In Favour of a Smaller Eurozone

A majority of business executives surveyed for a report on the State of the European Union favor a smaller Eurozone, according to Per-Olla Karlsson, Managing Director of Booz and Co Europe, one of the co-authors of the study. That includes 40% of German executives.

No-one felt the Eurozone should be enlarged; however no one felt that the Eurozone should be abandoned, and believed the idea of a single European market would prevail.



On the issue of Eurobonds, those outside of Europe were largely in favor. On average, 57% thought Eurobonds were a good idea, while only 18% did not.

Copyright INSEAD Knowledge 2012

The European Dream in Peril

The economic crisis that began in 2007 has now become a human tragedy, putting 17-million people out of work in the EU (as many as 50% of young people in some regions) and threatening the foundations on which the European dream rests.

With slowing growth and rising unemployment, the Eurozone must embark upon structural and other reforms to deliver the vibrant society envisioned for all Europeans.

So says Angel Gurria, Secretary-General of the OECD, in his keynote speech to the State of the European Union conference in Brussels. "The Eurozone needs a strong fiscal compact with a strong firewall," he said. "So far, the crisis has shown us how and why we are NOT using all the powers we have."

Gurria believes the debt and economic crisis are a problem of governance.  Differing national policies must converge,  he believes. Key pieces of unfinished business remain: governments must stick to reforms to avoid another buildup of imbalances. Competitiveness must be restored so that Europe can compete in today's world.  More needs to be done regarding growth: fiscal consolidation is indispensable - but its composition is also important, Gurria added, reading from the EU compact currently under consideration by member states. Whatever the decisions, he warns against penalizing job creation a the expense of covering deficits - that is, tax hikes which could make it difficult to sustain growth.

Necessary Reforms 
Reforms should target product market regulation, labour market reform: "go structural." Europe has run out of options on the fiscal and monetary fronts. Gurria claims the financial markets have lost patience and the capacity to wait for Europe to keep tinkering. OECD research "Going for Growth" suggests very strongly that it doesn't take so long to produce results and it doesn't cost much in the short-term if you can communicate clearly on what it is you are doing. If you give a medium-term context in which you are placing your short-term policies, you will get reinforcement for your short term measures; if you only think shot-term without context, your efforts will fail to produce results and will fade away again and again and again.

Gurria says there are three challenges which must be tackled:
1. Existing single market requirements need to be implemented effectively - several members aren't sticking to what's on the books. Determine what is missing in law and in practice to prevent the single market from working.

2. Better coordinate technological infrastructure to foster more competition. This will led to innovation, which will lead to change...

3. Europe needs a more coherent and consistent framework to foster cross-border activity: make it easier to operate across the EU. This will also encourage inclusive social progress. Economics is not an abstraction: it's about people - a better life.

4. Rising inequality. The rich are getting richer in Europe nine times faster than the poor. There is a deterioration of wealth and income. Investment in skills is the most powerful tool to fight inequality. Without this investment, people languish on the sidelines of society - skills are the global currency of the 21st century. It is odd that while unemployment remains high, employers still cannot find workers! This is a skills mis-match.

There are still short-term issues: Greece, Spain, Italy. if these are not dealt with they will interfere with the medium and long-term vision. These short-term issues are soluble with the institutions Europe has already created for itself. We have to find ways.

Copyright INSEAD Knowledge 2012

Innovating the Way Out of Crisis

INSEAD eLAB Executive Director Bruno Lanvin says that finding solutions to the problem of a lack of innovation in the EU remains a challenge. The top solution suggested by respondents to the report by INSEAD and Booz for the State of the European Union involves increased cooperation between corporations and universities – even though they admit that such cooperation is really a symptom of success, not a cure for the problem.

The good news, however, is that most business leaders agree that in addition to its excellent physical infrastructure, Europe is endowed with an energetic, well-educated workforce. Can the EU harness this core strength and focus its talent and energy to promote innovation? A significant number of respondents believe that the answer is yes. If the region is to do so, however, it must take such measures as prioritizing science and technology at every level of education.

Jean-Philippe Courtois, President of Microsoft International sees digital skills as a key enabler for growth potential in Europe - it has become necessary to have these skills in almost every industry. Cloud computing is also a big enabler is a driver of growth and enables innovation. It should create many jobs in Europe.

Barbara Frei, Region manager Mediterranean, ABB Italy Country Manager and CEO of ABB S.p.A. feels that there is a lack of young people with the skills that her company needs in Europe and feels that more needs to be done. She also wants to encourage entrepreneurship - making things easier and encouraging people to take risk.

Most panelists discussing "reinventing innovation and technology" added that there is not a great appetite for mobility for employees in Europe and would like to see more flexibility on the work market.

Bruno Strigini, President of Europe/Canada, MSD feels that the Silicon Valley should be seen as an example of something that Europe could emulate. It is essential to define what sectors in which Europe can be competitive and focus on those - rather than try to be good everywhere. There is the impression that China is just good at manufacturing but they are making strong progress in Academia and Europe needs to invest massively in certain sectors.

