May - June 2011 Issue #935-936a A New Europe Special Edition

NEW EUROPE
In association with:

EUROPEAN BUSINESS

G I NG?
O R LAG
D I NG
LE A
02 May-June 2011 Europe: Leading or Lagging? NEW EUROPE
Special Edition

The virtuous European Offering the way

way to business excellence forward
by Cillian Donnelly,
by Dennis Kefalakos, Editor European Business Edition Editor
European Union businesses need no lessons from That the global financial crisis hit Europe hard is
anybody. Germany is the second largest world ex- undeniable. That Europe also has the resources,
porter - only behind low cost China - and together both human and industrial, to bring itself out of
with France, Holland, Finland, Sweden, Austria, Bel- the crisis is also undeniable; however, the some-
gium, Italy and Spain have secured an expanding times-difficult way it has struggled forward over
presence in all global markets. Even smaller EU the past two years or so highlights that, sadly,
countries like Denmark, Greece and Portugal offer nothing is ever achieved with unmitigated ease in
their special expertise and services in sectors like ship- today’s global economy.
ping and tourism. Like all great crises, the recent financial plight
That is why the European currency, the euro, is has provoked a serious debate; a prolonged argu-
such as strong monetary unit, being based on a prod- ment about the future, about where Europe can go
uct and services net foreign surplus. Belgium, in the in the future. With difficulty, conversely, comes
center of the EU, is the most outward looking coun- opportunity, and Europe now needs to be fully en-
try of the world exporting and importing more than gaged with its own citizens and industry, and those
150% of its GNP every year. of the wider world, if it is to fully explore what
Having established this European prerogative in can, and needs, be done if its full growth potential
doing business on a world scale, it is easy to destroy is to be met.
the myth that social Europe is an impediment to The European Business Summit is vital for fa-
business. Of course competition in international cilitating that debate. The question that it pro-
products and services markets oblige all and every EU poses this year, is Europe leading or lagging?, is
country to pay attention, if they want to maintain and particularly apt, as emerging markets, such as
expand their competitive advantages. German engi- China and India, as well as a the old US power-
neering, French specialties, Italian Design, Dutch and house, all push forward to ensure their own way
Belgian knowledge of world markets and the unique out of financial trouble.
position of Europe in the world tourist industry have The steady rise of developing countries also
been achieved with hard labor, long term planning warns Europe that failure to achieve its potential
and excellence in sciences and R&D. However the now can only result in long-term catch-up, while
rising might of the BRIC countries (Brazil, Russia, the Arab Spring, seen in the Middle East and
India and China) has now created new challenges for North Africa, give hopes for the establishment
Europe. The qualities on which European products new markets and global partners.
and services conquered the world and made Euro- The views expressed in this special edition, as
zone a net exporter are increasingly challenged, by well as those that will be heard at the event itself,
low cost products. If the European quality advan- represent different approaches and opinions, but
tages melt down, Europe will face decline. In order all have one common goal: to ensure that Europe
the EU to avoid this dreadful prospect it has to invest does not, indeed, end up lagging behind rival
in education and scientific excellence. Fortunately the global markets.
brain drain that Europe suffered in the 1960s and Europe needs to innovate, we are told; it needs to
1970s in favor of the US has now almost stopped. value its graduates and nurture its great wealth of
The US is no longer more of a paradise for scien- human talent, it needs to listen to its citizens and its
tists than the EU. Europe has found the means and industrial sectors, and it needs to compete on the
the funds to support research and development on all highest global level with those equally determined
fronts. It is not only the public resources that are to determine their own growth and wealth.
being directed to basic research. The business sector As in the past, this 9th edition of the European
is financing its own programs of R&D with increas- Business Summit takes a look, critically and con-
ing success. structively, at how such things can be achieved. No
The EU is spending an increasing part of its one is under any illusions that Europe's problems
budget to support innovation on all sectors of the can be solved overnight, but without the courage
economy favoring relevant initiatives in all member and intellectual honesty to address such critical
states. In short if Europe continues successfully in this matters, then Europe will certainly find itself
direction, high quality employment opportunities will struggling in the wake of its competitors. This
prevail and European business will continue to ex- forum offers the opposite; it offers the ideas to go
pand its impact and presence on all world markets. forward.

DIRECTOR
NEWEUROPE

EDITOR Alexandros Koronakis BRUSSELS HEADQUARTERS

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 NEW EUROPE
Special Edition
COMMENT
More Europe is needed
By Yves Leterme
History shows that Europe is at its best
in times of challenge. Europe acted prom-
ptly to the financial crisis of 2008 and the
recent debt crises in some Eurozone
member states.
The EU took the lead in solving the
consequences of the American born fi-
nancial crises. We succeeded in deciding
a more performing European financial su-
pervisory system during the Belgian pre-
sidency of the EU last year. Other
measures to strengthen the financial sy-
stem have been decided or are in the pro-
cess of decision making.
This financial crises has weakened the
already vulnerable debt position of a num-
ber of member states. When the financial
markets suddenly attacked Greek sove-
reign debt in May of last year, the Union
was able to formulate an answer in a short
time span.
Within the course of a few months, we
have set up a package including financial
support, stronger economic coordination,
stronger banks and a programme for more
growth.
The European, bilateral and internatio-
nal support for overly indebted member
states amounts to more than €800 billion
. The major component is the European
Financial Stability Facility of €440 bil-
lion, which will be succeeded in 2013 by a
permanent European Stability Mecha-
nism of €500 billion. Strong conditiona-
lities for reform are attached to financial
support. The European Stability Mecha-
nism is the application of an idea I have
defended already beginning 2010, before
the Greek crisis. I then proposed the cre-
ation of a European Debt Agency which
would help substituting national sove-
reign debt for European sovereign debt or
Eurobonds, an idea also promoted by
others in the mean time. I hope that one
day in the future the European Stability
Mechanism will evolve into a real Euro-
pean Debt Agency.
More economic coordination has been
decided. The so-called Six Pack is cur-
rently being discussed with the European
Parliament. I am convinced that the Hun-
garian Presidency will reach an agreement
in June of this year, as planned by the Eu-
ropean Council. The procedure to prevent
macro-economic imbalances is most im-
portant. I am in favour of the application,
where legally possible, of automaticity and
reversed Qualified Majority Voting in de-
cision making. Much underestimated
in the debate on macro-economic stabi-
lity is the role of the European Systemic
Risk Board. Indeed, the Greek, Portu-
guese and Irish crisis are to a large extent
the result of too abundant cheap cre-
dits fuelling financial and real estate bub-
bles. The European Systemic Risk Board
can use the expertise and information of
the European Central Bank and the na-
Europe: Leading or Lagging?
Yves Leterme, Prime Minister of Belgium
A stable financial system and a stable
macro-economic environment are a
prerequisite for economic growth, but
not a sufficient condition
tional supervisors to monitor macro-fi- After this test we will be sure about the
nancial stability and to warn the EU on strength of our banking system.
imminent problems, so as to allow I am convinced that in the long run we
the Union and member states to react. need a European Rescue Fund to recapi-
Within the framework of the new Fi- talize European systemic banks in case of
nancial Supervisory system, we created a problems. Such fund could be financed by
European Banking Authority. This EBA a levy paid by the insured financial insti-
already now proves its crucial role in pre- tutions and implemented in such a way
serving a viable banking system via a new that it reduces the systemic risks caused
stress test for the European banks. The te- by banks which are ‘too big to fail’. A sin-
sted scenario’s and the method of peer re- gle market for capital requires a European
view of the outcome of the simulations solution for failed banks, otherwise smal-
guarantee the credibility of this exercise. ler member states always risk to be “too
The governments of the EU are commit- small to bail out their banks”.
ted to recapitalize their banks if deemed A stable financial system and a stable
necessary by the results of the stress test. macro-economic environment are a pre-
May - June 2011 03
requisite for economic growth, but not a
sufficient condition.
For this, the ambitious project of EU
2020 is part of the answer. We drew les-
sons from the weak points of the Lisbon
strategy. EU 2020 is more focused and
ownership has increased. We have decided
the right ambitious targets to increase
long term economic growth via more pu-
blic and private investments in Research
and Development, more and better edu-
cation and training and by putting more
people at work. I have always defended an
inclusive growth model to preserve and
strengthen our social model. The targets
aiming at less early school leavers and less
poverty are an expression of our European
Rhineland model.
The ambition to make Europe greener
is an opportunity for Europe’s industry to
achieve a ‘first mover’ advantage in the
globalised economy. A greener Europe
can mobilise the best of Europe: skills, ca-
pital and creativity.
The role of enterprises is key for ma-
king EU 2020 a success. Enterprises con-
tribute most to R&D and it is the role of
business to explore new markets and ex-
port high value added products to emer-
ging countries, the markets of the future.
Politics should support these efforts. In
this respect I would like to stress the im-
portance of the agreement reached during
the Belgian rotating presidency of the EU
on launching the European patent via
enhanced cooperation.
The Single Market Act is a powerful
engine for economic prosperity. Explo-
ring economies of scale, increased com-
petition in the largest market of the
world and more consumer choice is the
most efficient way to improve the welfare
of Europe.
We soon start the debate on the new
Multi Annual Financial Framework of
the EU. I hope that the Commission will
present ambitious proposals end of June
2011and that the new budget framework
will serve our shared ambitions of EU
2020. Europe is a common project and a
project of solidarity. Specific rebates run
counter to these principles, although fair-
ness is an argument in favour of a genera-
lized correction mechanism. An own
resource for the Union can help overco-
ming the old debate of the ‘juste retour’.
Such new resource should also serve the
greening of the economy; reducing nega-
tive ecological externalities is best done at
European scale via proper levies. The re-
sulting extra revenue can then be com-
pensated by lower contributions by
member states, allowing for lower taxes on
labour. The Union should become more
engaged in promoting and financing
trans-European networks. This is needed
for economic growth but it is also a means
to promote a healthy competition in the
energy sector.
Belgium sees a need for more Europe.
04 May-June 2011 Index
How do CEO’s Our Message is clear: Europe needs a
look at Europe’s 06 Reform to Perform 07 strong, diversified and 09
by Rudi Thomaes by Jürgen R. competitive industrial base
CEO Federation of Thumann by Antonio
Enterprises in Europe
President of Tajani
BUSINESSEUROPE, European Commissioner
and co-chair of for Industry and
TransAtlantic Business Entrepreneurship

“ The speeding up of the “ The current recovery must

Dialogue

budget consolidation and
the stability of the financial
markets should top the to
do list for Presidents Van
Rompuy and Barroso ”
“ My mandate is clear: to
pave the way for sustain- contribute to the modernisa-
tion and reinforcement of the
able growth towards and
European industrial base
beyond 2020
” ”

Innovation Union: Is A Digital Future Managing the

the EU dreaming the 10 11 transition to a low 12
impossible dream? by Dr Erkki carbon future
by Judith Ormala by Isabelle Muller
Merkies MEP President, Secretary General,
Member of the European DIGITALEUROPE EUROPIA
Parliament's Industry,
Research and Energy
Committee

“ The answer is that inno- “ We must urgently make “ The EU can achieve its
vation in Europe is not only the decision to deliver a Eu- dream of a low carbon fu-
a question of budget and of ropean digital single mar- ture without jeopardizing
spending, but of setting the ket based on the founding the economy and jobs in
principles of Jacques the process
right regulatory framework.
” Delor’s 1992 vision
” ”

European Business:
Fast Forward into
Europe’s Future 14
by Jan Mühlfeit
Chairman of Microsoft
Europe
“ The long-term prosperity
Europe lagging Entrepreneurship and EU and GCC ahead
behind? 15 SMEs: from declara- 16 of common chal- 17
Mark Spelman tion to implementation lenges and opportunities
Global Head of Strategy
by Zsolt Becsey by Rodi Kratsa
- Accenture Minister of State for Tsagaropoulou
Foreign Economic
Vice President of the
Relations, Ministry for
European Parliament
National Economy of
and member of the
Hungary
“ Asian countries have no
Economic and Monetary
“ Due to the economic crisis Affairs Committee

of Europe’s next generation
is dependent on her ability
to remain competitive ”
financial drag, so Europe
needs to become more
pro-active, we need to look
at the demand for exports,
for innovation
”
more than 3.5 million jobs in “ This could be the beginning
SMEs have been lost, which fur- of a new chapter between the
ther underlines the specific need
European Union and its
to streamline and consolidate
SMEs policy at European level
”
Mediterranean partners
”

The leaders of Cooperation is more EU-Asia: solutions for Days of race: Tele-
tomorrow 17 important than ever 18 sustainable transport 19 porting business risk 21
by Dipak C. by Mikael by Matthias by Dr Greg
Jain Hagstrom Ruete Austin
Chairman, Executive
Dean of INSEAD Director General for Vice President of
Council, AmCham EU
Mobility and Transport, Program Development
President EMEA and
European Commission and Rapid Response,
Asia Pacific, SAS
EastWest Institute
Institute

“ It is clear the world is
moving away from Free
Market Capitalism to Sus-
tainable Capitalism
” vative use of technologies
“ We need to continue invest-
ing in the transatlantic relation-
ship, keeping the dialogue open
and harmonising our rules of the
game as we leverage the inno-
”
“ In a changing world, Eu-
rope and Asia face similar
challenges, not only to pre-
serve the status quo, but to
improve the situation of our
citizens
”
“ As the campaigns of the
Iranian Cyber Army and
Anonymous show, this com-
bination of rage and em-
powering digital
connectivity is a major
source of risk for global
business
”
 Index May-June 2011
05

The transatlantic Ending the Doha Placing consumer pri-

economy: Daring to 22 stalemate 23 orities at the heart of 24
be ambitious by Hiroyuki the transatlantic partnership
by Daniel Ishige by Julian Knott
Hamilton Special Advisor to the Secretary General TACD
Director, Centre for Ministry of Economy,
Transatlantic Relations, Trade and Industry,
Johns Hopkins University Japan

“ Transatlantic markets are “ So, how can we get out “ The transatlantic market-
the laboratory of globaliza- of this stalemate? I think place is the largest and
tion.Together we face issues that support from industry is most significant bilateral
that neither of us faces with trading relationship in the
indispensable
others
” ” world
”

China-Europe Ties The Emerging-Mar- Ending uncertainty in

on Steady Course 25 ket Growth Engine 26 New Member States 27
in a Fluid World by Nirupama Rao by Henryka
by Yang Jiechi
Minister of Foreign
India’s
Foreign Secretary.
Bochniarz
Affairs of the People’s President of Polish
Republic of China Confederation of Private
Employers LEWIATAN

“ Global economic and fi- “ Substantial private invest-

ment – including foreign “ What is still missing, is a
nancial risks have persisted, investment – would be permanent crisis management
and protectionism has fur- needed to address India’s and resolution mechanism
ther exacerbated
”
huge “infrastructure deficit”
and the financing gap that ”
accompanies it
”

Leading or Lagging?
New Policy Paradigms Single Market Act will Europe needs more
for a New World 28 provide a welcome 29 business -education 30
by Dominique boost to employment partnerships
Strauss-Kahn by Annemarie by Caroline
Managing Director of the Muntz Jenner
International Monetary President of Eurociett,
Fund. CEO, Junior
representing the private Achievement-Young
employment sector in Enterprise Europe
Europe
“ One principal policy failure in
the run-up to the crisis was a
“ Countries across Europe “ Entrepreneurship and
need to raise their labour mar- financial literacy are two of
lack of imagination: we failed to ket participation rate if they are
appreciate just how intricate the the most important soft
to meet the EU’s 2020 75% skills needed in the Eu-
global economic and financial
web had become
”
employment target
” rope’s labour market
”

Balancing regulation Young Entrepreneur- Beyond the Egyptian

and access to finance 33 ship: Is It Possible? 34 Spring 35
by Danny by Ignacio by Sherif Kamel
McCoy Salinas Dean, AUC School of
Business
Director General Irish Communication Officer at
Business and Employers ThinkYoung
Confederation

