The EU must not cut back on research spending

December 18, 2014

Max Planck President Martin Stratmann criticizes that the EU intends to dip into its research budget to fund the multi-billion investment plan initiated by Jean Claude Juncker. He suggests it would be better to introduce EU-wide tax relief on research and innovation for the private sector.

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Martin Stratmann, President of the Max Planck Society

EU Commission President Jean-Claude Juncker hopes that a multi-billion euro package of investments will stimulate growth in Europe. In principle, an initiative such as this is welcome news. One look at Germany’s neighbours is enough to see the magnitude of the challenges they face in lowering unemployment and creating new jobs. Just recently EU representatives were forced to admit to the business journal Handelsblatt that the targets of the “Europe 2020” strategy for growth announced back in 2010 are now scarcely achievable – unless the new EU investment package hits the mark.

The EU Commission President’s plans raise a series of questions. For example, a substantial part of the funds guaranteed by the EU is to be sourced from the budget for “Horizon 2020”. This is scarcely credible, given that the research funding program is itself an important part of Europe’s growth strategy. And rightly so, since it has been demonstrated many times over that direct public sector investment in research and education has a significant positive effect on economic development. This applies both to national research systems as well to Europe as a whole. Past experience has also shown that those national economies that have invested consistently in research and education have been markedly more successful in overcoming the recent economic and financial crisis than those who have neglected such investment.

The fact is that, as a result of the recent crises, the differences in research and development (R&D) expenditure between member states have become greater, rather than smaller. We in Europe are far removed from the goal of investing three percent of gross domestic product in R&D (current spending is a little over two percent). This is all the more reprehensible given that our competitors in the US and Asia, in particular South Korea and Japan, are even now investing at substantially higher rates (4 percent in South Korea, 3.4 percent in Japan).

Researchers in Southern Europe have been compelled to accept significant cutbacks

Researchers in Southern European countries such as Greece and Spain have been compelled to accept significant budget cuts. We are aware of the impact through our cooperative projects.  Many junior scientists are abandoning their home countries for lack of career prospects – and in consequence are no longer available to help build powerful systems of innovation. Europe has a responsibility to counter the unequal reduction of research capacity and achievement. Horizon 2020 with its battery of funding and support measures is a hugely important catalyst!

It remains dubious whether reallocating public-sector funds to private industry in the short term will have a long-term effect in encouraging innovation. Rather than an investment program financed on credit, it would be better to introduce EU-wide tax relief on research and innovation for the private sector. Of course this would be far more difficult to implement, given that the EU is unable to intervene in the taxation policies of individual member states.

The commitment on the part of private investors will in any case be limited to those projects that are likely to yield short-term returns. There will be no return flow of resources back into basic research – the very field in which they originated. Assuming the funds withdrawn were to be equally distributed between all programs, in the period between 2015 and 2017 the European Research Council (ERC) alone, the flagship of European cutting-edge research, would lose around 450 million euros. The result of these cuts would be to throw this programme off course. The budgets for the Marie Curie Actions in support of young researchers would also be affected. The cutbacks in funding could impact the long-term global competitiveness of European research and thereby also of Europe itself.

The effect of the investment program on the development of the European Research Area must be closely monitored. It is Jean-Claude Juncker’s responsibility to ensure that the desired leverage effect of the guarantee fund really does also encourage research and innovation.

This opinion piece by Martin Stratmann was published in the Tagesspiegel on December 9, 2014 in German and can also be found here.  

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