Mark Otty, Area Managing Partner EMEIA, Ernst & Young agrees that it is essential to create a concept of silicon valley and bring together skills, companies and academia to create a center for innovation. We should not assume that the emerging countries are not able to innovate and not worry about it because more and more companies are also outsourcing their R&D.

Copyright INSEAD Knowledge 2012

Is Europe a Good Investment?

While there is more awareness through trade and tourism between the Middle East and Europe at the business level there is still a lot to do, says Mubadala Head of Strategy Indranil Ghosh, who wonders how truly globally integrated European businesses are.

"How often do you come across a business counterpart who has had actual experience in the Middle East? In managing a facility there, for example?"

Copyright INSEAD Knowledge 2012

The EU from the Outside In

The view of the EU economic crisis is far worse seen from outside - specifically in the Latin American countries - compared to businessmen within the EU, according to a report prepared by INSEAD and Booz on the State of the European Union for the European Executive Council, organizers of the second annual Sate of the European Union conference in Brussels today...

"The view of business is 'get the European project finished'; it's not time for a European contract yet. Focus on the broader issues of fiscal and monetary policies and fostering peace and democracy and let the individual countries take care of their social issues," says INSEAD professor Ludo Van der Heyden, one of the authors of the study.

"One of the big questions is how to leverage the power and wealth of Europe," said Henrik Bourgeois, VP of European Affairs at GE. "Europe should try to reduce the turbulence and volatility within the union...it could start by reducing budget deficits an implementing fiscal contract."

Europe needs to continue to be the world's most open economy and must avoid protectionist reflexes in this time of crisis, both externally and internally as a lot of progress is yet to be made in the internal market within the EU. There could be a truly integrated energy market for example.

Labor Market Reform 

Europe needs to work on labor market reforms: matching skills with areas of growth (there is a need for investment in lifelong learning, particularly for young professionals), but we need more flexible labor regulation, said Henrik Bourgeois. 

We need less tax burdens especially on labor markets and Europe needs to foster labor mobility within the EU. 

Europe needs to continue to invest in innovation. And it needs to be prepared to go to the next level of economic integration; economic coordination is not sufficient. There must be a unified roadmap. EU politicians and policy-makers must be prepared to take quick actions if and when necessary. This makes business sense for investors and for Europe's commercial partners.

Copyright INSEAD Knowledge 2012

Don't Waste A Crisis!

Famous words from Winston Churchill, applicable today, and echoed by former Spanish Prime Minister Philipe Gonzalez who sent word to the conference this morning. It is his belief that "Europe has grown through this current crisis and will emerge stronger."

Gonzalez's words were conveyed by Bernard Vergnes, Chairman of the European Executive Council, organizers of the State of the European Union conference. He introduced opening speaker Ivo Josipovic, President of Croatia.

Welcome Speech by the President of Croatia

The desire for accession to the EU has been present for much of Croatia's 20 years of independence, and four months ago, 2/3 of those voting in a referendum approved joining the EU. This desire exists despite changes as a result of the last parliamentary elections; the vision for a unified Europe is important to Croatians.

The historical changes in Europe in 1989 changed the landscape that had been a reality since the end of World War II; new states emerged and set out on a new path. Croatia went through a difficult and complex transitional process: and a war made the transition from authoritarianism to Democracy even more painful. We had to change everything from political to social to economic systems while enduring a war.

These were problems we were not prepared for but we had to resolve these issue despite our lack of experience. The European Union is an anti-war union, it emerges as an expression of concern over individual nations violent nationalism; it is a union for peace and an instrument for achieving greater security. It can provide security and stability to all of its members, and this is central to creating a free and open market.

The EU is a work in Process

The European project is one of permanent development; it matters to us that this development be not only permanent, but also cognizant of the fact that some parts of Europe need more rapid development in order to catch up. We see the EU as an external protagonist that motivates us. We could not have implemented some internal reforms without this external support. Were it not or the EU we would be a small country facing the current economic crisis alone. 

But how do we overcome this crisis we are facing together? 

Being part of the EU has a psychological benefit for us: we are being treated as a "normal" county; it is a confirmation that we have reached a certain level of social development. Croatia is a small country that relies on other countries for its development; it is important we adhere to the framework of Europe as defined by the EU, that the vision of a free, just and developed Europe as our common home.

Our population is just over 4-million however, we want to be involved n the EU decision-making process and based on our experience. We believe we can be a constructive part of this community of nations: the entirety of Europe, including Eastern Europe and Mediterranean countries. A throw-back to nationalism because of the economic crisis would be a set-back for all. Even when things become difficult we should not give up. 

It is easy to say that today the EU has become too complex, but we disagree: the EU is a permanent guarantee of freedom and security and prosperity and we will contribute to it. I call upon business people to work with us to further the European idea, as this will open doors to you where people of good will and good hope wait for you.

Copyright INSEAD Knowledge 2012

The Conference Dawns!

Some 550 business leaders and policy-makers are gathering at the Egmont Palace in Brussels this morning for the second annual State of the European Union conference...