“ Regulatory reform must at “ As a major source for con-

all times keep sight of the
final goal: to ensure that Eu-
“ The more possibilities we structive commentary and re-
search, the American
are offered today, the more University in Cairo has and
rope has a well-functioning
banking system capable of we can offer to generations will act as a key moderator for
debating and discussing so-
supporting entrepreneurial in the future
” cioeconomic change beyond
activity
” the Egyptian Spring
”
06 May-June 2011
EUROPEAN BUSINESS 2011
How do CEO’s look at Europe’s future
position in the world economy?
Rudi Thomaes
CEO, Federation of
Enterprises in Belgium
More than
35% of the
managers point at the
lack of labour mobility
in Europe and 28%
plead for fast progress
in mutual recognition of
professional
qualifications
A woman works on an iPad under a projected clouded sky at the CeBIT Fair in Hanover, Germany, 28 February 2011. |EPA/JOCHEN LUEBKE
By Rudi Thomaes
In a world where 85% of the economic
growth will be realized outside the Eu-
ropean Union, it’s obvious we should re-
flect on our stakes and potential with
respect to the positioning of the EU in
tomorrow’s world economy. We know
that our political position remains han-
dicaped by the persistent inability of
European political stars to speak with
one voice (this has often to do with local
electoral agendas, rather than with fun-
damental differences in opinion on fo-
reign affairs). But the Union has
foremost economic and monetary foun-
dations. Therefore our Federation has
requested Accenture to carry out a sur-
vey and focus on future growth perspec-
tives with over 400 C-level managers in
the context of the European Business
Summit which takes place on 18th and
19th May in Brussels.
When we look at the results of the
survey, we tend to focus our attention on
new signals from the corporate world. I
will highlight a few of them. However,
let’s first look at repeated claims with
high scores. They should rank first in
our conclusions for policy action.
In my view the call for simplifica-
tion, the lack of STEM-skills (Science,
Technology, Engineering and Mathe-
matics) and superfast broadband-infra-
structure seem to remain top priorities.
None of them are easy, but none of them
are mission impossible either. Take the
administrative burden and pitfalls. Look
at the way projects are blocked by admi-
nistrative procedures.
They are simply a nightmare for in-
vestors, even when they are very careful.
Other employers are faced with surrea-
Europe: Leading or Lagging?
listic rules in some member states that
render early quitting the labour market
more attractive than staying. Such rules,
combined with the limited influx of new
STEM-skills create unhealthy tensions
in the labour market.
The business community should
push harder on these points and repli-
cate, together with the governments,
some best practices to boost the availa-
bility of STEM- and other skills and to
increase the employment level with the
55+ age category.
The extremely interesting study car-
ried out by Accenture revealed for me
personally four additional striking
points. First a cry for a European long
term industrial policy. This is the point
of greatest disappointment with the C-
level managers interviewed. I assume
that this reaction is fuelled by the im-
pressive policy-declarations observed on
other continents, China in particular.
Second, and rather new, a call for
well coordinated economic diplomacy,
for instance to attract foreign inve-
stment and foreign talent. I'm really
convinced this is the way ahead to do
more with less in building bridges with
emerging markets. For example, why not
concluding at European level agree-
ments with China on pilot projects in
European and Chinese cities and/or re-
gions for smart grids or on standardisa-
tion of plugs and charging units for
electric cars.
A third area of great concern is the
need to widen the labour pool. In an
earlier report, published by the Federa-
tion of Enterprises in Belgium and In-
sead, we flagged the advent of post-crisis
shortages on the labour market. In the
midst of the current high unemploy-
NEW EUROPE
Special Edition
ment figures, we face today more and
more shortages in a large range of pro- VERBATIM
fessions. More than 35% of the mana-
gers point at the lack of labour mobility - José Barroso
in Europe and 28% plead for fast pro- President of the European
gress in mutual recognition of profes- Commission
sional qualifications. Also a smart
immigration policy to attract foreign ta-
lent is back on the agenda. It is clear that
this skill issue will be critical for both,
growth and moderation of inflation in
the Union.
Finally, business executives consider
that we should look more intensively at The answer to our current
exporting services to emerging markets.
They refer to healthcare, education and problems lies with the
finance. I am personally convinced that
this is indeed key for our future for four consumer, but without
reasons:
first, these domains are “mission cri-
confidence there will be no
tical” for the emerging countries them-
selves and very large public spending
growth. Internally, that
will take place in this area; means deepening the
second, these are domains in which
Europe has an offer which is second to internal market, externally
none;
third, there exists of course a strong we need to promote trade
link between these services and Euro-
pean advanced products and software
and, last but not least, a breakthrough in
this area could pave the way for building
strong top-level human bridges between
the EU and those emerging markets.
I am convinced that a focus on “ex-
porting” these services throughout this
decennium will later prove to be a great
asset in our global positioning. I should
not conclude without emphasizing that
for Europe’s managers the speeding up
of the budget consolidation and the sta-
bility of the financial markets should top
the to do list for Presidents Van Rom-
puy and Barroso.
 NEW EUROPE
Special Edition
EUROPEAN BUSINESS 2011
Our Message is clear: Reform to Perform
Jürgen R. Thumann
President of BUSI-
NESSEUROPE, and
co-chair of TransAtlantic
Business Dialogue
The crisis has
generated many
questions: about market
functioning, about the
role of the state and
governments in the
economy. Not least,
about the contribution
of business to society
European Commissioner for Industry and Entrepreneurship, Antonio Tajani |EPA/OLIVIER HOSLET EPA/OLIVIER HOSLET
By Jürgen R. Thumann
The 9th European Business Summit will
focus on Europe’s place in the global eco-
nomy. How can Europe move from lag-
ging to leading and what are the business
opportunities where it can regain the
lead?
The challenge ahead of us is immense.
The position of Europe in today’s world
economy is under pressure. Emerging
economies are pushing hard. Global chal-
lenges such as climate change, scarce na-
tural resources, challenges of globalisation
and demographic change put Europe fur-
ther to the test.
The recovery in the EU has so far pro-
ved stronger than expected, despite un-
certainty still running high in financial
and sovereign debt markets. In its recent
spring Economic Outlook for 2011 BU-
SINESSEUROPE forecasts real GDP
growth to reach 1.8% in the EU 27.
However, the recovery has been une-
ven, with those countries with strong ex-
ternal competitiveness and sounder public
finances showing greater resilience and a
more broadly based recovery at present.
There is an ongoing rebalancing of the
European economy, which imply particu-
larly severe challenges for certain coun-
tries having to catching up in difficult
circumstances. But the need for reforms is
not confined to the countries with the
greatest difficulties.
Rebuilding solid foundations of eco-
nomic growth in our continent as a whole
is the highest priority. This will require a
clear reform commitment from each and
every government in Europe, and a new
political culture which promotes respon-
sibility. Substantial risks still remain for
2011 and beyond. At present, the biggest
concerns are related to rising commodity
Europe: Leading or Lagging?
prices, but the health of public finances
and the financial sector remain an impor-
tant threat for the European and global
recovery, and must be addressed without
any further delay.
Most of these risks interact with each
other and affect financial market stability
and investment perspectives of our com-
panies. The risk of disorderly correction
of global imbalances and unilateral appro-
aches is still present. We must remain
alert of the danger of protectionism and
this is why a robust policy framework is
also needed at the global level.
The crisis has generated many que-
stions: about market functioning, about
the role of the state and governments in
the economy. Not least, about the contri-
bution of business to society. Although
this debate is legitimate and necessary, it
is important to recognise that the free
market economy has brought tremendous
growth and welfare to Europe’s citizens.
I believe that in order to strengthen
the European economy, we have to go
back to the fundamental values of the
market economy. Let me recap on those
values: reward work and productive inve-
stments; encourage reasonable risk-ta-
king; ensure transparency on market
value; protect and develop intellectual
property rights; identify and provide sanc-
tions for fraud; ban distortions of compe-
tition, fight protectionism; and finally,
finance affordable public services and so-
cial security. Implementing these princi-
ples is essential for the prosperity of
European citizens
The development of companies and
the revitalisation of the Single Market is
central to achieve this prosperity.. Whe-
rever companies operate in a business-
friendly environment, they are successful
in producing first-class goods and servi-
VERBATIM
The fiscal strategy has to
prioritise Research and
Development, innovation and
education. They are key for the
future, for increasing
competitiveness
ces, in creating jobs, and in developing
new technologies. When companies are
successful, they create not only well paid
jobs but also the wealth that is needed to
finance public services and social security.
The appropriate policy response to the
challenges ahead will vary from country
to country. But there is one common ob-
jective: to go for growth. We are aware of
the formidable task ahead. To put our eco-
nomies back on track, the EU needs to
grow with a minimum of 2% in the co-
ming years. It should also ensure large
government primary surpluses at the same
time. This is a pre-condition to put public
debt on a downward trend by 2014. This
can only be achieved through a renewed
drive for growth and competitiveness
combined with smart but resolute fiscal
consolidation.
May - June 2011 07
- Herman Van
Rompuy
President of the European
Council
Our message is clear: reform to per-
form. Europe must react to avoid econo-
mic decline. Europe – still the world’s
largest exporter – has ‘leading’ opportuni-
ties. The current recovery must pave the
way for sustainable growth towards and
beyond 2020. This growth must be based
on knowledge and innovation and anchor
a competitive, high-employment and
green economy that can compete on the
global stage.
The 9th European Business Summit -
Brussels’ number one business event -–
initiated by BUSINESSEUROPE and
the Federation of Enterprises in Belgium
(FEB) - will debate these challenges and,
moreover, formulate concrete recommen-
dations for action – by business and po-
licy-makers together – to put Europe back
on centre stage.
ADVERTISEMENT
 NEW EUROPE
Special Edition
INDUSTRY
Europe needs a strong, diversified
and competitive industrial base
Antonio Tajani
European
Commissioner for
Industry and
Entrepreneurship
Europe remains a
great industrial
power. We are the world's
leading exporter of goods
such as chemicals,
machine tools or
automobiles. European
industry is also very active
in some sectors with high
potential for development
that are related to "green"
economy. Europe's biggest wind energy park, Alto Minho I, in the northern region of Viana do Castelo, Portugal. The 120 turbines divided between five sub-stations produce 530 gigawatts annually or
one per cent of Portugal's energy. |EPA/ESTELA SILVA
By Antonio Tajani
It is a great pleasure and an honour to be
given the opportunity to participate in the
European Business Summit. It has be-
come an important annual meeting for
the business community and policy ma-
kers on a European level. The future of
European industry in the global economy
– is an issue that is particularly close to
my heart. As Commissioner for Enter-
prise and Industry, my mandate is clear:
to contribute to the modernisation and
reinforcement of the European industrial
base.
The strength of European industry
I often hear negative discussions on
how European industry only plays a
minor role on the global scale, surpassed
by emerging economies that are stronger.
I completely reject the myth of the de-in-
dustrialisation of Europe. In fact, indu-
strial production showed strong growth in
recent years, until the crisis of 2008/2009.
I firmly believe that European indu-
stry must use the resources it has at its di-
sposal to continue to be a leader in the
many markets for products and services,
and to conquer new ones. Europe can and
must remain a place for generating jobs
and investment in industry. Continued
growth will only be possible with the sup-
port of the EU institutions.
The role of European industry today
European industry has changed signi-
ficantly over the past fifteen years, with
Europe: Leading or Lagging?
the significant growth of productivity and
the increasing advances made on an inter-
national scale. Although jobs were lost,
many others were created in sectors di-
rectly related to industry such as business
services.
Europe remains a great industrial
power. We are the world's leading expor-
ter of goods such as chemicals, machine
tools or automobiles. European industry
is also very active in some sectors with
high potential for development that are
related to "green" economy.
The challenges for European industry
There are major challenges ahead for
European industry. While nobody unde-
restimates the significance of the emer-
ging global powers of China, India or
Brazil, we must have confidence in our
own enterprises, both large and small, and
their ability to innovate and adapt to the
advantages that internationalisation poses.
The policy makers at European level
intend to create the best environment
possible for industrial development in Eu-
rope. This is the ultimate goal of our flag-
ship initiative for integrated industrial
policy in the era of globalization, adopted
by the Commission last October as part
of the "Europe 2020" strategy. I wish to
highlight sustainable development, inno-
vation and trade as examples of areas that
we are currently working on.
Sustainable development
One of my aims on assuming the role
of Commissioner for Industry was to im-
prove energy efficiency, promote better
uses of natural resources, to reduce carbon
emissions – these are goals that must be
fully integrated into modern industrial
policy.
Indeed, we must take into considera-
tion the specificities of particular sectors
and the problems that Small and Medium
Sized Enterprises (SMEs) are facing.
With a smart and stable regulatory fra-
mework we can develop our industrial
base so that it is both more sensitive to
environmental and health and supports
the competitiveness of the industry, beca-
use now it is of competitive advantage to
conquer these new markets related to
"green economy".
Innovation
Large emerging markets have establi-
shed very ambitious strategies in these
areas. We must not be left behind. For this
reason, the communication on industrial
policy put in place the elements of a po-
licy for industrial innovation, which is
complementary to the strategy of research
and innovation purpose of the initiative:
"A Union for innovation." In particular,
we identified some of the technologies
that are critical to the future of our indu-
stry: key enabling technologies such as
nanotechnology, photonics, advanced ma-
terials and biotechnology.
The potential of these technologies re-
mains largely unexploited in Europe. On
this basis, my intention is to launch an ini-
tiative to promote the deployment, adoption
and commercialization on a large scale. In
May - June 2011 09
this way, we will ensure that European in-
dustry remains at the forefront of innova-
tion. Innovation, ultimately, is the largest
industry that contributes to improving our
quality of life. We are moving towards a
world where products are becoming more
sophisticated and are better able to meet our
needs.
The new European industrial policy
is based on both greater integration and
coherence at EU level and closer coope-
ration with Member States and between
Member States themselves. We started
monitoring performance and competiti-
veness policies at national level last year
and exchanged good practices with
Member States, for example in the field
of access to credit SMEs. European in-
dustry still has much to offer and we will
provide adequate support to enable it to
successfully face the challenges of globa-
lization.
Trade
The success of industry depends on its
capacity to benefit from globalisation. Th-
erefore, we should not oppose a policy of
free trade, and an industrial policy of pro-
tectionism. In fact, trade policy can be a
great tool for promoting the competitive-
ness of our industry, provided that the
agreements that we enter into with third
countries are based on principles of reci-
procity. We are currently introducing a
"competitiveness test" on free trade agre-
ements specifically to ensure that new
agreements can maximize profits and mi-
nimize costs for our industry.
10 May-June 2011
INDUSTRY
Innovation Union: Is the EU
dreaming the impossible dream?
Judith Merkies MEP
Member of the European
Parliament's Industry,
Research and Energy
Committee
We must
recognize that
every citizen is a
possible innovator and
by boosting creativity
throughout Europe we
can increase this
potential The European Commissioner for Research, Innovation and Science, Maire Geoghegan-Quinn presents the European Innovation Scoreboard 2010 at the EU Commission headquarters
in Brussels , Belgium 01 February 2011. According to the European Commission, the EU is failing to close the innovation performance gap with its main international competitors, the US
and Japan. |EPA/OLIVIER HOSLET
By Judith Merkies
Conservatism and innovation do not go well to-
gether. Conservative parties govern most EU co-
untries and it looks as if only austerity is on the
top of their minds. Yet, the work is not finished
after the current crisis management. The work is
not finished after sole austerity measures. To be
prepared for life after crisis management, EU
Member States must find ways to boost the eco-
nomy and tackle societal challenges on the way.
The EU must dream the impossible dream.
The current economic crisis has brought about
large budget cuts to reduce the extensive long
term budget deficits most EU Member States
face. Nearly every Member State has reduced
the budget for innovation and research and has
stricken financial incentives. The question the-
refore is: how can innovation be boosted in
times of tight budgets?
The answer is that innovation in Europe is not
only a question of budget and of spending, but of
setting the right regulatory framework.The latter
entails doing away with part of the old legacy of le-
gislation, some rules have proven to impede in-
novation rather than to stimulate. It means bold
choices, impelling a change in economic climate.
It demands a focus on innovation throughout all
policies: lowering thresholds to finance, incentivi-
zing start-ups and venture capital, giving entre-
preneurship a key role in higher education,
defragment, de-bureaucratize, …. and all the
other de-‘s.
Innovation fugitives
The enemies of creativity are red tape and infle-
xibility. Many creative minds over the years fled
from Europe and became innovation refugees in
places such as Silicon Valley. These innovators
simply saw no other option, as they had been mar-
ked losers in their different home countries in Eu-
Europe: Leading or Lagging?
rope or had the mark of bankruptcy stamped
upon their face, the stay-away sign for European
banks and investors. In the United States, or other
more innovation friendly areas, they found a warm
welcome and a new beginning.
Europe has forgotten the usefulness of trial and
error. Many of the implemented rules and finan-
cial regulations of the EU and the Member Sta-
tes prevent start-ups to start over again after they
have failed. Not taking away these barriers means
more innovation fugitives fleeing away from Eu-
rope to places where they are judged upon their
courage, not on their failures.The EU must ensure
all its programmes service innovation. At the same
time it must step up the risk shared finance faci-
lity, especially to stimulate start-ups. Innovative
SMEs are in many cases far ahead of policy ma-
kers in terms of vision. It is about time for policy
makers to support these smart visions.
Therefore, EU programmes have to become
much more accessible to start-ups and SMEs, or
anyone else with creative ideas for that matter.The
best way to start focusing, to cut red tape, to reach
out and provide service is by creating an easily ac-
cessible 'one-stop shop', a front desk for stakehol-
ders to help and direct them through the maze of
forms and other requirements to the right sup-
port progamme and to a network of potential
partners.
Innovation is not a special policy, it is a goal, a
mindset, reason for all EU programmes and po-
licies to serve innovation. This mindset implies
that funds under the New Common Strategic
Framework for Research and Innovation, but also
the Common Agricultural Policy, the Structural
Funds and the Cohesion Fund must be aimed at
stimulating innovation.
Besides providing for a more innovative friendly
environment we must also acknowledge the fact
that innovation is not just about technological or
product development or recovering from the eco-
nomic crisis. It is also about more dynamic work-
VERBATIM
More than ever, innovation is
disruptive and messy. It can't be
controlled or predicted. The
only way to ensure it can
flourish is to create the best
possible environment -- and
then get out of the way. It's a
question of learning to live with
a mess
places, about empowering employees to improve
processes and about facing our societal challenges.
Challenges such as the ageing population and our
ever scarcer resources. Targeted policy by the EU
and the Member States could stimulate busines-
ses to adapt their workplace and become more
employee-driven, as this contributes to 75% of the
success of technological innovation.
Merge Einstein with Steve Jobs
Why would other continents have more visionary
leaders on innovation and on resource efficiency
than Europe? It is time that Europe kisses itself
out of its hundred-years-sleep. For far too long our
large industries stuck to the old ways. They sh-
ould follow the example of innovative SMEs and
spark a strategy for a complete resource overhaul
before 2020. Moreover, with our creative and in-
novative capacity in Europe, as well as our import
dependency on raw materials, resource efficiency
should be the key driver and main focus of our ef-
forts for more innovation. Not only the future of
our industry, but our future jobs depend upon it.
The European Steve Jobs and Bill Gates exist, but
NEW EUROPE
Special Edition
- Eric Schmidt
Executive Chairman, Google
why don't we know their names? We need to
boost a culture of excellence, risk taking, creativity
and entrepreneurship. Europe has had technolo-
gical breakthroughs and claimed academic suc-
cess. However, the Americans were much more
prosperous by carrying these breakthroughs to the
market and claiming business success.We have to
merge Einstein with Steve Jobs and keep him or
her on European soil.
The time has come for Europe to put serious ef-
fort into bringing about a mindset change towards
innovative and curiosity-driven thinking as well
as risk-taking, and allow for a more permissive at-
titude towards failure. We must recognize that
every citizen is a possible innovator and by boo-
sting creativity throughout Europe we can incre-
ase this potential. The European Parliament
supported the focus on citizen-centred innova-
tion, during the vote on May 12, making a call for
more social innovation at the workplace and pro-
posing measures to stimulate a more risk-taking
attitude for business.
Dreams do not only come true on other conti-
nents, Europe can realise its dreams.
 NEW EUROPE
Special Edition
INDUSTRY
A Digital Future
Dr Erkki Ormala
President,
DIGITALEUROPE
Without a
functioning
single market the
‘Innovation Union’
will not live up to
its potential as
investment in ideas
will not be
commercialised
European Commissioner in Charge of Digital Agenda, Neelie Kroes watches a robot reaching for a toy car after the opening of fet11, The European Future Technologies Conference and
Exhibition held under the auspices of the Hungarian EU Presidency in Budapest, 4 May 2011. | EPA/LAJOS SOOS HUNGARY OUT
By Dr Erkki Ormala
Europe is at a cross road. In the cli-
mate of a continuing fiscal crisis most of
our energy is focused on short-term fiscal
consolidation. This issue must be resol-
ved in an appropriate way to restore ma-
croeconomic stability which ultimately is
a precondition for growth and prosperity
in Europe.
At the same time a digital revolution
is sweeping societies and businesses
across the globe. Countries which have
been quick to respond are enjoying the
benefits and making their way to the top
of world rankings. Emerging economies
are a case in point; their impressive posi-
tive growth figures can be attributed to
their willingness to embrace this digitally
driven revolution. Europe too has a win-
dow of opportunity to capitalise on the
growth potential embedded in this digi-
tally driven revolution.
Investing in innovation is a prerequi-
site for harnessing Europe’s growth po-
tential and ensuring macro-economic
stability. DIGITALEUROPE applauds
the European Commission for its foresi-
ght in responding to this need through
flaship initiatives like the Innovation
Union, a highlight of the Barroso II Pre-
sidency. The Innovation Union ackno-
wledges that the creation of a competitive
innovative ICT industry sector is a cor-
ner stone of job creation and long term
economic dividends in the EU. DIGI-
Europe: Leading or Lagging?
TALEUROPE shares the European
Commission’s view that there is a need to
focus EU innovation on the Grand Ch-
allenges, but we are also conscious that
the greatest challenge of all in Europe is
to restore economic growth.
The ICT industry sector is one of the
most rapidly growing industries globally.
ICTs enable us to address the Grand Ch-
allenges. Yet today, as we accelerate into
the digital age, Europe still has no single
market for digital services. This lack of a
single market will limit Europe’s growth
opportunity unnecessarily. Creation of a
digital single market by 2015 would yield
a 4% point growth in the European GDP
by 2020. This corresponds to a €500 bil-
lion increase – translating to over €1000
for every European citizen.
Without a functioning single market
the ‘Innovation Union’ will not live up to
its potential as investment in ideas will
not be commercialised, new jobs will not
be created. Europe must act decisively to
remove the barriers that limit our ability
to leverage the benefits of a culture of in-
novation and the European digital single
market. European citizens and business
alike know the frustration and problems
of cross-border eCommerce. Less than
10% of the eCommerce in Europe is cur-
rently cross-border. Extending business
from one member state to another can
incur €2 million additional costs for a
company due to diverging rules and re-
gulations in different member states.
It is a neat coincidence that the con-
clusion of the European Union’s Lisbon
Strategy and discussions around its suc-
cessor, ‘Europe 2020’, happened when the
economic and political shape of the
world was being rapidly remodeled. The
European Union must think very care-
fully about its ambitions, its challenges
and how to achieve its goals urgently. If
we are committed to becoming the
world’s leading knowledge economy, Eu-
rope’s political leaders must actively focus
on overcoming the fragmentation in di-
gital industries, markets and communi-
ties. Failure to do so means Europe risks
losing its economic, political and cultural
lead.
Commissioner Kroes’ Digital Agenda
for Europe is an important roadmap for
the Barosso II Commission; it reflects
and addresses many of our current chal-
lenges. To deliver a successful European
Digital Agenda each member state has a
role to play in recognising the benefits for
its citizens and businesses, but also for ci-
tizens and businesses across the EU. The
Digital Agenda is rightly focussed on the
completion of the digital single market,
and while many EU countries agree in
principle that this is an important ambi-
tion many continue to reserve the right
to exclude their particular interests ou-
tside the digital single market. The con-
sequences are evident. Recent data shows
undisputedly that Europe is losing gro-
und rapidly. European websites are vir-
tually absent from the list of most visited
May - June 2011 11
web sites in the world. And, even more
alarming, is the trend we see in the gro-
wth of the leading internet service com-
panies in the world. It is no longer the
US which is dominating this space: Chi-
nese internet services providers are chal-
lenging American companies with
hundreds of millions of customers and
rapid expansion into foreign markets.
Among the five most valuable Internet
companies in the world after Google and
Amazon are two Chinese companies,
Baidu and Tencent, with over $30 billion
market cap well before eBay. No Euro-
pean company is visible on this list.
It is clear that digital technology cre-
ates entirely new business models, which
in turn generate new jobs. Europe must
seize the opportunity to create more
high-value jobs for its citizens. We are
faced with a choice of which route we
take to deal with current social and eco-
nomic challenges. To DIGITALEU-
ROPE the choice is clear: we must
urgently make the decision to deliver a
European digital single market based on
the founding principles of Jacques De-
lor’s 1992 vision of a single market. The
Digital Agenda for Europe provides the
roadmap and the Innovation Union is a
vehicle that will deliver rewards. Public
policies must support the consolidation
of our global position and be a bold force
for change. Investment in innovation is
one turn-key, the other is the political
will to deliver of a digital single market
in Europe.
12 May-June 2011 Europe: Leading or Lagging? NEW EUROPE
Special Edition

