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Gap in Competitiveness Weighs on Europe, Analysts Say

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Moritz Kramer, a managing director at S&P, says Spain, Italy, France and Portugal cannot depend on austerity measures and cuts in spending alone to resolve the eurozone crisis. This is only one aspect of the problem facing the countries in southern Europe. The major reason for the problem is the lack of competitiveness in their economies. Nobel winner Stiglitz also points this out and adds that its important to note that the human and natural resources of Europe are the same and the potential just as good today as before the eurozone financial crisis. He says southern Europe has failed to utilize its human and capital resources and improve its technologies in ways that would make it more competitive with Asian countries. Experts point to the decade it took Germany to address problems created by inflexible labor markets, wage competitiveness, and investments in technology and human resources to get to where it is today.

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Before joining the euro Italian firms could use a decline in the value of the lira to compete on price with European and other competitors. The red tape, the length of time it take to enforce contracts, and the labor laws, have acted as disincentives for Italian firms to grow and increase productive use of capital. As a result the Italian economy is falling further behind. Growth of the economy since 2001 was 3%.

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