How Southern Europe Can Bounce Back: City-Led High-Growth Strategies
WASHINGTON—The countries of southern Europe need a good comeback story. Young people in Southern Europe are leaving at alarming rates for more competitive northern European countries, and even emerging markets in Latin America. Rising political dissonance in Greece, France, and Italy has increased concern in Brussels about political and economic uncertainty, and even possibly a eurozone break-up beginning with Greece. Escalating concerns that the euro crisis will worsen have investors in a sort of holding pattern, and unemployment remains unsustainably high.
Long-term recovery solutions have not traditionally come from Brussels or Frankfurt. Quick fixes such as quantitative easing may create temporary boosts in demand, but do little to address longer term shortcomings. Long-term employment protection schemes introduced in Spain, France, and other southern European countries may create a better safety net, but will do little to address the underlying investment and growth problems plaguing both old and new firms.
Yet European banks are flush with cash for the first time since 2009. The European Central Bank’s stress test last October reflected only a €10 billion shortfall, which was plugged soon after it was reported. This was an overwhelmingly positive result for European banks, especially southern European giants like Banco Santander in Spain, UniCredit Group in Italy, and BNP Paribas in France. At the same time, political and economic uncertainty keeps investors wary, thus perpetuating the investment holding pattern and leaving unemployment in the region high.
Instead of waiting for top-down approaches from Brussels, city and regional leaders should step in and provide solutions. By creating incentives for investment in high-growth sectors of the economy, cities could be the driving economic forces over the next few years. Southern European countries need investment in innovation, education, and technology in order to advance productivity and employment for the long-term. But without local leadership and economic development strategies, there will be little incentive to get money moving in the economy.
Robert Atkinson, author of Innovation Economics, makes a strong case for putting innovation policy at the forefront of economic policy in order to create real productivity within economies. “Mediterranean nations are caught between lower-cost, less innovative nations on the one hand and higher-cost more innovative ones on the other,” Atkinson states. “Only by embracing innovation, in both existing firms and new startups, will they be able to thrive economically.”
Cities can play major roles in promoting and encouraging these innovation and entrepreneurship policies in order to stimulate economic growth for small startups as well as multinational corporations. Many cities have already adopted policies geared toward creating the right incentives. Organizations like the New York City Economic Development Corporation have led the charge in New York, helping to create jobs within the city. The city’s commitment to attracting high tech businesses has given rise to a slew of venture capital firms, start-up incubators, university-corporate partnerships, and hackathon events over the past seven years.
These tactics are not only working in New York, but are being exported to other cities like Boston, Paris, Turin, and Cambridge. A special case in recent years has been Berlin, where organizations like the German Tech Entrepreneurship Center (GTEC) have created a multi-level ecosystem that facilitates investor-entrepreneur relations, while connecting policymakers to the broader conversation around start-up and high tech investment strategies. In order to attract high-tech growth, certain policies at the city level can boost market demand and spark employment.
Lisa Balter-Saacks, vice president for Business Development at GUST, a cloud-based financial technology platform that connects startups with early stage investors globally, also attributes the creation of investor friendly cities with growth in innovation and high-tech job creation. “Early stage companies hold the key to job creation around the world, she says. “And when cities incentivize investment in the private sector — through tax credits, for example — we see a real impact.”
A recipe for local policies geared at investment incentives is needed in southern Europe’s struggling urban centers in order to jump start entrepreneurship, innovation, and economic development in high-tech, high growth sectors, thus increasing employment opportunities for the future. Local policymakers and politicians should lead programs and initiatives to emulate the projects that are working in centers like New York, Paris, Berlin, and Turin. Through a necessary rethink in economic development strategies at the local level, urban centers can be drivers of real change.
Andrew Chrismer is a program officer with the urban and regional policy program of The German Marshall Fund of the United States.
The views expressed in GMF publications and commentary are the views of the author alone.