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The West Must Price Itself Back Into World Markets

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As some of the most influential entrepreneurs, CEOs and politicians in the world gather in the Swiss alpine resort of Davos, the atmosphere is likely to be one of apprehension and uncertainty, so much so that it could spoil the normally refreshing mountain air guests so enjoy.

The global financial crisis, which began fully in 2008, is still holding the major global economies in its grip, and politicians are being forced by their electorates to come up with solutions to what is a crippling balance sheet recession, based on excessive debt levels and unfunded government liabilities.

Many countries, including Ireland, know why their economies got into trouble in the first place, but that is the easy part. Charting a new course is more fundamentally challenging.

That is why Davos, where the World Economic Forum is held annually, provides the perfect opportunity to learn about what has worked in the period from 2008 to now, and what has not worked.

Ireland, as the only country to likely escape its bailout program in 2013, can certainly be wheeled in front of Davos delegates as an interesting exhibit for those studying crisis macroeconomics.

What happens in Ireland in 2013 is not just important for Ireland, but for Europe more generally -- so much so that The Economist has described the country as the only economy likely to provide any pan-European economic cheer during the year ahead.

Ireland still has huge challenges, including a very significant debt burden. But what the country has done is re-shape its competitiveness profile across a range of areas, and effectively re-priced itself back into world markets.

Property costs have tumbled, unit labor costs have fallen and the price of many business services has fallen since Ireland was hit by a major economic shock in 2008/2009.

But Ireland has much of this change foisted upon it by the demands of the external trading environment; less trade-dependent countries in Europe have had some luxury in not having to take on this re-shaping process.

In Ireland, exports and attracting inward investment have been the mainstays of the country's recent economic performance, but those European economies with a different model have been able to avoid some of these tougher competitiveness challenges.

More broadly, Europe's competitiveness performance has been poor in recent years and as a result, slow or no growth has become endemic in many European economies.

Europe is struggling in the area of competitiveness, particularly when you view the statistics in terms of individual states.

Not a single member of the Eurozone, apart from Germany, for instance, is ranked in the top 10 economies for competitiveness, as measured by The Economist's annual scoring system.

But why is this a worry? Well, one does wonder if Europe can maintain its share of world output if it does not start to make gains on its global rivals, like the U.S. and China.

Europe has depended on technological, educational, skills and innovation advantages for many years to stay ahead of its rivals, but this cannot continue forever. More prosaic factors that help to win business globally must also be looked at -- and competitiveness is crucial in that regard.

A report issued last year by the World Economic Forum put it well when it said "EU economies score strongly in terms of environmental sustainability and social inclusion, but lag behind other parts of the world in building a knowledge-driven economy."

Ireland, for its part, still has work to do; it is in the second tier of economies based on competitiveness. Not a bad performance when one considers the Forum breaks countries into four broad tiers, with Greece, for instance, in the fourth group.

Either way, when looked at from a pan-European basis, competitiveness is an issue for all the countries, and the time has come to start thinking seriously about how Europe can re-price itself back into global markets while holding onto the gains it already has in social cohesion and environmental sustainability.