INDUSTRY

Managing the transition

to a low carbon future

Isabelle Muller

Secretary General,
EUROPIA

French car maker Renault presents an electric engine car at the Grimaldi Forum of Monaco during the sixth 'Ever Monaco' exhibition, in Monaco, on 31 March 2011. |EPA/BRUNO BEBERT CORBIS OUT

By Isabelle Muller
As the EU seeks to set in place an energy
roadmap to transition Europe to a low
carbon future, it must be sure to safeguard
growth and mobility in the process.
While the Europe 2020 Strategy and
other initiatives set ambitious targets for
energy savings and emissions reduction, in
practice, the transition to a competitive,
low carbon economy will be gradual and
take several decades.
Europe will require a secure, reliable
and affordable energy source to underpin
economic growth during this transition
phase.
Mobility is of course vital for the EU
economy and today 90% of EU transport
is fuelled by oil. Even the most optimi-
stic scenarios from the International
Energy Agency predict that oil will repre-
sent at least 70% of fuels for transport in
2035.
Oil and oil refined products will con-
tinue, to make an important contribution
to EU growth. They offer a secure supply
of energy that delivers affordable mobility
Transport is among the least cost-efficient sectors to reduce
emissions and placing greater policy focus on delivering fuel
efficiency gains could offer a substantial and cost-effective
contribution to CO2 reductions in the transportation sector
and economic value and without a robust The oil industry works in close coope- A clear policy framework could enable
domestic refining industry Europe will be ration with the transport industry in de- the EU to meet its new energy and emis-
more dependent on third countries. veloping new fuels for use in the sions targets. Comparative cost analysis
It is essential to maintain the econo- advanced, fuel-efficient engines of the fu- for both society and the environment sh-
mic and social value of cost-effective mo- ture. In the domestic vehicle sector a ould be carried out on all new forms of
bility during the transition and the good great deal has been done already and we energy and transportation, and we must
news is that further efficiency improve- believe that with new vehicle design, new avoid mandating specific technologies
ments and lower carbon fuel options engines and lower carbon fuels, we can that might prevent us from leveraging
could achieve the EU’s policy objectives also achieve fuel efficiency in Heavy Duty new innovations in the future. With the
for a low carbon society. Transport is Vehicles of up to 20% in the next decade. consistent application of energy taxation
among the least cost-efficient sectors to The same is true for the Aviation sector levels to all energy products and a frame-
reduce emissions and placing greater po- where a reduction of 25-50% in fuel con- work for consistent and predictable CO2
licy focus on delivering fuel efficiency sumption could be achieved through more abatement across the entire economy, the
gains could offer a substantial and cost- efficient aircraft design and operation, and EU can achieve its dream of a low carbon
effective contribution to CO2 reductions 25-75% CO2 reductions are also possible future without jeopardizing the economy
in the transportation sector. in the Marine sector. and jobs in the process.
ADVERTISEMENT
14 May-June 2011
| Reprints | Our world in 2011|
Fast Forward into Europe’s Future
Jan Mühlfeit
Chairman,
Microsoft Europe
A guest tries out the new Microsoft operating system Windows Phone 7 on a handset during the launch in Singapore 12 October 2010 |ANA/EPA/STEPHEN MORRISON
By Jan Mühlfeit
Prague - What will life be like for Eu-
ropeans in 2020? Faster, I hope. This
may come as unwelcome news to those
who blame technological progress for
the already frantic pace of their lives.
But look at what technology is achie-
ving now and think about what all this
speed could mean for the way human
beings spend their time in future.
Consider Europe’s research commu-
nity. When Marie Curie began her pio-
neering work into radium-isolation she
did not know what she was looking for,
or that it would take 4 backbreaking
years of stirring pitchblende to yield just
enough radium to cover the tip of a te-
aspoon. Marie’s vision and diligence
eventually earned her two Nobel prizes
and paved the way for the radiotherapy
used to treat cancer. Fast forward 100
years and compare the drudgery of Ma-
rie’s experience to that of the European
scientists who are building on her le-
gacy. Today, researchers working on bre-
akthrough drug trials at the University
of Newcastle have used cloud compu-
ting to cut the amount of time it takes
to achieve research results by 99%.
Similarly, an image segmentation te-
chnique developed by Antonio Crimini
from Microsoft Research is showing
huge potential for speeding up radiation
treatment, with some estimates sugge-
sting that as much as 4 million hours
could be saved globally in particularly
complex cases.
Europe: Leading or Lagging? NEW EUROPE
Special Edition
The breakneck speed at which technology changes means no
one can truly know how great its social impact will be in 2020
Months and years spent undergoing That’s why we are fully supportive of times in his or her life. Digital skills will
research or radiotherapy could soon be the Commission’s Innovation Union be the reading and writing for 21st cen-
compressed into a matter of weeks or and its aspiration to make Europe an tury: without them Europe’s workers
days. Just think what both these advan- exciting and easy place to break research will be the illiterates of the global labor
ces could mean not only for medical frontiers and produce new products. market. That’s why it’s so important
progress, but also for the quality of life There is much to be praised in the that Europe takes the vital steps to in-
for cancer sufferers and their families. Commission blueprint, which builds on vest in its future even at a time of crisis.
The breakneck speed at which tech- the Europe 2020 economic strategy and Even when budgets are tight there is
nology changes means no one can truly calls for a multi-pronged approach to a role for us all to play. Governments
know how great its social impact will be creating a single market for innovation and policymakers must maintain appro-
in 2020. by 2020. But progress in this area must priate levels of investment if Europe’s
But I do know that the pace at be built on the free and flowing exch- workforce is to get the education and
which it metamorphoses means that re- ange of ideas that can only come from ICT skills it so badly needs. The private
gulation must leave room for the indu- an ongoing conversation between poli- sector can also help by sharing its ex-
stry to breathe if Europe is to recover cymakers, businesses, academia and pertise and knowledge, particularly with
and flourish. Online privacy and secu- other stakeholders. older workers, the disabled or those to
rity are just two examples of thorny is- In the 21st century, Europe’s prospe- whom technology and its applications
sues regulators must get right – both in rity will be built on her ability to remain do not always come automatically.
relation to personal data but also cloud competitive, flexible and an incubator of The European Commission and the
computing and its impact on science exceptional talent. But she must also Member States need to design the in-
and business. The debate may seem have workers who are able to execute centives and instruments for up-skilling
complex and the answers often elusive, the vision of her entrepreneurs and and training to prepare the youth and
but the fact it even exists is a reflection scientists. At present the gap that per- the workforce for the jobs of tomorrow.
of the freedom and power technology sists between employers’ needs and wor- The long-term prosperity of Europe’s
has brought to millions. kers’ skills is growing. next generation is dependent on her
For technology to remain the life- In 5 years 90% of European jobs will ability to remain competitive.
blood of European business, science and require some form of computing skills. Without adequate investments into
innovation, it needs a regulatory frame- They will no longer be the domain of research and mechanisms to support in-
work that is both visionary and instruc- experts but the non-exchangeable cur- novation that will help Europe’s talents
tive. And it must be genuinely rency for the European worker who will thrive, there will be no fast-forward into
European. work longer and change jobs many the future.
This article originally appeared in New Europe’s “Our world in 2011” special edition
The complete contents of this edition can be found at http://www.neurope.eu/2011
 NEW EUROPE
Special Edition
INTERVIEW: INDUSTRY
Europe lagging behind?
Mark Spelman
Global Head of
Strategy - Accenture
Within the
global market
trajectory it is
critical for Europe’s
competitiveness
that it does not
stand still
International Monetary Fund (IMF) Deputy Director, Poul Thomsen (R), accompanied by European Central Bank (ECB) head of mission, Rasmus Ruffer (L), and Troika representative
from the European Commission, Juergen Kroeger, during a press conference to present the agreement between the Portuguese authorities and Troika on the economic aid program, in Li-
sbon, Portugal, 5 May 2011. |EPA/MARIO CRUZ
Interview by Alia Papageorgiou
Mark Spelman could be described as
a tall, high flying, globetrotting, grey sui-
ted big grinned executive who likes to
keep Europe on her toes, “Europe is lag-
ging behind” is one of the first things he
tells me as we’ve been trying to have a
phone interview on the Thursday before
the European Business Summit and fi-
nally manage to talk.
“I’ve been flying around the world
and just got back from Rio in Brasil
where the world stage is turning its
glance more and more often,” he says ha-
ving just given me a sweeping tour of wh-
at’s happening globally, how the world’s
economy is growing at 4% and how apart
from Europe everyone else is forging
ahead not necessarily in the countries one
would expect.
Rio for example is hosting the RIO
+20 in June next year “and they’re very
excited” notes Spelman, a UN Confe-
rence on Sustainable Development, a hot
topic for growth, jobs and demand on the
global scene.
“I was also in China just before that
meeting with those involved in the
SmartGrid there and could feel the
energy for this great move in innovation,”
says Spelman Accenture’s managing di-
rector for the Accenture Strategy service
Europe: Leading or Lagging?
line. He also leads Accenture’s strategic
think tank— the Institute for High Per-
formance, has responsibility for Accen-
ture’s global relationship with the World
Economic Forum and is the chairman of
the American Chamber of Commerce’s
European Union Executive Council.
The difference he notes between Eu-
rope and the rest of the world in their
growth is a continued concentration so-
lely on the fiscal stability issues, “one
week it’s Greece, one week its Spain, then
Portugal, so one of my concerns is that
many leaders are so preoccupied with fi-
scal stability that other areas are not get-
ting attention.”
The world is moving forward, and
quickly “Asian countries have no finan-
cial drag, so Europe needs to become
more pro-active, we need to look at the
demand for exports, for innovation, sup-
ply of services and others and answer
that,” Spelman emphasizes form the Ac-
centure offices in London.
“Within the global market trajectory
it is critical for Europe’s competitiveness
that it does not stand still,” Spelman re-
peats. Of course he understands the need
for fiscal stability first but calls for a seg-
mented reality where one half is concer-
ned with this and the other with growth,
“SMEs need to be better equipped, In-
novation needs to be better funded, the
decrease in consumption, all these must
be addressed.
Looking at emerging economies he
does postulate that all is not rosy for
them with issues as inflation for example
and around commodity production and
price volatility particularly, there are is-
sues there as well.
His concerns are no different from
global economists looking on the global
stage and rating global competitiveness.
The following morning on 13 May
the European Commissioner responsible
for economic and monetary affairs held a
press conference to share the results of a
Eurostat report released moments before
and give his Spring Forecast with First
Quarter (Q1) figures for Europe’s eco-
nomy the underlying goal.
The Forecast was more positive than
even he had expected “it may be Friday
the 13th but for once I have some good
news on the real economy in Europe,” he
lightly mentioned before going back to
the risks and vulnerabilities still on the
horizon, “not least in the sovereign debt
areas.”
“Job creation remains unsatisfactory”
he began, “developments remain uneven
across member states”, growth prospects
have been slightly upgraded compared to
last autumn, more over demand is the
main engine of growth.
May - June 2011 15
“In fact the EU GDP has increased
by 0.8 % in t Q1,” not failing to mention
that “0.8 is exactly double that of the US
number.”
In slight accordance with Spelman’s
prediction Rehn did not fail to mention
that activity in China continues to out-
pace economic activity in the advanced
economies.
The overall sentiment indicators
show activity gathering pace in the next
quarter whereas recovery remains varied
within the member states themselves.
The GDP is projected to grow by
1.25% in 2011 and by 2% next year in
2012 surpassing the pre-crisis levels.
As far as Greece was concerned, “the
fiscal effort of the past year is unprece-
dented as over 7% of the GDP has been
reduced,” however he warned that inter-
nal political squabbles must be “put aside
for recovery to take place,” a political
comment nto often spouted from the
Berlaymont indicating its severity.
Lagging behind or growing? That is
the question.
In slight increments growth is there,
if comparing to the world stage we’re de-
finitely not kicking our heels to the tune
of the Zorba any more, but even some
economists would agree that the last
thing Europe is doing, at this stage, is a
slow dance.
16 May-June 2011
EU WORLD
Entrepreneurship and SMEs: from declaration to implementation
Zsolt Becsey
Minister of State for
Foreign Economic
Relations, Ministry for
National Economy of
Hungary
European Commissioner for Employment, Social Affairs and Inclusion Laszlo Andor (C) chats with participants prior to the meeting of EU employment ministers, at Grassalkovich Ca-
stle in Gödöllő, 30 km northeast of Budapest, Hungary, 17 January 2011. |EPA/ZSOLT SZIGETVARY HUNGARY OUT
By Zsolt Becsey
The Hungarian EU Presidency is convinced that
the success of economic development strategy de-
pends on how policy initiatives affect SMEs.
SME policy and the systematic implementation
of measures, according to the "Think Small First"
principle, are the first presidential priorities ech-
oing the last European Business Summit’s clo-
sing sentence:
“There are many economic priorities, but the
number one priority should be boosting the per-
formance of small and medium-sized companies.”
The question is what has been achieved during
one year?
SMEs are usually referred to as the “backbone
of the European economy”. As a significant source
of job-creation, SMEs account for a great poten-
tial to contribute to full employment and EU em-
ployment rate target of 75% by 2020. Several
studies have established direct link between
SMEs and overall economic growth rate. Due to
the economic crisis more than 3.5 million jobs in
SMEs have been lost, which further underlines
the specific need to streamline and consolidate
SMEs policy at European level in order to restore
the job-creating capacity of SMEs at the centre of
Europe's economic recovery. The SME sector
contributes to innovation, is a source of competi-
tion, provides flexibility in the labour market, and
most crucially, is a source of job creation. As Eu-
ropean small and medium-sized enterprises play
a central role in the performance of European
economy making them more competitive will
contribute to the Europe 2020 Strategy from em-
ployment to social exclusion related targets, from
internal trade and cross-border business activities
to the renewal of the European industrial policy.
There is a necessity to develop strong synergies
with the Small Business Act, the Single Market
Act and Smart Regulation for Europe. SME po-
licy and the systematic implementation and
mainstreaming of simplification measures accor-
ding to the "Think Small First" principle, are th-
erefore the first priority issues.
Europe: Leading or Lagging?
SMEs are usually referred to as the “backbone of the European
economy”. As a significant source of job-creation, SMEs
account for a great potential to contribute to full employment
and EU employment rate target of 75% by 2020. Several studies
have established direct link between SMEs and overall economic
growth rate
The Midterm-Review of the Small Business l Support of SMEs’ internationalization, out-
Act (SBA) for Europe focuses on implementa- lining the SMEs’international activity both in and
tion of agreed measures and achieving concrete outside Europe. Great emphasis is placed on the
solutions for outstanding problems. issue of internationalization and enhancing
l The review highlights the progress made in SMEs’entry to export markets with particular re-
implementing the SBA, both at EU and national gard to the identification of the main obstacles to
levels. At the same time it indicates progressing foreign market entry and the connection between
directions and measures for the sake of SMEs’de- innovation and internationalization. In contrast to
velopment. Reducing administrative burdens on their contribution to the intra-EU trade (25%),
SMEs is of vital importance at the EU level as the internationalization of SMEs outside the EU
well as the national one. is fairly limited as only 14% of them purchase their
The new Hungarian government’s programme supplies overseas, and as only 13% of them export
that has been introduced recently intends to cut beyond the EU’s borders. SMEs’ cross-border
drastically the bureaucratic burden on businesses. trade activities provide extra job creation oppor-
In Hungary it is currently HUF 3,000 billion, tunities for them.
which is 10.5% of the gross domestic product. Bu- l Exchange of best practices on training and
sinesses should start to feel the effects of cuts HUF educational programmes organized to promote
2,000 billion in the bureaucracy by 2012 genera- starting enterprise activity and becoming succes-
ting an additional GDP growth of 1.2%-1.3%. sful entrepreneurs. Promoting entrepreneurship
l Facilitating access to finance for SMEs is the and job creation (Erasmus for Young Entrepre-
first European priority including modification of neurs programme to foster cross-border networ-
regulation relevant to the new type financial in- king, mentoring schemes for female
struments. It is necessary to support the SMEs’ entrepreneurs, transfer of business, ent-
access to bank and other financial resources, and repreneurship education). Education and training
improve the regulation of new financing instru- are essential factors for later employability, com-
ments (availability of state credit guarantee in- petitiveness, innovation, cultural development and
struments, venture capital funds, simplifying are tools to promote social inclusion. Enterprise
procedures of EU funding programmes). Europe Network provides support to encourage
l SMEs’ability for innovation, development of SMEs to become innovative and strengthen their
a new approach to innovation focusing on the technological capacity. The European Commis-
promotion of non-technological innovation (rea- sion is committed to more extended use of the
ching 80% in case of SMEs) should be strength- network.
ened. Their contribution to a resource-efficient l Progress in monitoring and stronger coordi-
economy is essential. nation of SBA implementation.
NEW EUROPE
Special Edition
l Support of the establishment of SME En-
voys.
An SBA conference will be organized in
Gödöllő, near Budapest within the Hungarian
EU Presidency timetable under the title “Mobi-
lising SMEs for Europe’s Future” on 24-25 May
2011 with the future of cohesion policy and the
improvement of the regulation of new financing
instruments in focus.The European Entreprene-
urship Award will be awarded and best practices
will be presented reflecting the different ways in
which regions, centres, cities, towns and commu-
nities have creatively implemented entrepreneur-
ship-friendly environments and practices. The
Hungarian Presidency is the last member of the
Spanish-Belgian-Hungarian trio. Its priorities
were built on the results delivered by the Spanish
and Belgian Presidencies. As a continuation we
determined to pass the relay baton to the forth-
coming Polish Presidency with clearly visible re-
sults in the field of SMEs. The adoption of the
Single Market Act will be high on the agenda.
“The twelve levers to boost growth and streng-
then confidence”are accompanied by high expec-
tations. A key action for each lever and priority
measures should be adopted to relaunch the sin-
gle market by the end of 2012.The first lever and
of utmost importance is “Access to finance for
SMEs”. The success of the reformed economic
cooperation, the enhanced surveillance of the fi-
nancial markets and the efficient implementation
of the EU 2020 Strategy requires the completion
of the internal market with SMEs as the key fac-
tors to Europe's competitiveness.
 NEW EUROPE Europe: Leading or Lagging? May - June 2011 17
Special Edition

