Brussels, 24 May 2005
EU Science and Research Commissioner Janez Potocnik has told the Federation of Germany Industry that while the country is one of Europe's strongest performers, it has a number of weaknesses 'which must not be under-rated'.
Germany is famous for the design and production of cars. However, this industry is one of those most exposed to international competition, and it is therefore vital that Germany not only remains at the leading edge of research in this sector, but that it also diversifies by encouraging the emergence of new high-tech activities, said the Commissioner.
Mr Potocnik also offered advice to Germany on overcoming 'perceived bottlenecks' in the German financing system for research and development (R&D) and innovation. 'I invite you to look into the ongoing work at European level to promote the development of better and more varied sources of financing for R&D and innovation, for example through loans and loan guarantees,' he said.
Germany appears to be one of the few European countries where public R&D funding has recently decreased, said the Commissioner. '[T]his would be a worrying evolution if confirmed and prolonged. Even though public budgets face severe constraints in Germany, research support is a vital priority for the future.'
The Commissioner proposed that Germany considers using tools to reverse this trend, and in particular tax incentives and public procurement. In four EU countries (Austria, Hungary, the Netherlands and Spain), indirect incentives now represent more than half of total public support, according to the Commissioner.
Public procurement could be used to create 'lead markets' for innovative products and services, Mr Potocnik explained. He described the mechanism as having 'a major potential to shape demand in a more dynamic way', and said that while it has been used by some public authorities for environmentally friendly technologies, 'the potential is still far wider'.
Mr Potocnik also spoke of the importance of industry in general for Europe's competitiveness: 'My first six months as Commissioner for Research have thoroughly convinced me, if needed be, that Europe can only become the 'Knowledge Europe' that we aspire to by relying fully on the power of its industry,' he said.
While business R&D expenditure matches that of the US, the EU average remains significantly lower - at 1.1 per cent of GDP compared to 1.6 per cent in the US and 2.3 per cent in Japan. This imbalance increases the risk of Europe losing out to delocalisation.
Off-shoring has already hit the EU's pharmaceuticals and biotechnology sectors, and taking all sectors together, the global outflow of R&D expenditure from Europe to the US is approaching 15 per cent of total EU business expenditure. Inflows to Europe from the US remain at ten per cent, however.
The Commissioner emphasised that Europe is not only seeking to keep up with its traditional competitors in the US and Japan. He cited a recent Economist Intelligence Unit survey that identified China, India and Brazil as the first, third and sixth choice destinations for increased oversees R&D investment in the next three years.
Europe must now create the conditions in which such flows of knowledge become more balanced. 'If not, we risk losing our only factor of competitiveness,' said Mr Potocnik.