority shareholder protection against misuse of corporate assets by directors for their personal gain. The
index is composed by other 3 sub-indices: extent of disclosure, extent of director liability, ease of shareholder suits

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Figure 51. Finance – M&A Market Activity9
, 2012 – Source: The European House - Ambrosetti re-elaboration of Thomson
Financial data, 2013
Figure 52. Finance – SMEs with Financing Problems10
(%), 2011 – Source: The European House - Ambrosetti re-elabora-
tion of European Commission data, 2012
9 - It comprises M&A Market Volume and Number of M&A deals in a country (Thomson Financial).
10 - Percentage of SMEs that cited access to finance as the most pressing problem (European Commission, SMEs’ Access to Finance, Survey 2011,
Analytical Report, 7 December 2011)

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Figure 53. Finance – Pension, Insurance and Investment Funds (% of Total Assets), 2011 – Source: The European House
- Ambrosetti re-elaboration on ECB data, 2013
Figure 54. Finance – Venture Capital, Funds Raised (% of GDP), 2011 - Source: The European House - Ambrosetti re-
elaboration on European Commission data, 2013

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The overall ranking of the Competitiveness Factor “Finance” (Figure 55) was calculated as the weighted sum
of the KPIs’ scores.
Figure 55. Finance Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
The United Kingdom easily tops the rank, thanks to an outstanding performance under the KPIs “Market Capi-
talization”, “Stock Traded” and “M&A Market Activity”. The Nordic countries also perform rather well: Sweden
is 2nd
with a score of 7.7 while Denmark and Finland tie in for 4th
position with a score of 5.9. The volume of
venture capital funds is quite impressive in all these countries and, in fact, SMEs find it comparatively less
difficult to access funding.
France, Belgium, Luxembourg, Germany, Ireland and Spain rank from 6th
to 10th
position. The five countries’
scores fall within a small range (from 5.7 to 5.2).
Spain follows closely in 11th
position with a score of 4.8: the country performs well on the KPI “Stock traded”,
however low levels of investor protection and considerable problems in access to funding penalise consider-
ably the economy. To this end, it is interesting to see the correlation between SMEs problems in access to
funding and venture capital market development. With a low to average performance under every KPI, Italy
ties in for 14th
position with Poland.
Eastern European countries are located in the lowest portion of the ranking: Hungary ranks 18th
, the Czech
Republic is 19th
, Romania is 20th
, Bulgaria 21st
and Slovakia is at the bottom of the chart. In fact, all these
countries are substantially penalised by the fact that they do not have sufficiently developed stock and
venture capital markets.

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The Baltic countries fair rather poorly under this competitiveness factor: the clearest example is Estonia which
ranks last with very low scores under every KPIs.
Making a comparison with the data from five years ago, it is possible to observe that the United Kingdom
has managed to preserve its leadership, remaining stable in 1st
place with a substantial distance from its
competitors. Sweden has also kept its 2nd
place, as its performance has remained stable throughout the five
years. However the Netherlands have taken Finland’s 3rd
place, thus gaining 1 position. In general, the chart
was subject to few relevant changes during the considered time period: major variations regard Hungary
and Portugal. Portugal has lost 4 positions due to a significant deterioration of the performance under the
KPI “Venture Capital” and an overall worsening of stock market’s conditions, ultimately landing in 17th
posi-
tion. Conversely, Hungary has arrived in 18th
position, thanks to an improvement of the KPI related to venture
capital.
The last 3 positions of the chart remained relatively stable: if Slovenia, Slovakia and Estonia faired rather
poorly five years earlier, the same could be said today.
Figure 56. Finance Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013

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2.9 Public Sector
The Competitiveness Factor “Public Sector” measures the quality and efficiency of public institutions. The
competitiveness of a country cannot ignore the quality of its public institutions: their proper functioning has
strong social and economic implications.
Accordingly, the Competitiveness Factor “Public Sector” was constructed using the following KPIs and weights:
- Share of Enterprises Interacting Online with Public Authorities (% of total) – relative weight 20%
- Government Effectiveness Index – relative weight 20%
- Regulatory Quality Index – relative weight 20%
- Cost Effectiveness of Public Servants (GDP on Public Servants ratio multiplied for the Government Ef-
fectiveness coefficient) – relative weight 20%
- Share of unspent EU Structural Funds, % of Total Allocation for the Period 2007-2013 – relative weight
20%
Figure 57. Public Sector – Share of enterprises interacting online with public authorities (% of total), 2011 – Source: The
European House - Ambrosetti re-elaboration on Eurostat data, 2013