EU WORLD

EU and GCC ahead of common

challenges and opportunities
By Rodi Kratsa-Tsagaropoulou

The Arab Spring has highlighted new politi-

cal reality as well as new economic perspecti-
ves for hundred of millions of people. This
could be the beginning of a new chapter bet-
ween the European Union and its Mediterra-
nean partners.
Rodi Kratsa- With most of these countries still having
Tsagaropoulou much of their economic development ahead of
them, it is clear that an ambitious EU policy
Vice President of the towards the Gulf Cooperation Council
European Parliament (GCC) and its member states is essential. Bu-
and member of the siness climate has to be improved to attract in-
Economic and Monetary vestment in infrastructure and development
Affairs Committee projects in the large Mediterranean area. It
would be a lost opportunity if the EU and the
GCC, as two major political and economic ac-
tors at global level and additionally involved in
the Mediterranean area, were to take diverging Qatar Prime Minister and Foreign Minister Sheikh Hamad Bin Jassim Bin Jabr Al-Thani (C) walk with Saudi Arabia Fo-
reign Minister Crown Prince Saud Al-Faysal (2-R) and the head of the Gulf Cooperation Council (GCC) Abdullatif al-
paths at a time when regional arrangements Zayani (L) upon his arrival at a GCC Foreign Ministers meeting, 1 May 2011. |EPA/STR
for stability are changing and regional econo-
mic governance is under reconsideration. In
addition, mutual benefits would arise from gue while the scope for cooperation is so wide- Africa and the Middle East achieve its long-
closer and more in-depth relations as the two ranging, in fields such as education, scientific standing potential. In conclusion, the EU has
entities have shared interests in international research and renewable energy. huge advantages to draw on by cooperating
security, in combating terrorism, in diploma- In this regard, it is crucial that the business with many of the new players emerging in the
tic mediation in the Middle East, in regional community and Arab sovereign funds are in- Gulf, provided that, at the highest level, there
crisis management and in intercultural dialo- volved to deliver the tools to help North is the necessary political will on both sides.

