Euro zone strugglers lack innovative knack

by Alan Wheatley

Reuters
February 6, 2012

To get an idea of the economic mountain euro zone strugglers Greece and Portugal have to climb, consider this: per million inhabitants, they each filed fewer than eight applications with the European Patent Office in 2010.

Germany, with the advantages of scale that go with a population eight times bigger, lodged 335 patent applications per million residents. But the Czech Republic, of a similar size to Greece and Portugal, managed 16. Much-smaller Ireland boasted 112, according to calculations based on data on the EPO website.

Figures on research and development are a little better.

Greece spends just 0.6 percent of GDP on R&D, the same as in 1999. Portugal's R&D rose to 1.66 percent of GDP in 2009 from 0.69 percent a decade earlier but still lags the OECD average, which rose over the same period to 2.33 percent from 2.16.

Innovation matters because it is a key driver of competitiveness, allowing firms to win greater market share and feeding through into greater productivity.

Patent filings and R&D expenditure are only a rough proxy for a country's innovative capacity, but Peter Droell, head of policy development and industrial innovation at the European Commission, said there was a strikingly strong correlation between R&D spending in the European Union in the period 2004-2009 and economic growth in 2011.

"Member states which invested in research and innovation have been stronger in the crisis and are exiting faster," Droell said in London last week at the launch of the conclusions of an EU project on financing innovation and growth.

As such, the figures illustrate the longer-term growth challenges confronting Greece and Portugal: whether they succeed in boosting productivity, now just 65 percent and 77 percent respectively of the European Union average, according to Rabobank, will largely determine whether they close the competitiveness gap with Germany and other stronger euro zone members.

That is the root cause of markets' skepticism about the ability of peripheral euro zone countries to grow quickly enough to sustain their huge debt loads.

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