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Figure 58. Public Sector – Government Effectiveness Index11
, 2011 – Source: The European House - Ambrosetti re-elabo-
ration of World Bank data, 2013
Figure 59. Public Sector – Regulatory Quality Index12
, 2011 – Source: The European House - Ambrosetti re-elaboration of
World Bank data, 2013
11 - The Government Effectiveness Index reflects perceptions of the quality of public services, the quality of the civil service and the degree of
its independence from political pressures, the quality of policy formulation and implementation as well as the credibility of the government’s
commitment to such policies (World Bank).
12 - The Regulatory Quality Index reflects perceptions of the ability of the government to formulate and implement sound policies and regulations
which enable and foster private sector development (European Commission).

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Figure 60. Public Sector – Cost Efficiency of Public Servants (GDP on Public Servants ratio multiplied for the Government
Effectiveness coefficient13
), 2011 – Source: The European House - Ambrosetti re-elaboration on Eurostat and World Bank
data, 2013
Figure 61. Public Sector – Share of unspent EU Structural Funds (% of Total Allocation for the period 2007-2013), 2011
– Source: The European House - Ambrosetti re-elaboration of European Commission data, 2013
13 - The ratio serves as a proxy of efficiency in the public sector. The higher the ratio, the higher the efficiency (as the numerator is less affected by
the denominator). The ratio has been then multiplied for a coefficient that takes into account the government effectiveness index developed
by the World Bank.

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The overall ranking of the “Public Sector” Competitiveness Factor (Figure 62) was calculated as the weighted
sum of the KPIs’ scores.
Figure 62. Public Sector Current Competiveness Index – Source: The European House - Ambrosetti, 2013
Luxembourg is firmly in first place with a score of 8.7. The Nordic countries follow closely with excellent perfor-
mances: Finland is 2nd
with a score of 8.4, Sweden is 3rd
with a score of 8.3 and Denmark is 4th
with a score
of 8.1. Danish and Finnish citizens perceive their governments as particularly effective, while Sweden achieves
excellent performance in the financial execution of Structural Funds.
Ireland is in 5th
place just after the Netherlands. Ireland is often regarded as a successful case of Structural
Funds implementation: by the end of 2011, the country has managed to effectively spend 53% of its avail-
able budget against the EU average of 40%. It comes to no surprise that Ireland obtains the maximum
score under the KPI “Share of unspent EU Structural Funds”.
Thanks to a good performance under the KPIs “Government Effectiveness” and “Share of Enterprises Inter-
acting Online with Public Authorities”, Austria lands in 7th
position with a score 7.3. The United Kingdom also
performs rather well in almost every indicator, ranking 8th
with a score of 7.2.
Germany (6.7), France (6.1) and Spain (5.4) occupy the 9th
, 13th
and 16th
positions. The regulatory environ-
ment and cost efficiency of public servants penalises Spain in its final score.
Greece and Italy rank respectively 24th
and 25th
: both countries suffer from poor performance under the KPIs
“Government Effectiveness Index” and “Regulatory Quality Index”. Italy’s position is even more aggravated
by the historical issue of Structural Funds implementation (especially in Southern Italy): at the end of 2011,
the country has managed to spend 27% of the allocated funds against an EU average of 40%. The least

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competitive European country regarding the Public Sector is Romania. The country performed poorly in al-
most all indicators.
Making a comparison with the data from five years ago we notice that there has been an interesting switch
of positions between Luxembourg and Ireland: Luxembourg indeed has climbed 4 positions landing in 1st
place, whereas Ireland has gone from 1st
. In fact, while Luxembourg has significantly
accelerated Structural Fund’s implementation, the “Regulatory Quality Index” of Ireland has sensibly deterio-
rated.
Finland remained stable in 2nd
position, while Sweden has managed to climb 3 positions, ultimately landing
in 3rd
place.
Figure 63. Public Sector Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
Austria has lost 4 positions, due to a significant deterioration of the “Regulatory Quality Index”: this being said
the country still ranks 7th
, with a satisfying score of 7.3.
Thanks to performance improvements related to almost every KPI, Lithuania has gone from 18th
to 14th
posi-
tion, right after France (13th
position).