EU WORLD

The leaders of tomorrow

By Dipak C. Jain

Business schools are here to position tomor-

row's leaders. But what are we using for guide-
posts these days? The time has come to revisit
previous methods and to modify them, given the
current global environment.
In the wake of the economic crisis, we have
seen a tip in the balance of power in the busi-
Dipak C. Jain ness world. Growth drivers are in Asia and Latin
Dean of INSEAD America. But innovation, consumer demand and
management are still driven from the developed
world. Clearly, the leaders of tomorrow must
think beyond the US-Europe centric world and
move beyond the conventional boundaries of bu-
siness.
The leaders of the more competitive, diverse
and interconnected world of tomorrow need
three things:
1. The ability to anticipate - to fathom trends
INSEAD students preparing to take on tomorrow's business opportunities
and be opportunistic as well as to head off trou-
ble;
2. The courage to deal with ambiguity - the from our increasingly diverse world. We see that true value-based prosperity cre-
emerging market growth drivers are uncharted It is clear the world is moving away from ates profits while benefiting people and the pla-
territory, literally, and there are few past practi- Free Market Capitalism to Sustainable Capita- net. This is the way tomorrow's business leaders
ces to follow; lism. We see that wealth creation also means will move from success to significance, and it is
3. Cross-cultural adaptability in order to em- creating social wellness and environmental pre- up to business schools to ensure they find the
brace, develop and extract the best opportunities servation. right pathway.
18 May-June 2011
EU WORLD
Cooperation is more important than ever
Mikael Hagström
Chairman, Executive
Council, AmCham EU
President EMEA and Asia
Pacific, SAS Institute
In Europe we
need to find
systems that encourage
and nourish risk taking
and creativity
By Mikael Hagstrom
As a European working for an internatio-
nal company based in the US with Europe
as its largest market, I know firsthand the
value of the transatlantic economy. De-
spite the economic crisis and the global
downturn, the United States and Europe
remain each other’s most important mar-
kets; no other global regions are as intert-
wined and integrated as the transatlantic
economy.
The two economies continue to account
for well over two thirds of global banking
assets and three quarters of global finan-
cial services; the US remains the principal
source of foreign direct investment in the
EU. The transatlantic relationship re-
mains strong but not as dominant as in
the past.
Given the economic crisis and the rise
in competition from other regions, we are
at a turning point now, and for that reason
I would argue that the transatlantic eco-
nomic partnership is more important than
ever. Because our economies are so linked,
if one of us should start to lag behind in
growth, the other’s growth will be impe-
ded. So key to getting ahead is finding
ways to cooperate and support one ano-
ther to maximise our common interests.
What’s the best way to help spur each
other’s economies? There is growing reco-
gnition in the US and the EU that inno-
vation holds the potential to drive
economic growth, increase employment
and enhance competitiveness. Both Presi-
dents Obama and Barroso flagged inno-
vation as essential to recovery in their
State of the Union addresses. For any real
progress to be made however, the US and
the EU need to be working and investing
together to find solutions to some of the
challenges facing us today.
Europe: Leading or Lagging?
Before this can happen though, both re-
gions need to ensure the innovation en-
gine is running smoothly. It can take up
to 10 or 15 years to develop practical ap-
plications for many technologies inclu-
ding advanced healthcare systems, smart
grids, or electric cars. But we can’t afford
to wait. We need to work now to remove
barriers to research, development and get-
ting products to market. So in the area of
health care for instance, we need to enable
medical documents to be seen by patients
and doctors in any country. This means
the data kept by hospitals needs to be re-
leased, which is difficult with existing
laws. Cloud computing which is a net-
work of remote servers hosted on the in-
ternet to store, manage and process data
holds tremendous opportunity. Such mas-
sive data centres have the processing
power potential on a massive scale and
can be applied to some of the many chal-
lenges we face today. There are plenty of
opportunities outside of technology, too –
including innovation in design, marke-
ting, public sector innovation and social
innovation.
Both in the US and here in Europe
there are some other hurdles to overcome
– educational systems on both sides of the
Atlantic could use an overhaul. In Europe
we need to find systems that encourage
and nourish risk taking and creativity. In
the US we need to ensure science, math
and computing are just as appealing as
sports. In general both regions can do a
lot more to encourage cross disciplinary
studies. Tomorrow’s research will need to
tackle several problems at once across a
broad range of disciplines.
We also need to invest in our people
power by facilitating business-education
links, improving access to markets and en-
suring the free movement of people, espe-
VERBATIM
Trade in goods and services, and
investment, lead to economic
growth. But it also brings about
interdependence and, ideally,
also better mutual
understanding
cially researchers and scientists. They need
to be able to cross borders easily within
the EU as well as to be able to travel to
the US. We need to encourage collabora-
tive efforts and ideas wherever possible.
So we could mutually explore some
options including a special “researcher”
status that could be created to overcome
border restrictions; visas could be devised
to ease access for third country research-
ers; or perhaps a jobs data base could be
created between the EU and US to help
identify employment opportunities.
Lastly, we need to make it easier for
companies large and small in the EU and
US to patent their inventions and streng-
then their ability to protect their intellec-
tual property rights.
I have outlined just a few of the real op-
portunities for transatlantic cooperation
and economic benefit for both regions.
But given that both the US and EU are
facing massive debt levels and high unem-
NEW EUROPE
Special Edition
|EPA/Julian Stratenschulte
- Karel De Gucht
European Commissioner
for Trade
ployment right now, the reaction to a cri-
sis can often be to protect what is “ours”
and put up barriers to anyone else. This
would be a huge mistake and would have
negative consequences for everyone.
By working together we will develop a
larger transatlantic marketplace where we
will not only reap benefits within it, but
we will also be better able to jointly face
the global competitive environment. Al-
though the competitive advantages differ
somewhat between the US and the EU,
the challenges have striking similarities,
such as growing deficits, aging popula-
tions and demographic changes. So I will
close by saying we need to continue inve-
sting in the relationship, keeping the dia-
logue open and harmonising our rules of
the game as we leverage the innovative use
of technologies. It is the only way to ach-
ieve an advantageous business environ-
ment and a level playing field on a global
basis.
 NEW EUROPE
Special Edition
EU WORLD
EU-Asia: solutions for
sustainable transport
Matthias Ruete
Director General for
Mobility and
Transport, European
Commission
In Europe,
transport
directly employs 10
million people and
accounts for 5% of
GDP. Many European
companies are world
leaders in infrastructure,
logistics, traffic
management systems
and manufacturing of
transport equipment Chinese Prime Minister Wen Jiabao (L) speaks as France's President Nicolas Sarkozy (R) listens during the closing ceremony of the Asia Europe Meeting (ASEM) in the Great Hall of the Pe-
ople in Beijing, China, 25 October 2008. |EPA/MINORU IWASAKI - POOL
By Matthias Ruete
Europe and Asia have a close relationship
based on shared interests. In both cases,
international contacts and a commitment
to trade are part of our heritage. Tran-
sport is essential for both. In a changing
world, Europe and Asia face similar ch-
allenges, not only to preserve the status
quo, but to improve the situation of our
citizens.
According to the UN, world popula-
tion, now 7 billion people, is likely to
grow to 9 billion by 2050. While Euro-
pe's population is expected to stabilise,
the population of Asia is expected to grow
by 1 billion people, most of them in South
and South-East Asia. Clearly, continued
world population growth, combined with
current consumption patterns poses chal-
lenges to our environment, including cli-
mate change, to economic well-being, and
to international peace and security. We
have to change a lot about the way we do
things, and that applies to transport as to
any other major economic sector.
This is the context in which the Eu-
ropean Commission published a White
Paper at the end of March this year, with
the title "Roadmap to a Single European
Transport Area – Towards a competitive
and resource efficient transport system".
This is a strategic document that assesses
recent transport policy, looks at long-term
challenges and draws a framework for po-
licy action in the ten years to come, to
promote growth and jobs while using re-
sources more efficiently.
The prosperity of the EU owes much
Europe: Leading or Lagging?
to the internal market and to our trade
with the rest of the world. Efficient tran-
sport connections have made this possi-
ble: the EU relies heavily on its dense
transport network and advanced logistics.
In parts of Europe where the network is
most developed, congestion and bottle-
necks are present, and the projected gro-
wth in the volume of transport is a cause
of concern. In other parts of Europe, there
is a lack of infrastructure. We intend to
fill this "infrastructure gap" between we-
stern and eastern parts of Europe, to cre-
ate a transport system capable of serving
our continent and its 500 million people.
We are aware that Asian partner co-
untries are making similar plans, particu-
larly within ASEAN, and look forward to
sharing ideas from both sides.
In Europe, transport directly employs
10 million people and accounts for 5% of
GDP. Many European companies are
world leaders in infrastructure, logistics,
traffic management systems and manu-
facturing of transport equipment. We are
particularly proud of our high-speed
trains, and of the role of companies like
Airbus on the world scene. The integra-
tion of the world economy provides new
opportunities, and we welcome competi-
tion based on reciprocal market opening
and on fair practices in line with inter-
nationally agreed norms. Asia is our
partner.
Today's transport technology increa-
singly depends on fossil fuels, primarily
oil, and this fact is reflected in Interna-
tional Energy Agency projections for de-
mand growth: from 84 million barrels per
day (mb/d) in 2009 to about 100 mb/d in
2035, with much of the demand coming
from Asian countries like China. The
number of cars worldwide is projected to
grow from 750 million today to 2.2 bil-
lion in 2050. It is difficult to imagine that
oil supply can easily keep pace with this
increase in demand without significant
upward pressure on prices.
Oil also contributes to greenhouse gas
emissions. To reduce emissions, both Asia
and Europe will need greater use of low-
carbon technologies and better energy ef-
ficiency, using less and cleaner energy. Oil
will have to be substituted wherever and
whenever possible.
This would be easier in cities, where
high population density encourages the
use of battery-powered vehicles and pu-
blic transport. Over longer distances, do-
minated by intercontinental maritime
freight and air traffic, reducing emissions
will be more challenging. In regional pas-
senger and freight transport, progress on
technology and fuels will be the most im-
portant factor.
Our White Paper identifies 40 initia-
tives, grouped in four areas; what we call
the Four "I"s: Internal market, Innova-
tion, Infrastructure and International.
The key concept, however, is “Integra-
tion”. Our aim is a fully integrated Single
European Transport Area in which all re-
sidual barriers, modal or geographical, are
eliminated.
In the EU internal market, we will
focus on rail. The Single European Sky
should be completed as soon as possible.
In the maritime sector, we want to create
May - June 2011 19
a “Blue Belt” of free maritime movement
in and around Europe. In road transport,
we want to implement the eFreight con-
cept of administrative simplification, pa-
perless documentation and full tracking
and tracing of cargo, also to facilitate
transhipment to other transport modes.
In terms of innovation, the challenge
is to complement technological research
with a systems approach, combining in-
frastructure and regulatory requirements,
coordination of multiple actors and de-
monstration projects. We plan to do this
through a Strategic Transport Technology
Plan, which we hope will accelerate de-
ployment of new vehicle technology in all
modes of transport. Information and
communication technology will also play
an important role in the optimisation of
traffic flows and in the integration of
modes.
No major change in transport will be
possible without adequate infrastructure.
The EU needs a coherent multimodal
pan-European network, bringing together
EU capitals and main economic centres.
The last element in our strategy is the
international dimension. Open market
agreements with partner countries, infra-
structure connections with our neighbo-
urs, definition of international standards
on the basis of agreed technical rules, or
participation in international transport
organisations: there are many aspects that
require international policy cooperation.
Europe is a world leader in transport
and logistics. We look forward to conti-
nued cooperation with our friends in
Asia.
ADVERTISEMENT
 NEW EUROPE
Special Edition
EU WORLD
Days of race: Teleporting business risk
Dr Greg Austin
Vice President of
Program Development
and Rapid Response,
EastWest Institute
The
weakening of
state power is
also evident in the ability
of cyber criminals to
strike with increasing
severity without
immediate response
from law enforcement
agencies, in an
environment where
traditional approaches to
privacy or low levels of
international
cooperation tie the Smartvue demonstrates their video surveillance S9 HD cameras with a Apple Macbook Pro laptop during the Macworld Expo 2011 at Moscone Center in San Francisco, California, USA 27
hands of law January 2011. |EPA/JOHN G.MABANGLO
enforcement
By Dr Greg Austin
The most important political trend glo-
bally is the weakening power of national
governments, even those with strong re-
pressive intent and capacity. With that
comes increasing decentralization of
power inside state borders and an incre-
asing tendency toward trans-border inte-
gration and international collaboration.
The most important political actors
in the world today are transnational, ei-
ther coalitions of states, alliance armies,
multi-national corporations, new forms
of private-public ventures, global civil so-
ciety organizations, and international ter-
rorist groups.
Through the next decade, this trend
to decentralization of power and regional
or global collaboration, including the de-
legitimization of inter-state war and in-
ternational terrorism, will almost
certainly intensify.
The weakening of state power does
not mean a weakening of politics. On the
contrary, politics becomes more contested
and less predictable in the medium to
longer term. The appeal of this historic
trend toward weakening of state power
carries with it higher risks of miscalcula-
tion in new political struggles that
emerge. We see this today in the bum-
bling intervention of NATO in Libya
and the weakening of once-firm US al-
liances in the Persian Gulf. We also see it
in the contest between some states and
ICT companies seen as reinforcing the
weakening trend of state control through
Europe: Leading or Lagging?
advanced technologies (e.g. Google and
China, India/UAE and Blackberry).
The weakening of state power is also
evident in the ability of cyber criminals
to strike with increasing severity without
immediate response from law enforce-
ment agencies, in an environment where
traditional approaches to privacy or low
levels of international cooperation tie the
hands of law enforcement.
The stakes of political miscalculation
in the face of cyber risks are highest in
the countries or business sectors that
have the highest dependence on digital
interconnectivity. These include financial
services, energy distribution and, in many
countries, food supply. But the physical
security of telecommunications assets,
such as undersea cables, or of the electri-
city supply should not to be overlooked
in that constellation of critical sectors.
Second, there is rising concern among
G20 members about the fragility of the
international economy in the face of in-
creasing volatility of commodity prices.
This sense of foreboding in advanced
economies is matched in poorer countries
with concerns about national economic
security in the face of volatile food prices
and doubts about rising pressure on fresh
water resources in the medium term.
Underpinning these concerns among
political leaders is a persistent weakness
in the institutions of global economic go-
vernance in the face of multi-variant th-
reats. In the global schema, the recent
downgrading by Standard & Poors of
United States credit rating is the sort of
psychological marker the faltering ad-
vanced economies could do without.
There are levers that can be applied to
all of these problems, so the mid-term
perspective need not be gloomy. Much
will depend on the nimbleness of policy
makers and their pragmatism. The high-
est political risk, and therefore the atten-
dant business risks, will be where the
political leadership is most ideological
(less pragmatic), its social enforcement
leverage is weak, and its reliance on ex-
pert advice for alternative policy respon-
ses is low.
A third trend, more in the social do-
main, of high import to advanced indu-
stry, is that the “medium has overtaken
the message”. The long foreshadowed
quickening of social and political change
under the influence of ICT has definitely
arrived and is intensifying. Increasingly,
ICT companies and media companies or
media savvy individuals dependent on
them are being viewed not as providers as
a means of communication but as driving
forces, or even as the glue, in the social
order of countries. One manifestation of
this is the sense of outrage felt by consu-
mers when large amounts of customer
data are compromised.
This has long since ceased to be a
question of possible individual harm. It
would seem likely that in due course stif-
fer criminal penalties will be introduced
for holders of data who allow a massive
breach. A new legal norm may well come
into being to enforce a duty to secure pri-
vate data.
May - June 2011 21
In summary, managing security risk
for global companies will become a more
pervasive activity, intruding at more le-
vels of the business, with many more di-
mensions than even ten years ago. The
number of stakeholders has increased and
the geographic sources of risk have mul-
tiplied.
The newest vulnerability is that the
sources of risk can teleport themselves
globally. The cyber vandalism seen in
Russia toward Estonia in 2007 and Ge-
orgia in 2008 had a narrow geographic
focus. By contrast, the attacks of the Ira-
nian Cyber Army retaliating for the
Stuxnet attack on Iran in 2009 have not
been so constrained. The same global
aspect can be seen in the 2010 campaign
of denial of service attacks by Anony-
mous, akin to a nascent global anarchist
movement, in retaliation for the withdra-
wal of services to Wikileaks by Master-
card and other companies.
Many in the West have felt a smug
sense of superiority in the outpouring of
rage against leaders in the Arab world,
and some delight that the movements
were facilitated by advanced ICT consu-
mer products. Yet, as the campaigns of
the Iranian Cyber Army and Anonymous
show, this combination of rage and em-
powering digital connectivity is a major
source of risk for global business. To un-
derstand it, track it and respond to it
across borders – at the same time as co-
untering the increasingly massive attacks
by cyber thieves – will be a new and de-
manding burden.
 22 May-June 2011
EU WORLD
The transatlantic economy
Daring to be ambitious
Daniel Hamilton
Director, Centre for
Transatlantic
Relations, Johns
Hopkins University
Although
rapidly
developing countries
have earned much
attention, the U.S. and
the EU
remain the anchor of the
world economy
US President Barack Obama (L) shakes hands with EU Commissioner Jose Manuel Barroso (R) as EU Council President Herman Van Rompuy (C) looks on during a press conference
at the EU-US Summit in Lisbon, Portugal, 20 November 2010. EU-US summit focuses on key transatlantic issues such as economic co-operation. |EPA/IAN LANGSDON
By Daniel Hamilton
The world that created the transatlantic
partnership is fading fast. The United States
and Europe must urgently reposition and
recast their relationship as a more effective
and strategic partnership. It is a moment of
opportunity— to use or to lose.
In this new world of global connections,
the transatlantic relationship is the thickest
weave in the web. The deep integration of
