Preserving research and development spending during a consolidation will
avoid technological divergence in the euro area, and hence
fragmentation.
Investing in innovation is crucial for sustained and
sustainable long-term growth and competitiveness, particularly amidst
issues brought on by megatrends such as climate change, the push for
digital transformation, and population ageing. [1]
The Covid-19 pandemic and the energy crisis have resulted in higher
debt-to-GDP ratios and debt service costs, reducing governments’ fiscal
room for manoeuvre.
Countries with lower R&D spending cut it more
than their peers during consolidations, and the private sector did not
step up to fill the gap.
Revenue-based consolidations raising the tax
burden for the private sector undermined R&D investment across the
board.
As EU Member States are drawing up their medium-term
fiscal-structural plans, they should be attentive to maintaining R&D
spending, as failing to do so might fuel an R&D doom-loop for less
innovative countries, thus exacerbating divergence and fragmentation. (...)
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