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The Czech Republic has sensibly worsened its position within the chart, going from 13th
down to 19th
posi-
tion. Poland, which has actually improved its position by 5 places, also ties in for 19th
position: the outcome is
due to a considerable improvement of the “Government Effectiveness Index” and the financial execution of
Structural Funds. On the other hand, a sensible deterioration of the “Regulatory Quality Index” has caused an
impressive deterioration of Greece’s position, which has gone from 16th
to 24th
place. Bulgaria and Romania
have remained stable in 26th
and 27th
position.
2.10 Environment
The Competitiveness Factor “Environment” is fundamental since environmental policies have a direct impact
on the global competitive arena. Environment protection should be a key competitive issue for all players,
but unfortunately, it is often ignored by many countries. Nevertheless, the Observatory on Europe believes
that it is important to praise environmentally friendly behaviours since they are essential to sustainable de-
velopment for future generations.
Accordingly, the Competitiveness Factor “Environment” was analysed using the following KPIs and weights:
- Treatment of Waste, tonnes per inhabitant – relative weight 15%
- Ecological Footprint, global hectares per capita – relative weight 15%
- Air Pollution, Kg per inhabitant – relative weight 15%
- Forest Area, as percentage of total land area – relative weight 15%
- Electricity from renewable sources, as percentage of total energy – relative weight 20%
- Greenhouse Gas, indexed to Kyoto base year – relative weight 20%
Figure 64. Environment – Treatment on Waste (tonnes per inhabitant), 2010 – Source: The European House - Ambro-
setti re-elaboration of Eurostat data, 2013

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Figure 65. Environment – Ecological Footprint14
(global hectares per capita), 2012 – Source: The European House - Am-
brosetti re-elaboration of NFA data, Global Footprint Network, 2013
Figure 66. Environment – Air Pollution (Kg per inhabitant), 2010 – Source: The European House - Ambrosetti re-elaboration
of Eurostat data, 2013
14 - The ecological footprint is a measure of human demand on the Earth’s ecosystems. It is a standardized measure of demand for natural capital
that may be contrasted with the planet’s ecological capacity to regenerate. It represents the amount of biologically productive land and sea
area necessary to supply the resources a human population consumes, and to assimilate associated waste (Global Footprint Network).

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Figure 67. Environment – Forest Area (% of total land area), 2010 – Source: The European House - Ambrosetti re-elab-
oration of World Bank data, 2013
Figure 68. Environment – Electricity from renewable sources (% of total energy), 2011 – Source: The European House -
Ambrosetti re-elaboration of Eurostat data, 2013

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Figure 69. Environment – Greenhouse Gas (indexed to Kyoto Base year), 2010 – Source: The European House - Ambro-
setti re-elaboration of Eurostat data, 2013
The overall ranking of the “Environment” Factor (Figure 70) was calculated as the weighted sum of the KPIs’
scores.
Figure 70. Environment Current Competitiveness Index – Source: The European House - Ambrosetti, 2013

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Latvia tops the chart with a score of 7.3, thanks to an excellent performance in the KPIs “Air Pollution” (10.0),
“Ecological Footprint” (8.2) and “Greenhouse gas” (9.4). On the other hand, Sweden – which is in 2nd
place
– achieved outstanding performances under the KPIs “Air pollution” (9.7), “Forest Areas” (9.4) and, most im-
portantly, “Electricity from Renewable Sources” (10.0).
Thanks to extensive forest areas, intense resorting to waste treatment and low air pollution, Finland achieved
a score of 6.3 thus reaching the 4th
place.
Austria’s electricity provision relies for more than 55% on renewable sources and the air pollution in the
country is among the lowest in the EU: thus, the economy ranks 5th
.
From Lithuania’s 7th
place (with a score of 5.8) down to Italy’s 15th
(with a score of 5.1), country scores follow
closely each other. With some few exceptions, all these countries are rather penalised by low resorting to
waste treatment and low reliance on renewable sources for electricity generation. France ranks only 17th
due
to poor performance under the KPIs “Waste Treatment” (2.7) and “Electricity from Renewable sources” (3.0).
The United Kingdom and Spain follow closely each other and rank respectively 19th
and 20th
: the former
economy’s score is affected by low amounts of forest areas and renewable energy production, while the
latter fairs poorly due to the increase in greenhouse gas emissions (from Kyoto base year 2005).
In the last 3 positions we find Ireland (25th
), Malta (26th
) and Cyprus (27th
): all these countries perform rather
poorly in every indicator of the competitiveness factor.
Comparing the findings with the ranking from five years ago, we notice that Sweden now shares the first
position along with Latvia, which has climbed one position thanks to a sensible improvement of its ecologi-
cal footprint. On the other hand Romania has lost one position and has landed in third position due to a
reduction of available forest areas.
Lithuania, Estonia and Portugal have all gained 3 positions during the time lapse considered: the Baltic coun-
tries owe their positions to an improvement of their ecological footprint, while Portugal has gone from 16th
to
13th
position thanks to higher resorting to renewable sources for electricity generation.
Conversely Slovakia, France and the Netherlands have all lost 3 positions: the performance of the KPI “Forest
Areas” has deteriorated in all these countries.
The last 3 positions were subject to marginal changes: Malta and Cyprus remained stable in 26th
and 27th
place, while Ireland has lost 1 position and ended up 25th
.