our democratic societies and economies is
unparalleled and transcends neat “foreign”
and “domestic” distinctions. We are literally
in each other’s business.
Although rapidly developing countries
have earned much attention, the U.S. and the
EU remain the anchor of the world
economy. No two regions of the global
economy are as economically fused. The U.S.
and the EU are the two largest economies
and financial markets in the world. Together
they represent 54 percent of global GDP
and roughly 80 percent of all development
assistance and humanitarian assistance. The
dollar and the euro account for roughly 90
percent of total holdings of central bank
reserves. The transatlantic economy
generates $5 trillion in total commercial
sales a year and employs up to 14 million
workers in mutually “onshored” jobs on both
sides of the Atlantic. These workers enjoy
high wages and high labor and
environmental standards. Europe is by far
the most important source of “onshored”
jobs in America, and the U.S. is by far the
most important source of “onshored” jobs in
Europe. Despite this potential, U.S.-EU
economic cooperation punches well below
its weight. Niggling disputes over issues that
together account for less than 1 percent of
U.S.-EU commerce suck the political
oxygen out of efforts that could create far
Europe: Leading or Lagging?
greater economic opportunities for
American and European workers,
consumers and companies.
To unleash this potential, the United
States and the EU should commit to a barrier-
free Transatlantic Marketplace by 2020. This
would require coordinated strategies to reduce
remaining tariff barriers, overcome regulatory
obstacles, remove investment restrictions, and
align future standards in ways that promote
mutual and sustainable prosperity while
protecting health and safety. I have no illusions
about the difficulties involved. Yet the payoff
could be substantial in terms of jobs, trade and
investment. Those who worry that an
ambitious transatlantic economic initiative
could threaten the multilateral system should
consider that the opposite may be true.
Europeans and Americans certainly share an
interest in extending prosperity through
multilateral trade liberalization. The Doha
Round of multilateral trade negotiations is at
the make-or-break point. But even a
successful Doha agreement will not address
such pressing issues affecting the European
and American economies as competition
policies, corporate governance, more effective
regulatory cooperation, tax and other issues.
Nor will it address cutting-edge issues raised
by European and American scientists and
entrepreneurs who are pushing the frontiers of
human discovery in such fields as genetics and
nanobiotechnology.
Transatlantic markets are the laboratory
of globalization. Together we face issues that
neither of us faces with others. That is why
the “multilateral versus transatlantic”
dichotomy is a false choice. The U.S. and EU
should advance on both fronts
simultaneously: push multilateral
liberalization through Doha and press
transatlantic market-opening initiatives in
services, financial markets,
telecommunications, energy, innovation
policies and other areas not yet covered by
multilateral agreements. The alternative is
not drift; it is growing protectionism, U.S.-
EU rivalry in third markets, and the triumph
of lowest-common-denominator standards
for the health and safety of our people.
To advance this agenda, the U.S. and EU
should announce a joint commitment to
work towards a “tariff only” Free Trade
Agreement, eliminating all duties on traded
industrial and agricultural products. Given
that most transatlantic tariffs are low and
often simply have nuisance value, a focused
tariff-only free trade agreement could be
achieved relatively quickly. It is likely to
enjoy a broader base of domestic political
support. Once such a deal is negotiated, the
U.S. and EU should invite others to join in
certain sectors or in the overall arrangement.
The European think tank ECIPE estimates
that a U.S.-EU zero-tariff agreement on
trade in goods alone could boost annual EU
GDP by up to .48% and 1.48% for the U.S.;
generate welfare gains of up to $89 billion
for the EU and $87 billion for the U.S.; and
push EU exports to the U.S. up by 18% and
U.S. exports to the EU up by 17%.
The potential payoff is high. For
example, under the US-South Korean trade
deal pending before the U.S. Congress, U.S.
exports to Korea would likely increase by
$9.7-$10.9 billion. Under a U.S.-EU deal
U.S. exports to the EU would increase by
$53 billion – five times as much.
Yet most political energy is expended on
smaller deals such as Korea or Columbia
rather than on bigger payoffs that could be
gained through transatlantic agreement.
Such an initiative should be coupled
with transatlantic negotiations aimed at
reducing transatlantic barriers to services—
the sleeping giant of the transatlantic
NEW EUROPE
Special Edition
economy. A targeted opening of services
could present vast opportunities to firms and
huge gains to consumers. According to a
study conducted by the Dutch firm Ecorys,
a 75% reduction of services tariffs would
yield almost $13.9 billion annually for the
EU and $5.6 billion for the U.S. Third,
regulators and legislators on both sides of the
Atlantic should be consulting in advance
when considering “upstream” regulatory
cooperation for new technologies. RFID,
nanotechnology, internet/broadband, and
“green” technologies are four priority areas.
More effective and concerted exchanges
among scientists and technologists engaged in
pre-competitive research would enable
compatible standards to develop that can lift
the lives of our people. The alternative to such
cooperation: a Chinese standard.
Finally, in this turbulent time a key test of
strategic U.S.-EU partnership is the ability of
the transatlantic partners to work with other
key actors to restructure the world economy.
There is still no substitute for transatlantic
leadership, but in a G20 world this must be of
a different kind— a more nuanced role that
works to preserve the principles that have
guided the remarkable global growth of the
last few decades, addresses risky behaviors, and
engages emerging economies as responsible
stakeholders. The bottom line is that the
transatlantic economy remains very strong and
is on the mend, but its future health is not only
dependent on the cyclical economic rebound
underway. It also rests on more proactive,
coordinated and forward-looking policy
initiatives from policy makers and legislators
on both sides of the Atlantic.
The U.S.-EU relationship is important
but not strategic. Such a partnership is
possible, but it is not the partnership we have
today. Given the challenges we face, such a
partnership is urgent.
 NEW EUROPE
Special Edition
EU WORLD
Ending the Doha stalemate
Hiroyuki Ishige
Special Advisor to the
Ministry of Economy,
Trade and Industry,
Japan
Kofi Annan, former Secretary-General, United Nations and Member of the Foundation Board of the World Economic Forum attends the launch of the Africa Progress Panel Annual Re-
port 2011 on the second day of the World Economic Forum on Africa 2011 in Cape Town South Africa 05 May 2011. Africa has demonstrated greater than expected resilience through
the global economic crisis and has become one of the fastest-growing regions in the world. Improved political and macroeconomic stability, strengthened political commitment to private sec-
tor investment and better access to basic education and social services are drivers behind this trend. |EPA/NIC BOTHMA
By Hiroyuki Ishige
Having been almost a decade since its la-
unch in November 2001, the Doha Round
is an important as well as timely issue to
be discussed at this moment. It is impor-
tant because trade liberalization is the en-
gine of economic growth without any
additional fiscal burden. It is timely beca-
use the Round is now at a critical juncture,
and actually getting into a stalemate.
So, how can we get out of this stale-
mate? I think that support from industry
is indispensable. Let me describe the cur-
rent situation of Japanese industry, which
has been a promoter of the Doha Round
but is currently focusing on its recovery
from the damage from the Great East
Japan Earthquake on 11 March. In last
March, Japan’s manufacturing production
substantially declined by more than 15%
from the previous month, the largest de-
cline in more than 50 years. The incident
at Fukushima Daiichi Nuclear Power Sta-
tion as well as damage to other infrastruc-
tures has been hampering Japan’s economic
and industrial recovery. Japanese industry,
nonetheless, has been making utmost ef-
forts to restore the production networks
and to resume manufacturing production,
which will soon result in returning the
supply of parts and components necessary
for assembling, for example, automobiles
and electric machineries all over the world
to normal. Whereas recovery from this da-
mage is the top priority for Japanese indu-
stry at this moment, the Government of
Japan has already started a discussion on
economic growth strategy, which includes
international trade strategy. I believe that
Europe: Leading or Lagging?
the Japanese business circle will continue
to attach essential priority to trade policy
including the Doha Round, and the rene-
wed growth strategy will fully reflect such
priority given to trade policy.
I would like to suggest three points
that I believe we should keep in mind for
concluding the Doha Round. First of all,
we need to form a sense of shared respon-
sibility among the major countries for con-
cluding the Round. During the Uruguay
Round, there seemed to have been a sense
of shared responsibility among the so-cal-
led Quad, namely the U.S., the EU, Japan
and Canada, for successfully concluding
the negotiation.
The shift in global economic structure
during the last decade, however, has tran-
sformed the dynamics of the Round nego-
tiation. In terms of nominal GDP, for
instance, both Brazil and India increased
more than three-fold and China more than
four-fold from 2001 to 2010. It would thus
be reasonable to construct a new sense of
shared responsibility for concluding the
Round among major countries by reflec-
ting emerging countries’ growing econo-
mic power and presence in the negotiation.
Secondly, it is necessary to find a way
out of the current impasse in the NAMA
negotiation, particularly in the negotiation
on sectoral tariff elimination and reduc-
tion. It is said that the major developed
and developing countries have not yet
found a common ground to strike a deal in
the chemical sector negotiation, which is
the key among various sectoral initiatives.
In my view, however, the so-called “huge
gap” seems to be, at least technically, not
substantial enough to abandon all the be-
We should
recognize that, if
we are not able to
agree on a Doha
package by the end of
this year, the damage
to the WTO and
international
economic system as a
whole would be
enormous
nefits of the Doha package. In fact, the
average tariff rate of Chinese chemical
products after the application of the Swiss
Formula, for instance, must be only around
6-7%. What is necessary in this situation
is to find a common ground by conducting
intensive line-by-line basis discussions. In
this regard, the efforts to facilitate further
discussions among major countries made
by the EU and other players should be
welcomed and promoted. I would also like
to suggest encouraging the chemical indu-
stries of major countries, such as the U.S.,
the EU, Japan and China, to have direct
contacts for finding a solution in the sec-
toral negotiation. During the Uruguay
Round, the Quad’s chemical industries ex-
changed views on the tariff rates in the
process of agreeing on tariff harmonization
May - June 2011 23
in the chemical sector. It should be the
time to have such discussions in order to
save the Doha Round.
Finally, it cannot be too much to em-
phasize the damage should Doha fail. It
goes without saying that the dispute sett-
lement mechanism, one of WTO’s most
important functions, would remain as a
raison d’être of the WTO even if the Doha
Round failed. Yet, we should recognize
that the WTO’s credibility as a rule-ma-
king institution is currently at serious risk.
Today, there are many trade agendas to be
tackled as quickly as possible at the WTO,
including non-tariff measures and export
restrictions among others. Whilst being
the only international organization which
could potentially address these issues ef-
fectively, the WTO cannot start up the di-
scussions for new agendas without
concluding the Doha Round. In addition,
the Doha Round is a kind of litmus test for
the effectiveness of multilateralism in dea-
ling with other global economic agendas
such as climate change. We should reco-
gnize that, if we are not able to agree on a
Doha package by the end of this year, the
damage to the WTO and international
economic system as a whole would be
enormous.
Some suggest that it would be the time
to discuss on the so-called “Plan B” for the
Doha Round. I would however not take
the position to say “yes”. At the APEC Le-
aders Meeting at Yokohama and G20
Summit Meeting at Seoul in last Novem-
ber, the leaders declared that 2011 is a cri-
tical window of opportunity for
concluding the Round. We must “do it” by
all means.
 NEW EUROPE
Special Edition
EU WORLD
Placing consumer priorities at the heart
of the transatlantic partnership
Julian Knott
Secretary General TACD
We need a
revitalised
transatlantic
partnership that takes a
strategic approach to
tackling common
challenges and that
delivers real benefits to
a broad range of
A digital board dispays the Dow Jones Industrial average on the floor of the New York Stock Exchange in New York|USA.EPA/GINO DOMENICO
stakeholders, including
consumers
By Julian Knott
TACD, representing 80 organizations, provides
the consumer voice in transatlantic relations, spe-
aking for the 850 million citizens on both sides
of the Atlantic. We believe that the respect and
integration of our policy positions is essential if
transatlantic cooperation is to resonate with its
citizens and deliver positive outcomes. Not only
are consumer protections necessary for consu-
mer trust in the marketplace, but that consumer
trust is a prerequisite to a successful marketplace.
That is why regulatory standards and consumer
protections must be sufficiently rigorous to as-
sure that trust.
The transatlantic marketplace is the largest
and most significant bilateral trading relationship
in the world.This open market has certainly yiel-
ded great benefits for consumers and businesses
alike, however as some push for an ever more bar-
rier-free transatlantic market, we are concerned
that this does not result in a race to the bottom as
regards regulatory standards and consumer pro-
tections. We need a revitalised transatlantic part-
nership that takes a strategic approach to tackling
common challenges and that delivers real benefits
to a broad range of stakeholders, including con-
sumers. As a member of the advisory group to the
Transatlantic Economic Council we provide re-
gular input to negotiations alongside groups such
as the TABD with whom we share some com-
mon concerns. We have seen improvements in
the TEC process, but we believe that further ef-
forts are required to make it a truly stakeholder
inclusive forum.
The following are the priorities we would
like to see addressed through transatlantic coo-
peration:
Rebuilding a global financial regulatory
infrastructure
The recent crisis, caused by under regulated
financial markets, has crippled our economies,
undermining growth and jobs and leaving con-
sumers and small businesses severely damaged.
A concerted effort is still needed to rebuild the
Europe: Leading or Lagging?
global financial regulatory infrastructure and in
particular to ensure that consumer protections
become strengthened and integral to on-going
reforms both at EU and US level, but also at the
international level. This is fundamental to ensu-
ring that we do not return to a culture of disho-
nest and unfair consumer lending, where
products are overly complex, negligibly under-
written, unsuitable and unsustainable.
Creating a public policy framework
that stimulates open and public interest
innovation
We believe that excessive intellectual property
protections and enforcement act as barriers to
competition and innovation. We’re disappointed
that the EU and US have chosen to place such
emphasis on enforcement, through agreements
such as the ACTA, which pose a threat to funda-
mental rights, data protection and privacy with
little benefit to promoting innovation. It is our po-
sition that through the reasonable management
and enforcement of intellectual property rights,
including appropriate limitations and exceptions
and “fair use”, it is possible to compensate innova-
tors, foster new creativity, allow new business mo-
dels to flourish and improve access for consumers.
It is also critical that the EU and US work coo-
peratively and collaboratively in the field of rese-
arch and development, particularly where public
funds are concerned, to foster the development of
new and affordable medicines, and new green and
sustainable technologies among others. Finally, the
value of interoperable standards in promoting
competition and innovation must be recognized
and translated into specific cooperation initiatives.
Ensuring a precautionary approach to
the deployment of emerging
technologies
There has been much talk of emerging te-
chnologies providing a new and important so-
urce of growth. However, we need to ensure a
safe and precautionary approach to their de-
ployment. Consumers recognise the potential
benefits of new technologies such as nanotech-
nology, but must be reassured that products on
the market are safe and subject to appropriate re-
gulatory safeguards. Consumer acceptance of
such technologies will only come through open
and up front engagement concerning risks. If we
are to avoid a repeat of the GMO scenario, con-
sumers must be listened to and their concerns
reflected in action by regulators.
Implementing a privacy and data
protection framework fit for the global
digital age
We now live in a truly digital age, where we
shop and bank on-line, use on-line social net-
works and cloud computing services. In this glo-
bal digital economy, consumers are constantly
parting with their personal data, whether they
know it or not. Consumers must have control
over how their data is used and be assured that
their privacy is being protected. Reviewing pri-
vacy and data protection regulation is now on
the agenda both in Europe and the United Sta-
tes, but it’s important that both sides work toge-
ther to deliver a strong and common approach
that meets the aspirations of consumers. Such an
approach will also be significant in influencing
rigorous international standards.
Tackling unsafe products
The ability of competent authorities to co-
operate freely on a reciprocal basis on product
safety, exchanging information, detecting and in-
vestigating infringements and taking action to
bring about their cessation or prohibition is es-
sential to guaranteeing the protection of consu-
mers on both sides of the Atlantic. An EU-US
agreement to improve the exchange of confi-
dential information relating to unsafe products
has been in the pipeline for some time now. It is
a key consumer priority for this agreement to be
finalized. We cannot afford more delay on this.
Promoting healthy lifestyles and choices
The obesity pandemic poses not only a pu-
blic health threat, but also an economic threat to
the EU and US. TACD has long advocated for
May - June 2011 24
a common approach to the provision of clear in-
formation to consumers about the nutritional
quality of their food, both at retail level and out
of home. We need to make healthy choices the
easy choices and eliminate consumer confusion
caused by the proliferation of different appro-
aches to information provision. In addition,
TACD would like to see further cooperation
concerning measures to address the responsible
marketing of foods to children. Given the incre-
asing move towards marketing to children over
the internet, a common approach is important.
Achieving a sustainable and
low-carbon economy
Improving energy efficiency, promoting su-
stainable business practices and consumer life-
styles, is another area where the EU and US can
engage in effective coordinated action. We have
already seen positive developments regarding the
harmonization of energy efficiency testing me-
thods for certain product groups. However, we
need to see more ambitious progress on both
sides to increase the availability of sustainable
options, make choosing sustainable products ea-
sier and reduce misleading information. This is
important as part of a broader strategy on su-
stainable consumption, production and climate
change.
Conclusion
TACD as an official advisor to the TEC is
committed to ensuring that consumer priorities
become central to transatlantic cooperation. We
firmly believe that an inclusive process that takes
into account a variety of stakeholder views is fun-
damental to the success of TEC and other fo-
rums such as the High level Regulatory
Cooperation Forum, EU-US Energy Council
and other bilateral dialogues. We believe that to
serve the needs of the 850 million citizens on
both sides of the Atlantic, consumer protection
policies must be integrated into all aspects of
transatlantic cooperation. Failure to do so at this
critical time threatens the success of the transat-
lantic marketplace.
 NEW EUROPE Europe: Leading or Lagging? May - June 2011 25
Special Edition

