Cyprus Mail
Opinion

The European Union economy: a comparison of north and south

By Costas Apostolides

A GREAT deal has been written about the economic divide in Europe between the north and the south, and the reasons behind the problems faced by the Mediterranean states (and Ireland) as a consequence of the international economic crisis.

What has been lacking, however, is an analysis of the structures of these economies, how different they are and the causes of those differences in performance.

This article makes a first attempt to bring out the structural factors that appear to provide some explanations.

On the basis of the latest Eurostat annual economic data which refer to 2001, 2010 and 2011, some conclusions can be reached, though clearly more detailed analysis by country is required for a more thorough understanding.

In 2011 the 10 countries with the highest per capita GDP (at price parity) in the EU 27 were: Luxembourg , Netherlands, Austria, Ireland, Sweden, Denmark, Germany, Belgium, Finland and the UK. Ireland remained in this group despite the crisis owing to its rapid growth over the 20 years before the economic crisis hit the country.

France and Italy follow, and Cyprus is 14th,, almost exactly the median country in the EU and very close to being the average state in terms of GDP and other EU statistics.

Over the period 2001 to 2011 a total of 17 states have converged with the EU average, or improved their position, including all the new member states (2004, 2006) including Cyprus.

Among older EU member states those that improved their position were Luxembourg, Germany, Spain, Austria and Sweden, while Finland has held on to its relative position.

Modest declines took place in Belgium, Denmark, Netherlands, and Portugal, while more striking declines in the relative position were observed for Ireland, Greece, France, Italy and the United Kingdom. Owing to its relatively poor economic performance Italy is now almost exactly the average EU27 country in terms of GDP per capita.

When the structure of the economies of the EU south and the EU 27 and Germany are compared, the EU average for manufacturing industry is around 20 per cent of GDP. Germany’s is a very high 26 per cent, the sixth highest after Czech Republic, Hungary, Slovakia, Ireland and Romania.

The industrial sector of the southern member states is less significant in general, but is above the EU average in Slovenia and Ireland. Italy is close to the average but industry even in France is much less significant.

Cyprus was by far the least industrialised country in Europe, something that those pushing for an industrial model for the economy should bear in mind.

Ireland, Cyprus and Malta have the largest financial sector in the table, Spain and Cyprus the largest construction sectors, and Italy, Greece, France and Cyprus the largest real estate sectors.

The trade and distributive services and hotels and restaurants sector is highest in Greece , Spain, Portugal and Cyprus, as one would expect owing to the large tourism sectors.

Malta has by far the largest art and entertainment sector, though I assume that that is because of the very large on-line gaming industry.
The main factor which separates the southern states from the northern ones is the reduced dependence on manufacturing industry.

The southern economies are more service driven with construction, tourism and services playing a more important role. Therefore the south needs to recover through a very different strategy from the industrialised north.

The economic problems of the south relate primarily to the main sectors, which were hit by a fall in demand in northern states including the UK that felt the brunt of the first wave of problems caused by the economic crisis.

This has caused problems in the economy by reducing overseas revenues from tourism and other services, as well as for housing and construction.

The subsequent effects have brought problems to the governments in relation to lost revenues, and also the financial sector through non-performing loans on mortgaged property. Consequently growth must come from both the recovery of the existing sectors, and diversification to new sectors and development of capabilities within those sectors.

Costas Apostolides is chairman of EMS Economic Management Ltd ([email protected]).

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