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Figure 71. Environment Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
2.11 Networks
Networks are certainly a Competitive Factor for fostering economic and social growth. Global economies
indeed need networks that allow efficient exchange of goods and services, not to mention the fact that
energy costs are rising sharply. These crucial problems, which noticeably affect the competitiveness of most
countries, are all somehow related to the potential weaknesses of the network system.
The Observatory on Europe decided to analyse the “Networks” Competitive Factor, as it believes they are
pivotal to the functioning of the EU internal market as well as to linking the EU system to the rest of the world.
Accordingly, the Competitiveness Factor “Networks” was analysed using the following KPIs and weights:
- Energy Dependency, as a percentage of net imports on inland consumption – relative weight 20%
- Energy Price for Industrial Consumers, Euro per Kilowatt hour – relative weight 20%
- Broadband Penetration, per 100 inhabitants – relative weight 30%
- Road, Rail, Navigable Waterways, Km per inhabitant – relative weight 30%

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Figure 72. Networks – Energy Dependency (% of net imports on inland consumption), 2011 – Source: The European
House - Ambrosetti re-elaboration of Eurostat data, 2013
Figure 73. Energy Price for Industrial Consumers (Euro/kWh), 2012 – Source: The European House - Ambrosetti re-elabo-
ration of Eurostat data, 2013

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Figure 74. Broadband Penetration (per 100 Inhabitants), 2011 – Source: The European House - Ambrosetti re-elaboration
of Eurostat data, 2013
Figure 75. Networks – Roads, Rails, Navigable Waterways (Km per 100 Inhabitants), 2010 – Source: The European House
- Ambrosetti re-elaboration of CIA Factbook data, 2012

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The overall ranking of the “Networks” Competitiveness Factor (Figure 76) was calculated as the weighted
sum of the KPIs’ scores.
Figure 76. Networks Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
Sweden and Denmark top the chart with scores of 8.3 and 7.5. More specifically, Sweden achieved a score
of 10 in the KPI “Roads, Rails, Navigable Waterways” while Denmark reached an impressive 10 for the “En-
ergy Dependency” index. Denmark shares its 2nd
place with Estonia, whose score under the KPI “Price for
Industrial Consumers” was 10.
France and Finland place 5th
and 6th
, respectively, thanks to a satisfying performance in the KPI “Energy Price
for Industrial Consumers”.
The UK achieved a score of 5.3 reaching 7th
place thanks to low energy prices (for industrial consumers) and
high broadband penetration. For the same reasons, Germany also ties in for 7th
position. In general, it should
be noted that from Finland’s (score 5.8) 6th
place down to Latvia’s (5.1) 11th
, score differentials are quite small:
with the exception of Slovenia and Latvia all the countries comprehend within this interval excel in the KPIs
“Energy Price for Industrial Consumers” and “Broadband penetration”.
Both Poland and Spain rank 17th
: the two countries share a rather weak physical infrastructure but achieve
high scores in the KPI “Energy Price for Industrial Consumers”. More specifically, Spain presents a higher de-
gree of broadband penetration while Poland a lower energy dependency.

