Amidst all the doom and gloom of European austerity and the general anxiety about the continent’s future, there is considerable evidence that Europe remains surprisingly well positioned to compete in the global market.

For the past three decades, the World Economic Forum has performed a detailed annual assessment of the productive potential of nations. Its 2012/2013 report, covers 144 economies against more than 100 indicators, and serves as an antidote to the prevailing pessimism in Europe.

Measured against “Twelve Pillars of Prosperity” (institutions, infrastructure, macroeconomic environment, education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, innovation) six of the 10 best-performing economies are European. They are:

• Switzerland (1)
• Finland (3)
• Sweden (4)
• Netherlands (5)
• Germany (6)
• United Kingdom (8) 

Northern and Western Europe thus qualifiy as “competitive hotspots”. Interestingly, the United States is ranked seventh in the world, and has consistently slipped down the rankings over recent years. Even with diminished growth, on aggregate the EU is running a current account balance of +0.7%, in contrast to a deficit of -3.1% for the United States in the 12 months prior to September 2012.

All of the G7 developed economies wrestle to varying degrees with high and rising government debt (the picture is even more alarming if one totals the sum of government, household, financial and non-financial debt). The real point in analyzing whether countries can look forward to sustainable future prosperity is that it is a complex interrelated web of both static and dynamic factors, as the WEF’s Global Competitiveness Report highlights.

In terms of Europe, the dilemma for peripheral euro-zone countries such as Spain and Italy is that the "one-size-fits-all" monetary straitjacket of the Euro is a structural impediment to restoring their competitiveness. Deprived of the option of devaluation, they are obliged to deflate their economies, and reduce debt through austerity, not inflation. In this scenario, debt ratios may actually rise (austerity measures in Spain and Italy have led to recession, whilst interest rates on its sovereign debt remain high).

According to the International Monetary Fund, growth, spending cuts and tax increases all contribute to alleviating the problem of unsustainable debt, but the make-or-break factor is easier monetary policy, i.e. low interest rates and bouts of inflation. On this score, Britain and the United States look better off (although fiscal tightening in Britain has kept the UK economy fragile).

For the reasons mentioned above, the euro-zone is facing an ongoing crisis, but this should not overshadow the ‘silver lining’ that six of Europe’s leading economies are fundamentally competitive. And no one can afford to be complacent in a globalized world, including the United States.