| Reprints | Our world in 2011|

China-Europe Ties on Steady

Course in a Fluid World

Yang Jiechi

Minister of Foreign Af-

fairs of the People’s Re-
public of China

José Manuel Barroso, Hu Jintao, President of the People's Republic of China, and Liu Yongqing, wife of Hu Jintao (from left to right) | Credit © European Union, 2010

By Yang Jiechi
BEIJING - The international landscape
in 2010 has been rather fluid. The mo-
mentum of the global financial crisis has
been curbed, yet its impact has been de-
epening and it has triggered profound
changes in international relations and
the global pattern. The world economy
has continued with its slow recovery, but
more fragility and imbalance have been
exposed. Global economic and financial
risks have persisted, and protectionism
has further exacerbated.
The issue of development has become
more prominent, with major economies
pondering adjustments to their econo-
mic growth and management models.
The global power configuration has be-
come more balanced.
A number of emerging economies have
risen rapidly in succession, and shown
strong momentum of growth as a group,
further closing the gap with developed
countries. And groupings like BRIC and
BASIC countries have grown in
strength.
Reform of the international econo-
mic system has made headway. Develo-
ping countries are now participating in
global economic governance mecha-
nisms in a more equal fashion than the
past. The G20 is evolving from a crisis
response mechanism to one focusing on
long-term economic governance, and its
role and influence is receiving wide at-
tention. There has also been positive
progress in IMF and World Bank re-
forms.
The international security picture has
become more complicated. Although
peace is taking greater hold in the world,
the intertwining of traditional and non-
traditional security issues has made se-
curity threats more diverse and complex.
While Asia enjoys general stability on
the whole, security challenges are on the
rise and the hotspot issues heat up from
time to time. Some Asian countries have
experienced political instability and fac-
This article originally appeared in New Europe’s “Our world in 2011” special edition
The complete contents of this edition can be found at http://www.neurope.eu/2011
tors affecting security have become more
complex.
More currents of thought have come
to the fore. A lot of exchanges, reflection
and changes are going on in the interna-
tional cultural field. New ideas and pro-
posals have been put forward by various
countries.
And there has emerged a clearer
trend of more mutual learning and exch-
anges between different civilizations and
different development models.
Thanks to concerted efforts, China
and Europe have achieved steady growth
in our strategic partnership in 2010.
There have been more frequent ex-
changes in the political field, closer eco-
nomic ties and more active
people-to-people exchanges between the
two sides. In the current situation, the
case for China-Europe cooperation is
stronger than ever. Our cooperation will
benefit not only the development of our
two sides but also stability and sustaina-
ble development of the world.
China and Europe may have diffe-
rent views on some issues due to our dif-
ferences in social system, development
stage and cultural tradition. This is na-
tural. It is important for us to rise above
ideological differences, respect and treat
each other as equals, seek common gro-
und while setting aside our differences,
and strive for a win-win situation. In the
coming new year, China is ready to work
with Europe to strengthen dialogue and
cooperation, increase mutual understan-
ding and trust, and promote sustained,
sound and steady growth of our rela-
tions.
26 May-June 2011
| Reprints | Our world in 2011|
The Emerging-Market Growth Engine
Nirupama Rao
India’s Foreign
Secretary.
Indian Roupies |www.flickr.com eurok
By Nirupama Rao
NEW DELHI – The key role of emerging
and developing countries – including India,
China, and Brazil – in sustaining world eco-
nomic growth was brought into sharp focus
during the recent global crisis, and has been
well documented. This trend is likely to
continue in 2011 and beyond.
Indeed, the IMF expects that emerging
and developing economies will grow by 6%
in 2010 and 6.3% in 2011. Emerging-mar-
ket economies have not only cushioned the
global impact of the recent crisis, but have
also helped industrialized countries reverse
the recessionary trend of 2008-2009. But re-
covery remains fragile in the developed
world, with unemployment remaining at
crisis levels.
But, while emerging economies are pro-
ving to be drivers of global demand, the
right mix of government initiatives and po-
licies is still required to ensure that they con-
tinue to provide the impetus for faster world
economic recovery in the short term and be
the engines of sustainable growth in the me-
dium and long term. There is also a strong
need for supporting long-term capital flows
to emerging economies to stimulate inve-
stment further, particularly in their infra-
structure sectors, thereby injecting
much-needed additional demand into the
global economy.
In this regard, another important deve-
lopment is the increasing number of emer-
ging-market middle-class consumers, their
growing purchasing power, and thus their
potential impact on global demand. Accor-
Europe: Leading or Lagging? NEW EUROPE
Special Edition
The strength of the Indian economy is underpinned
by a high saving rate and robust investment
ding to one estimate, middle-class consu- king system with limited exposure to global At its summit in Seoul in November, the
mers in a dozen emerging economies today markets, together with the importance of G-20 firmly placed development at the core
wield annual purchasing power totaling ap- domestic consumption in sustaining de- of its agenda. Indian Prime Minister Man-
proximately $6.9 trillion. mand, has also helped. But what distingui- mohan Singh, underlining the importance
Indeed, projections from McKinsey & shes India from other emerging economies, of infrastructure investment, made the fol-
Company suggest that the purchasing in particular China and the Southeast Asian lowing proposal, which several leaders en-
power of this rising middle class in emer- countries, is that domestic demand, rather dorsed: “Recycling surplus savings into
ging markets may rise to $20 trillion over than exports, is the primary driver of gro- investment in developing countries will not
the next decade – twice the current level of wth. A return to high growth rates globally only address the immediate demand imba-
consumption in the United States. The four will require a broader revival of demand. lance, it will also help to address develop-
biggest emerging economies – Brazil, Rus- Needless to say, this will occur only gra- mental imbalances. In other words, we
sia, India, and China (the BRICs) – are large dually, particularly in the developed coun- should leverage imbalances of one kind to
producers and consumers of goods and ser- tries. Thus, India’s high growth rates will redress imbalances of the other kind.”
vices, and will also be important in shaping have to remain dependent on strong dome- As we head into the second decade of
the pace, direction, and sustainability of glo- stic demand. In order to meet this challenge, the century, innovative ideas like using glo-
bal economic growth. we are focusing on investments in infra- bal savings or surpluses to finance infra-
Let me turn to India specifically. In the structure sectors such as power, telecommu- structure in emerging and developing
five years preceding the 2008-2009 crisis, nications, roads, ports, and airports. countries should be pursued seriously.
the Indian economy grew at an average rate While the public sector will continue to Doing so would not only sustain the growth
of nearly 9% annually. During the crisis, an- play an important role, given the massive in- momentum of these economies, but would
nual growth slowed, but only to 6.7%, re- vestment required, substantial private inve- contribute to global recovery by generating
flecting the economy’s inherent resilience. stment – including foreign investment – much-needed additional demand in the de-
The growth rate subsequently recovered to would be needed to address India’s huge “in- veloped countries.
7.4% in 2009-2010, and we expect 9% gro- frastructure deficit” and the financing gap While the emerging economies’ global
wth by 2011-12. that accompanies it. A strategy of private- role will inevitably grow in the coming years,
The strength of the Indian economy is public partnership has been adopted to ad- this shift will need to be anchored in a coo-
underpinned by a high saving rate and ro- dress the infrastructure challenge. At the perative partnership with the developed
bust investment. The government’s prompt same time, we need to invest in our human world. As for India, our resilient democratic
action to counter the crisis – fiscal stimulus, capital, supporting the development and up- values, ability to manage diversity, and
growth packages, and monetary easing – grading of the workforce’s skills and capa- strong economic fundamentals underpin
proved effective. A sound financial and ban- city for innovation. our country’s current global posture.
This article originally appeared in New Europe’s “Our world in 2011” special edition
The complete contents of this edition can be found at http://www.neurope.eu/2011
 NEW EUROPE
Special Edition
LABOUR MARKET
Ending uncertainty in New Member States
Henryka Bochniarz
President of Polish Con-
federation of Private
Employers LEWIATAN
Now the
business
communities
from the New Member
States are looking for a
fast resolution of the
EU’s economic
governance trouble.
From business point of
view this is a question
of a long-term stability Young people take part in the Schuman Parade to commemorate Robert Schuman's proposals for an organised Europe, in Warsaw, Poland, 7 May 2011. The Schuman Declaration of 9
and growth potential May 1950 is considered to be the beginning of what is now the European Union. |EPA/BARTLOMIEJ ZBOROWSKI POLAND OUT
By Henryka Bochniarz
The business community in Poland, as well
in most of the EU’s New Member States
(NMS), has traditionally exposed its euro-en-
thusiasm. Closer ties to Europe, both politi-
cally and economically, and a strict adoption
of the European legislation seemed to form
another guaranty to the free market princi-
ples and the rule of law recently reintroduced
two decades ago after half a century of So-
viet-type communism. That overwhelming
support for European values and integration
has been largely shared by the new democra-
tic governments, with several notable exce-
ptions – to name just Mr. Meciar government
in Slovakia in the 1990s and the Law and Ju-
stice government in Poland six years ago.
For years there have been few doubts over
the direction the NMS had to follow. The
contents of their homework was clear: pro-
moting massive privatization programs, joi-
ning WTO and IMF, accepting NATO
umbrella over their national security, swiftly
adopting the EU’s acquis communautaire,
and proceeding with structural reforms to
fully exploit the benefits of the European
open markets and inflows of cohesion funds
– those were the consecutive steps in their hi-
storic process of re-integration into Europe.
The next steps were scheduled to be joining
the Schengen and euro zones. And then the
financial crisis came.
Poland faced the crisis as one of the best
prepared economies. There were no major
asset bubbles, neither major imbalances in
domestic budget and payment accounts. Po-
land kept a 1.7 per cent positive GDP gro-
wth rate in 2009 as the only EU economy. Its
economic governance regime happened to be
exceptionally suited to cope with sudden ex-
ternal economic shocks, coming both from
shrinking trade volumes and the rapid dete-
rioration of asset quality held by financial and
non-financial institutions. Poland has obser-
Europe: Leading or Lagging?
ved the constitutional limits to its general go-
vernment debt that has been imposed yet
back in the 1990s. Similar limitations were in
force upon the local government spending. Its
financial sector supervision institutions and
bodies proved to be well founded and well-
run by the competent people when a trial
time has come.
Also Poland’s business community made it
best to resist the crisis. A traditional conser-
vatism of Polish entrepreneurs happened to
be a blessing. According to PKPP Lewiatan
research, as much as 70 per cent of small and
medium-sized companies in Poland never use
banking loans. The low leverage rates were a
kind of an economic cushion for the entire
economy in the crisis time. An ability to ad-
just to changing economic environment hel-
ped to replace the waning export markets
with emerging domestic sales opportunities.
As the result the net exports rose substantially
and the loss in production and employment
remained quite moderate.
The bad asset story in Poland was limited
to several hundred large and mid-sized com-
panies, over-representing state-controlled
sector, which happened to incur losses on
their excessive positions in derivatives. Their
example of such poor risk management and
internal control procedures led to extension
of even more conservative approach to run-
ning companies. Back to your core business,
that was a lesson.
The NMS economies other than Poland
faced the financial crisis with mixed results.
Those with large asset bubbles and current
account imbalances suffered most in terms of
their GDP volumes and living standards. It
was a harsh lesson of economic governance
especially to those NMS that maintained
fixed rate currency regimes through the crisis.
Failing to prevent the economies in the ex-
pansion phase from overheating proved to be
extremely costly when new financing turned
to be scarce. Thus so-called hard landing has
VERBATIM
The European Union remains
attractive - even in the current
climate. The history of
enlargement has been a success.
We have cemented democracy
in countries which were
dictatorships, reinforced the rule
of law and respect for
fundamental rights and
promoted market economies
been experienced by most of Baltic and Bal-
kan countries.
Now the business communities from the
NMS are looking for a fast resolution of the
EU’s economic governance trouble. From
business point of view this is a question of a
long-term stability and growth potential.
Restoring confidence to the euro as a com-
mon currency and the stability of the euro
area is a must. For the NMS the adoption of
the euro is not an obvious part of their ho-
mework anymore. Only three of the NMS
have managed to adopt the euro so far. Slo-
venia and Slovakia completed their ado-
ption processes before the crisis, and
Estonia made it despite one of the harshest
recessions in Europe. The remaining NMS
remain in the land of uncertainty. A chance
to meet the accession criteria seems gro-
wingly smaller, a cost of accelerating the ad-
justment process is prohibitively climbing,
and a possible final reward is getting incre-
asingly elusive.
Luckily, much of what was already nego-
tiated on the economic governance in the EU
is a step in the right direction. Such are the
May - June 2011 27
- Štefan Füle
European Commissioner for
Enlargement and European
Neighbourhood policy
proposed amendments into the Stability and
Growth Pact, including an idea of some pre-
emptive sanctions and semi-automatic pro-
cedures, the establishment of an European
Semester to coordinate fiscal and broader
economic policies, introducing minimum re-
quirements for national fiscal frameworks, in-
troducing multiannual fiscal programming
and high quality statistics. The expenditure
rules to be introduced into national laws fol-
low examples of several European countries,
including Poland.
Finally, what is still missing, is a permanent
crisis management and resolution mecha-
nism. There were some discussions on emer-
gency loans with stricter conditions and a
scheme allowing for debt restructuring,
and/or orderly default in last-resort situations.
But no tangible outcome is in hand.
All those expectations are common for the
businesspeople both from NMS and from
EU-15 countries. I sense that Europe is fi-
nally united again. What is often obscured
that the euro area must reform itself as soon
as possible also because the NMS cannot stay
in limbo for long.
28 May-June 2011
| Reprints | Our world in 2011|
New Policy Paradigms
for a New World
Dominique
Strauss-Kahn
Managing Director of
the International Mon-
etary Fund.
A stronger
and safer
financial system is the
bedrock of a
successful economy.
This requires strong
regulation, with a
sensible rulebook for
financial markets and
institutions Members of the G24 meet at the IMF headquarters in Washington, US, 22 April 2010 |ANA/EPA/ASTRID RIECKEN
By Dominique Strauss-Kahn
WASHINGTON, DC – Over the last quar-
ter-century, the global economy enjoyed a re-
markable stretch of stable growth and low
inflation.The so-called “Great Moderation”lul-
led many policymakers into a false sense of se-
curity about their ability to manage the economy
and deal with financial crises. But, as the Great
Moderation metastasized into the Great Reces-
sion, fatal flaws in conventional thinking came
to light. One of the most notable was just how
poorly we grasped the linkages between the fi-
nancial system and the broader economy – as
well as the linkages between countries.
Today, as policymakers seek new paradigms
for managing the economy in 2011 and beyond,
a better understanding of these linkages will be
essential to promoting economic growth and re-
ducing the risk of crises. Equally important is the
realization that by working together, we can
build a more successful and more stable global
economy, for the benefit of all countries.
Let me spell out what this means for three
policy objectives: building a stronger and safer
financial sector, achieving more balanced and
more stable growth, and managing large and vo-
latile capital flows.
A stronger and safer financial system is the
bedrock of a successful economy. This requires
strong regulation, with a sensible rulebook for fi-
nancial markets and institutions. And, to ensure
that everyone plays by the rules, financial insti-
tutions must be supervised intensively.
Now, even with the best rules and supervi-
Europe: Leading or Lagging?
sion, crises will still occur – which is why we need
effective resolution mechanisms to deal with in-
stitutions that get into trouble. And, finally, given
powerful interactions within the financial sector
and across the broader economy, we need an
overarching framework to manage risks in the
financial system as a whole.
Much has already been done to advance re-
gulatory reform, notably the recent agreement
to strengthen bank capital (Basel III). Yet we are
far from having the supervision needed for pro-
per implementation of the rules. Effective reso-
lution mechanisms and systemic frameworks
remain even more elusive.
Moving to the broader economy, we have
learned that growth must be balanced in order to
be healthy. At the national level, this requires
tools to prevent excesses in one sector from brin-
ging down the entire economy. At the global
level, it requires a better distribution of growth
across countries, in order to prevent destabilizing
imbalances.
What are the implications for macroecono-
mic policy?
Monetary policy needs to look beyond its
core focus on low and stable inflation and pay
much greater attention to financial stability.The
debate now is how, exactly, to factor this impe-
rative into monetary policy, and how to coordi-
nate the work of monetary and regulatory
authorities.
For fiscal policy, the crisis showed the value
of maintaining low public debt and deficits du-
ring good times: countries with healthier public
finances have more space to cushion the econo-
mic impact of crises. But the Great Recession
This article originally appeared in New Europe’s “Our world in 2011” special edition
The complete contents of this edition can be found at http://www.neurope.eu/2011
has caused public debt and deficits in many ad-
vanced economies to soar.
How quickly fiscal retrenchment should be
launched – and the right balance between hi-
gher taxes and lower spending – will vary by co-
untry, reflecting factors like the strength of the
economic recovery, the market’s appetite for debt,
and initial spending and revenue ratios. But the
common objective for fiscal policy must be to
support durable medium-term growth and job
creation.
The distribution of income is another im-
portant issue. In the years leading up to the cri-
sis, inequality rose in many countries, with
worrisome consequences for social cohesion. Ri-
sing inequality may also have increased vulnera-
bility to crisis: with fewer people able to dip into
savings during bad times, the impact on growth
is even larger. Turning to the international di-
mension, understanding better how policies
adopted in one country spill over onto other eco-
nomies is key.
This approach lies at the heart of the G-20’s
efforts to achieve strong, stable, and balanced
global growth. The International Monetary
Fund is also stepping up its work in this area, th-
rough “spillover reports”on China, the euro zone,
Japan, the United Kingdom, and the United
States. Gaining a better appreciation of the fi-
nancial linkages between countries is also im-
portant. During the crisis, we saw how quickly
capital fled from countries previously conside-
red safe bets. Today, many of these countries are
reeling from a veritable tsunami of returning
money. Policymakers in many emerging-mar-
ket countries worry that surging capital inflows
NEW EUROPE
Special Edition
will drive up the value of the local currency, de-
stabilize financial markets, and fuel economic
overheating. Their reactions range from buying
up the foreign money to prevent currency ap-
preciation to adopting capital controls, and, in
extreme cases, to keeping the money out altoge-
ther.The situation has become quite tense, with
talk of “currency wars”and a real risk of financial
protectionism. Clearly, we need to get a better
handle on what is driving these capital inflows.
We also need to identify the best policies for de-
aling with them – keeping in mind the impact
of these policies on the global economy as a
whole. And we should explore whether a system
of global rules aimed at reducing the volatility of
capital flows would be useful.
Global financial insurance is an important
related issue. Just as a family backstops its savings
with insurance, countries should be able to tap
into a global financial safety net. Much has alre-
ady been achieved since the crisis, through more
resources for the IMF and new financing in-
struments. But more is needed, and the Fund is
exploring cooperation with regional financing
mechanisms, as well as new ways to use its in-
struments in a systemic crisis.
Let me tie all of this together.
One principal policy failure in the run-up to
the crisis was a lack of imagination: we failed to
appreciate just how intricate the global economic
and financial web had become. Let our next fai-
ling not be the result of a lack of cooperation.We
must reach across old dividing lines – both wi-
thin economies and between them – and work
together to build a stronger, more resilient global
economy.
 NEW EUROPE Europe: Leading or Lagging? May - June 2011 29
Special Edition

LABOUR MARKET

Single Market Act will provide a welcome

boost to employment and job creation

Annemarie Muntz

President of Eurociett,
representing the private
employment sector in
Europe

EU Commission Chairman Jose Manuel Barroso (foreground) at the start of the high level conference, Single Market 'Time to Act', at the European Commission headquarters, in Brus-
sels, 8 February 2011. Behind is the EU Commissioner for Internal Market and Services, Michel Barnier. |EPA/JULIEN WARNAND BELGIUM OUT

By Annemarie Muntz VERBATIM

Countries across Europe need to
The newly relaunched Single Market
Act will give a much needed boost to raise their labour market -John Monks
general secretary of the
labour market participation across the
EU27 by creating jobs for our eco- participation rate if they are to European trade union
confederation