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Greece suffered from poor physical and broadband infrastructures, which contributed greatly to the low
ranking (21st
place).
In 23rd
place we find both Italy and Portugal: the countries perform rather poorly in every indicator. More
in detail, however, the former presents a slightly higher degree of broadband penetration while the latter
presents a lower energy dependency ratio.
At the bottom of the chart we find Malta (25th
place), Slovakia (26th
place) and Cyprus (27th
place). Slova-
kia’s score is undermined by the low performance under the KPIs “Roads, Rail, Navigable Waterways” and
“Broadband penetration”. Undoubtedly geography constitutes a factor of disadvantage for Cyprus and
Malta: the two islands have a very high energy dependency and are forced to charge comparatively higher
energy prices for the industrial sector.
Comparing these findings with the data from five years ago, we observe that the first 3 positions have re-
mained stable: Sweden, Estonia and Denmark are exactly where they were 5 years earlier.
Figure 77. Networks Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013

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The impressive improvement under the KPI “Energy dependency” has allowed the Netherlands to jump 3
positions and land 4th
, right after Denmark. The same finding applies to the UK which has climbed 4 posi-
tions, thus reaching the 7th
place. Germany has sensibly reduced its energy dependency and improved its
broadband penetration (which has improved by 150%): these two improvements have induced Germany
to climb 11 positions of the ranking, from 18th
to 7th
.
Even Luxembourg has climbed 7 positions by reducing its energy dependency ratio: the country has gone
from 19th
to 12th
position. Austria and Poland did not significantly worsen their performances, however, by not
improving their infrastructures they have both lost 4 positions ending respectively from 11th
to 15th
position
and from 13th
to 17th
.
The significant increase of energy dependency and the resulting increase in energy prices (107% in five
years) are behind Lithuania’s fall in the ranking: the country has lost 8 positions, going from 8th
to 16th
.
With the exception of Malta, which has dropped 3 positions (due to rising energy prices), the last places
have remained relatively stable during the considered time period: Slovakia and Cyprus did not improve
their positions by any means.
2.12 The EU-27 Competitiveness Index final ranking
The EU-27 Competitiveness Index (Figure 78) was calculated as the weighted sum of the Competitive Fac-
tors’ scores.
On a final analysis, the Competitiveness Index shows just how much EU economies differ from one another.
Luxembourg, having obtained the highest score in the Competitiveness Factors “External Openness”, “Mac-
roeconomic Stability” and “Public Sector”, is 1st
in the standings with a score of 7.07. Despite the excellent
score, it is necessary to operate some caution with this benchmark: Luxembourg constitutes an outlier, as its
economy is very small compared to others. In other words, the country’s economic structure is completely
different from almost all of the other European countries and may not be comparable.
The real best performers are the Scandinavian countries: Sweden, Denmark and Finland are respectively in
2nd
, 3rd
and 4th
place. These countries have excelled in 8 out of 10 Competitiveness Factors15
. Their impressive
results show that their government model is to be considered a best practice.
The Netherlands have also done rather well: ranking 5th
with a score of 6.43. The economy appears to have
the most competitive labour market and claimed relevant positions in many other competitiveness factors
such as “Innovation & Education”, “People & Wellbeing”, “Finance”, “Public Sector” and “Networks”. In various
occasions, the country was never too far off from the 1st
of each competitiveness factor.
The United Kingdom also maintains a good ranking: with a score of 6.18, it ranks 6th
in the standings. The
good result is mainly due to an excellent performance in the Competitive Factor “Finance”, where the United
Kingdom was the leader.
15 - Innovation & Education, Macroeconomic Stability, Business Environment, Labour Market, People & Wellbeing, Finance, Public Sector and Net-
works.

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Figure 78. EU-27 Current Competitiveness Index – Source: The European House - Ambrosetti, 2013
Core economies of the EU, such as Germany and France have not excelled in any of the foreseen Competi-
tiveness Factors, however their balanced performances guaranteed respectable scores: reaching respec-
tively 9th
and 11th
place in the final ranking. A similar situation was registered in Austria, which was never far
off from the 15th
position in the rankings of the competitiveness factors. The economy ranks 10th
in the final
rankings.
The results for Spain are more disappointing: with a score of 4.39, it ranks 20th
. The lack of external open-
ness, macroeconomic stability and a labour market which is considerably under pressure, have significantly
penalised the economy.
The last three positions in the ranking are occupied by Italy, Romania and Greece, which were often at the
bottom of the rankings of the single Competitiveness Factors. Despite the apparent recovery of the Greek
economy, it is still too early to appreciate any improvement in the structural factors: Greece ranks still at the
27th
.
Making a comparison with the ranking of five years ago (Figure 79), we immediately notice that there have
been some changes in the first positions of the ranking: Luxembourg has climbed two places, topping the
final chart. On the other hand Sweden and Denmark have given up one position each, ending respectively
2nd
and 3rd
.

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Figure 79. EU-27 Current and Past Competitiveness Index – Source: The European House - Ambrosetti, 2013
Thanks to significant improvements of its labour market and macroeconomic stability, Germany has climbed
three positions, finally entering in the EU’s top ten (at 9th
place). Slovenia has also managed to jump from 17th
position to 13th
, thanks to a substantial improvement of its business environment and to a more consistent
investment in Innovation and Education.
The greatest improvement in the ranking has been made by Hungary, which has gone from 23rd
position
all the way up to 17th
. Indeed the country has improved many of its Competitiveness Factors and the most
important are undoubtedly: “Macroeconomic Stability” (from a score of 3.5 to 6.9), “Networks” (from a score
of 3.6 to 4.7), “Public Sector” (from a score of 4.0 to 4.9), “Finance” (from a score of 2.8 to 3.6) and “Business
Environment” (from a score of 5.3 to 6.1).
On the other hand, the most noticeable “fall” in the ranking is, unsurprisingly, Cyprus: despite an average per-
formance in most of the observed factors, the strong deterioration of the country’s macroeconomic stability
(from 6.6 down to 4.0) and external openness (from 4.9 down to 3.9) has pushed the island further down in
chart. As a matter of fact, Cyprus has lost 5 positions, going from 11th
down to 16th
.

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Understandably, Spain and Portugal were seriously affected by the events of the current crisis: scores related
to “Macroeconomic Stability” and “Labour Market” have seen a substantial deterioration during the consid-
ered time period. As a result, Spain has gone from 16th
place down to 20th
, while Portugal has gone from
21st
to 23rd
position.
The last four positions in the ranking have remained stable throughout time: Bulgaria, Italy, Romania and
Greece have hardly improved their performances under any competitiveness factor.
Figure 80. GDP per Capita and Current Competitiveness Level Correlation – Source: The European House - Ambrosetti,
2013
The Competitiveness Index final ranking seems to accurately represent the current economic situation of
the European countries. In fact, as shown in Figure 80, making a comparison with GDP per capita a high
correlation can be seen16
.
16 - Luxembourg and Greece were excluded from the comparison because they can be considered outliers: Luxembourg is difficult to compare to
the other countries because it is so small and Greece had an extremely negative performance, which was heavily influenced by the impend-
ing risk of default.

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81
MONITORING THE
IMPLEMENTATION
OF THE SINGLE
MARKET ACT
3
3 MONITORING THE IMPLEMENTATION OF THE SINGLE MARKET ACT
3.1 Twenty years of Single Market: main achievements
The Single Market was launched more than 20 years ago, in 1992. Initially it was open to 345 million people
in 12 European countries, but today it involves over 500 million people in 27 EU Member States.
Since 1992, the Single Market has contributed to make Europe more competitive, with three main positive
impacts.
1. Macro-economic achievements
The GDP of the EU-27 is 2.13% (Euro 233 billion) higher than it would have been without the Single Market.
The sum corresponds to around Euro 500 extra in income per EU citizen. Furthermore, the Single Market has
contributed to create 2.77 million new jobs.
Trade between EU countries has increased by 250% since the creation of the Single Market, moving from
Euro 800 billion to Euro 2,800 billion.
In the same way, EU exports to non-EU countries have increased by 200%, from Euro 500 billion to Euro
1,500 billion (from 8% of EU GDP to 12%).
Furthermore, the Single Market has made the EU more attractive to foreign investors: FDI flows between
EU countries have increased by 306%, rising from Euro 64 billion to Euro 260 billion (before the economic
downturn, it had reached Euro 730 billion).
2. More choices for citizen
The Single Market has increased choice and protection for citizens, while bringing down prices in many sec-
tors. Below there are some clarifying examples.
- Today making or receiving an international telephone call is 73% cheaper than in 2005 (and it may
even be free of charge via fixed or internet networks).
- Since e-commerce makes it possible to order goods online from companies based in another EU
country, consumers have 16 times more choices through e-commerce than if it had not been imple-
mented.
- Greater choice of energy suppliers determines more competition among companies, which contrib-
utes to reductions of electricity tariffs (at least 14 European energy companies are now active in more
than one EU Member State). In fact, EU consumers could save up to Euro 13 billion if they switched to
the cheapest electricity tariff available.

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