nomy. Service industries are key dri-

vers of job creation and private
employment agencies in particular are
contributing to the recovery of the la-
bour market. A more effective EU
Single Market will enable them to re-
alise their growth potential and create
new jobs as a result.
The twelve new measures laun-
ched by the Commission last month
seek to deliver this growth sustainably
and inclusively. In particular, the me-
asure to ensure better enforcement of
the Posting of Workers Directive
(PoWD) has the intention to enhance
geographic mobility in Europe and
deliver benefits for business, workers
and consumers. Improved enforce-
ment will ensure fair working condi-
tions for posted workers, stamp-out
abuse and call time on unfair compe-
tition by rogue agencies. The organi-
sed agency work industry is already
playing its part to enhance quality
standards by providing information
on the cross border activities though
an observatory run by Eurociett and
its sectoral social partner UNI Eu-
ropa.
Countries across Europe need to
meet the EU’s 2020 75% employment
target. Because of demographic shifts there
will be a shortage of 35 million workers in
Europe by 2050
raise their labour market participation
rate if they are to meet the EU’s 2020
75% employment target. Because of
demographic shifts there will be a sh-
ortage of 35 million workers in Eu-
rope by 2050. Enhancing labour
mobility through the PoWD alone
will not bridge this gap. Making more
use of well regulated agency work will
further increase labour market parti-
cipation.
The Agency Work Directive
which is to be transposed this year,
will drive further job creation and
participation. It also provides for fair
working conditions to these workers
being brought into Europe’s labour
markets by agencies. To maximise this
job creating potential unjustified and
Young people trying to get
discriminatory restrictions on the into the labour market is the
agency work industry must also be li-
fted according to the Directive. The biggest employment issue in
Agency Work industry enhances par-
ticipation in an inclusive way by brin- Europe right now. Europe
ging people into work and providing
training and skills enhancement to
hasn’t been too bad at
enable further transitions within the keeping people in existing
labour market. Their stepping stone
function is seen in the proportion of jobs, but it’s getting a job in
people in employment after having
worked as an agency worker (on ave- the first place that’s the
rage 29% employed before and 59%
after). Embracing the potential of pri- difficult bit
vate employment agencies will enable
the ambition of the Single Market
Act to enhance labour market partici-
pation and delivering inclusive growth
to be matched.
30 May-June 2011
LABOUR MARKET
Europe needs more business
-education partnerships
Partnerships provide key skills for Europe’s youth and keep European businesses competitive
Caroline Jenner
CEO, Junior
Achievement-Young
Enterprise Europe
Boys dressed in Hungarian national costume sing folk songs on the stage during a cultural programme held on the sideline of the second day consultation of the informal meeting of EU culture
and education ministers in Grassalkovich Palace in Goedoelloe, some 30 kms northeast of Budapest, Hungary, 29 March 2011. |EPA/TAMAS KOVACS
By Caroline Jenner
As business leaders and decision makers kick off
this week’s European Business Summit, one
thing is clear: young people in Europe are not
equipped with the education and skills that Eu-
ropean businesses need to succeed. Not only
does this impact job opportunities for our young
people, it also affects the ability of European bu-
sinesses to compete in an increasingly global
market.There is an urgent need to close this gap
by increasing collaboration between business
and education—and this collaboration must
start early, while children are still in school.
According to a recent survey of 517 Euro-
pean business leaders, conducted on behalf of
Junior Achievement-Young Enterprise Europe,
63 per cent of respondents said that their co-
untries’ educational systems were not preparing
young people with the right skills to enter the
workforce. Seventy per cent of respondents said
their countries were doing a poor job develo-
ping financial and entrepreneurial skills among
young people. An additional 54 per cent said
that young people were lacking “soft skills,”
such as confidence, presentation skills, networ-
king and teamwork.
A 2010 report from the European Com-
mission takes this one step further saying that
entrepreneurship and financial literacy are two
of the most important soft skills needed in the
Europe’s labour market. The Commission goes
on to say that entrepreneurial skills and mind-
sets are not only necessary to increase the rates
of start-ups and the survival of existing firms,
but they are also useful to foster growth and in-
novation in existing firms--ultimately contri-
buting to employment growth.
While the European Commission and
Europe: Leading or Lagging? NEW EUROPE
Special Edition
According to a recent survey of 517 European business leaders,
conducted on behalf of Junior Achievement-Young Enterprise
Europe, 63% of respondents said that their countries’ educational
systems were not preparing young people with the right skills to
enter the workforce
many Member States have recognized the gro- get businesses more engaged in teaching stu- their values and concerns, and they do think
wing gap between education and skills and bu- dents the skills they need to compete in a glo- that they will find this in MST.
siness needs, and have set strategic objectives to bal marketplace. To respond to this growing need, Junior
further develop entrepreneurship, the future is For example, one of the greatest gaps bet- Achievement-Young Enterprise Europe and
less predictable than ever before and the pace of ween education and business needs in Europe ExxonMobil have created the Sci-Tech Chal-
change is accelerating. is in the area of math, science and technology lenge, a programme designed to motivate stu-
We can expect labour markets in Europe to (MST). According to Cedefop forecasts, more dents, ages 15-18, to consider MST-oriented
face three major changes over the next 10 years, than 4.5 million jobs for technicians and asso- careers. The programme helps raise students’
according to the European Commission: “First, ciated professionals, including physical, engi- awareness of the importance of MST skills and
there is in the medium and long term a great neering, life science, health and teaching how these skills can be applied in enterprising
potential for employment creation in Europe – associate professionals are expected to be crea- ways to tackle tomorrow’s challenges.
both for new and replacement jobs. Second, the ted in Europe over the next decade. Another Nearly 10,000 secondary school students
skills, competencies and qualification require- 2.7 million jobs in Europe are expected to be and 180 teachers in nine European countries
ments will increase significantly, and across all created for physical, mathematical and life- will have an opportunity to participate in the
types and levels of occupation. Third, there is a science engineers and health and teaching pro- Sci-Tech Challenge by 2012. Throughout the
need to ensure a better long-term match bet- fessionals. programme, more than 200 employees from
ween skills supply and labour market demand.” While the need for MST professionals is ExxonMobil will volunteer their time to teach
At the same time, according to the Euro- higher than in other sectors and is increasingly student participants helping to develop the next
pean Centre for the Development of Vocatio- rapidly, according to Eurostat data (1999- generation of scientists, researchers, engineers
nal Training (Cedefop), demand for 2008), the proportion of graduates in MST and mathematicians.
highly-skilled people in Europe is expected to subjects among all graduates is either stable or These kinds of partnerships, which supple-
rise by almost 16 million over the next 10 years lower than in the past. This is not surprising ment Europe’s educational systems, are critical
and a total of 7 million new jobs is expected to given the results of a recent international survey to ensuring the right match of skills for Euro-
be created between 2010 and 2020. , which indicated that young people in more pe’s labour market—both now and in the fu-
For all these reasons, there is an urgent need developed countries are less inclined to pursue ture. It’s time for all European businesses to
to bring businesses and education in Europe education and careers in MST. The research step up and contribute—both for the benefit of
closer together. We can do this by creating suggests that today’s youth wish to study and Europe’s industry and the benefit of Europe’s
practical business-education partnerships that work on something meaningful that fits with youth.
ADVERTISEMENT
ADVERTISEMENT
 NEW EUROPE
Special Edition
LABOUR MARKET
Balancing regulation
and access to finance
Danny McCoy
Director General
Irish Business and Em-
ployers Confederation
Ireland is
many ways
a microcosm
of a wider European
problem and is paying a
high price for its
transparency in
acknowledging upfront
the scale of loan losses Professor Patrick Honohan (L) the governor of the Irish Central Bank and Matthew Elderfield (R) Head of Financial Regulation attends a press conference in Dublin, Ireland on 31 March
2011. The Irish Central Bank published on 31 the results of crucial stress tests on the Irish banks, which shows that the Republic of Ireland's banks need an extra 24 billion euros to survive
in its banks the financial crisis,. |EPA/ENDA DORAN
By Danny McCoy
The very severe problems of Ireland’s ban-
king sector have, as almost any crisis, some
distinguishing national characteristics. But
Ireland’s bank troubles are also to a sub-
stantial degree a symptom of a wider Euro-
pean malaise, where excessive credit growth
and mispricing of risk have led to substan-
tial loan losses.
The Irish financial regulator at the time
did not properly police the banks, choosing
instead to rely on voluntary compliance.
Government did nothing to rein in an over-
dominant construction sector, choosing in-
stead to stoke the flames higher by granting
tax breaks to the property sector. But ulti-
mately, Ireland’s credit binge was enabled by
a substantial inflow of cheap credit and fo-
reign lending to Irish banks.
Ireland is many ways a microcosm of a
wider European problem and is paying a
high price for its transparency in ackno-
wledging upfront the scale of loan losses in
its banks. Many other countries have so far
failed to properly addresss the issue and
problems in the European banking system
remain unresolved. Many have failed to
grasp that a European solution is needed for
a European problem.
This delay is turning out to be costly for
European business, particularly SMEs. Lar-
ger companies have a wider range of options
to gain access to external finance, including
issuing corporate bonds, while SMEs are
typically far more dependent on bank len-
ding as a source of finance. The ECB’s latest
bank lending survey indicates that lending
standards are tightening for non-financial
corporations and the most recent survey on
SME lending indicates that access to fi-
nance is a pressing issue, with many having
Europe: Leading or Lagging?
to resort to overdraft and other temporary
credit facilities.
If viable enterprises cannot gain access
to credit, economic recovery will stall. The
ability of SMEs to start up, survive and ex-
pand from their existing base depends on
their potential to invest in restructuring, in-
frastructure and innovation.
The importance of SMEs to the eco-
nomy is a point worth labouring. It is not
always appreciated that 99% of all Euro-
pean businesses are, in fact, small or me-
dium sized enterprises – that is with
headcount of less than 250 employees.
SMEs provide two-thirds of private sector
jobs and account for more than half of the
total value added created by European bu-
sinesses.
The SME sector will be absolutely cru-
cial for a sustained European recovery, but
this can only happen if Europe has a ban-
king sector fit for purpose. A well-functio-
ning banking sector and financial stability
are essential conditions of prosperity.
Reform of financial sector regulation is
needed to ensure that the global crisis is not
replicated in the future, but it is crucial to
get the balance between regulation and ac-
cess to credit right. As Ireland’s case has so
painfully demonstrated, the bursting of cre-
dit and asset price bubbles impose signifi-
cant costs for both society and the real
economy. On the flipside of the coin, com-
mercial banks are the main source of exter-
nal finance for firms, particularly SMEs. A
scenario of overregulation which serves to
prohibit all but the most secure applications
serves to undermine SMEs and the contri-
bution they make to the economy.
The task now is to ensure that the regu-
latory system is reformed in such a way that
it helps the retail banking sector do its job:
May - June 2011 33
provide funds to creditworthy individuals
and enterprises. The most significant re- VERBATIM
form of the banking sector to date was the
introduction of Basel III, which proposes - Jean-Claude
new capital leverage and liquidity standards Trichet
to strengthen the regulation and risk mana-
gement of the banking sector. The new ban- President of the
European Central
king rules have the net effect of reducing a Bank
bank’s capacity to lend and will inevitably
lead to a tightening of credit conditions.
There is a concern that banks will list
SMEs in the high-risk debtor group within
the framework of Basel III principles resul- I believe we are now about
ting in reduced access to loans and a prohi- halfway through the
bitive cost in cases where loans are granted. comprehensive financial reforms
The implementation deadline up to 2019 that the crisis has demanded. We
gives banks time to phase in targets and have achieved a blueprint of more
avoid restriction of lending in the short stringent bank regulations that
term, but the implementation may force includes more loss-absorbing
certain smaller and overleveraged weaker capital, better risk coverage and
banks to simply stop lending rather than limitations for undue leverage.
raise capital to meet the new guidelines. The oversight of financial
There is a real risk that as a result, credit
institutions as well as markets and
market infrastructure are being
conditions for SMEs will worsen further, strengthened. And the
thereby damaging Europe’s growth poten- organisational structure of
tial. financial supervision is being
Better regulation need not mean more overhauled.
regulation. Ireland’s is, again, a useful illu- But much remains to be done.
strative example. Rather than problems with The key aspect is implementation
existing regulation, it was lack of enforce- of the reforms. Moreover, the issue
ment of rules and powers that allowed the of systemically important financial
credit bubble to develop. Regulatory reform institutions requires further
must at all times keep sight of the final goal: reflection. And oversight of the
to ensure that Europe has a well-functio-
proper functioning of financial
markets in a way that avoids
ning banking system capable of supporting undue volatility, excessive
entrepreneurial activity that will drive job influence of dominant players and
creation and economic growth. oligopolistic market structures,
The role of the banks is, ultimately, to while reinforcing transparency,
serve the real economy. We need a banking needs to be addressed resolutely
system that is able to perform its core
function of enabling economic growth and
prosperity.
34 May-June 2011
LABOUR MARKET
Young Entrepreneurship: Is It Possible?
Ignacio Salinas
Communication Officer
at ThinkYoung
Graduating students look for jobs as they attend a special job fair for this year's graduates in Qingdao city, eastern China's Shandong provice, 10 February 2011. |EPA/WU HONG
By Ignacio Salinas
I think crisis has to be the word uttered the
most often over the last two, almost three years.
The dominant vision of the world seems tinged
with pessimism. Yet many ideas have been pro-
posed to overcome this period of uncertainty. I
am not referring to laying-off employees, clo-
sing down sites or relocating to third world co-
untries where labour costs are much lower, but
rather to much more viable solutions.
As part of my work in a think tank specia-
lized in youth, I am regularly invited to attend
and contribute to conferences. At many of
them, the main topic is unemployment
amongst young graduates. Delegates analyse
the situation of the job market and we all agree
that it is really complicated, because few job op-
portunities exist. The conversation then usually
continues on to solutions for these problems, to
which someone always suggests the “two ma-
gical remedies”: entrepreneurship and innova-
tion. If there are not job opportunities, young
people should create them, or should offer new
projects to companies. The idea is good and it
sounds wonderful. For listeners at these kinds
of forums, some of them youngsters desperate
to find a job, it is music to their ears. They are
filled with inspiration and begin to dream of a
bright future running their own business. But
then after the conference, it dawns on them:
what does being an “entrepreneur and innova-
tor” even mean? And more importantly: how
is it possible to become one?
For a guy or a girl of say 25 years old, to start
a business from scratch or to have revolutionary
ideas that a company will adopt is difficult, near
impossible. They need a minimum of working
experience, in order to know if their ideas and
dreams are just that- ideas or dreams- or if they
could fill a gap in the market. Working for se-
veral years in a company where you can really
Europe: Leading or Lagging?
learn, develop your skills and become speciali-
zed in a market sector is the best training for a
future innovator. But for young graduates, the
normal way to enter a company is through
doing an internship. Here they will generally
do minor tasks for three to six months, before
having to leave to find other internship because
the company doesn´t want to hire them and
continue to “train” them.
The business world is not supporting
young graduates; it is neither giving them the
professional responsibility nor the relevant ex-
perience to become entrepreneurs or innova-
tors. Whilst it is true that companies are not
NGOs, they should not forget their main goal:
to create richness and well-being in society. I
think many companies have forgotten this.
Most large corporations continue to earn bil-
lions of Euros, but fail to take on employees, or
lay many off. The salaries of many of its execu-
tives are worth millions of Euros, yet they claim
not to have the money to contract youngsters?
It doesn’t really sound plausible. Companies
obviously benefit from hiring young, motiva-
ted interns who will work for less than €600
and without social benefits. But I don´t think
this is the example to follow. Companies sh-
ould change their behaviour. If they don´t mo-
tivate young people, the new business ideas of
youngsters may lack innovation. In such a com-
petitive world, it is only the innovators who
succeed.
We have to give young graduates opportu-
nities. As a start, they should receive a good
education, which means not only to have a
strong theoretical knowledge, but also a practi-
cal approach. As such, youngsters would then
be more open to having new ideas and disco-
vering gaps in the market. As I said, however,
this is a process. We cannot expect a 25 year old
to undertake the responsibility of leading in in-
novation. They don´t have enough experience
NEW EUROPE
Special Edition
5 and 15 years of working experience, a techni-
The business cal knowledge of the market and many years
left to develop their ideas. They are still young,
world is not but not inexperienced, which is how they dif-
fer from a young graduate. A good formula, for
supporting young example, could be a 35 year old entrepreneur
who hires two or three young graduates for his
graduates; it is neither or her new business. At the beginning they
could be interns because they will be learning
giving them the new things, but after a fixed period, they should
professional have the possibility to stay and work in expan-
ding this new project, with huge potential.
responsibility nor the Most people that started successful new
businesses did so in their mid-30´s or 40´s.
relevant experience to From my point of view, these people have to be
the entrepreneurs and innovators. For this to
become entrepreneurs happen, these people need support from banks,
companies and institutions. All social and bu-
or innovators. Whilst siness actors should therefore work together to
it is true that move beyond the crisis and find new opportu-
nities. We have to search for long-term solu-
companies are not tions and support new ideas, not only think in
terms of profit maximization.
NGOs, they should As a young graduate myself, I am waiting
with great expectations for this change in the
not forget their main business culture. To usher in this new culture, a
true compromise must be made between eco-
goal: to create richness nomic actors. If new entrepreneurs need help,
and well-being in young graduates will be there. The same is true
for big companies. We have a proactive attitude
society and are ready to work hard. The more possibi-
lities we are offered today, the more we can offer
to generations in the future. We are well-edu-
or resources. Of course there are examples of cated and ready to develop important projects,
really young people who have created big com- if we are guided by those with more experience.
panies (take Facebook or Microsoft), but we A small minority of us may be ready to start
these can’t be taken as general examples. They our own business ventures. But what we would
are a little group of geniuses and we should be all appreciate is counseling and help. I think
more realistic. that if young generations and older ones work
Entrepreneurial and innovative change sh- together, it would be easier to change this cri-
ould therefore come from people aged between sis-ridden landscape. Good solutions can be
30 and 40. These are the people with between found: we just have to really want them.
 NEW EUROPE
Special Edition
EU WORLD
Beyond the Egyptian Spring:
Connecting to the Middle East and Africa
Sherif Kamel
Dean, AUC School of
Business
In the
wake of the
Arab
uprising, spotlights are
turning to Egypt to
indicate the potential
for local and
international business
development and
foreign investment in
this new era Protesters in Tahrir square, Cairo, Egypt, 1 April 2011. But what next for Egyptian society? |EPA/MISAM SALEH
By Sherif Kamel
SCHOOL OF BUSINESS IMPACT
In the wake of the Arab uprising, spotli-
ghts are turning to Egypt to indicate the
potential for local and international busi-
ness development and foreign investment
in this new era. The American University
in Cairo’s (AUC) School of Business has
a long-standing tradition of cultivating
local and regional talent, nurturing com-
munity goals and objectives, and connec-
ting the Egyptian business community to
successful ventures abroad.
The School of Business introduced ra-
dical changes to its structure, goals, and
strategic planning in 2009 – improve-
ments intended to beget productive deve-
lopment in the long-term. School of
Business dean Sherif Kamel’s agenda ad-
vances three primary objectives: leader-
ship, innovation, and entrepreneurship;
new programs and procedures based on
these principles seek to yield ever-more
global-savvy graduates and executives.
At its launch in February 2010, then-
Provost Lisa Anderson (now the univer-
sity’s president) highlighted the
opportunity for the School of Business to
“build on its role in producing and pro-
moting the next generation of innovative
and creative private-sector leaders in
Egypt and the region.” As such, AUC’s
capacity to transform political change into
productive economic partnership with
Europe and the MENA region in the co-
ming years looks promising.
EDUCATIONAL LEADERSHIP
Established as a separate School in
1993, the School of Business serves two
Europe: Leading or Lagging?
main purposes: instructing current and fu-
ture business leaders and strengthening
the regional business community. Student
initiatives – clubs, like the Finance and
Investment Society; conferences, such as
the International Conference on Global
Economy; and internships – facilitate in-
tegration with the business sector. These
activities empower students to produce, as
well as consume, knowledge and intellec-
tual content. School of Business alumni
– influential actors in local and interna-
tional business domains – exhibit consi-
stent commitment to reinvesting in the
School, as evidenced by its purposeful de-
velopment, rising influence, and strong re-
gional reputation.
Recognizing that providing access to
new tools for innovation and ingenuity is
essential for a thriving business sector, the
School offers comprehensive executive
education programs. This relationship
between the AUC and the larger business
community strengthens the sector as a
whole: executives and employees enroll to
regularly update their skills and kno-
wledge and the School accumulates va-
luable insight into local and regional
businesses.
RESEARCH AND INNOVATION
The School of Business’ research cen-
ters are also striving to meet the challen-
ges facing business development and
policymaking in this unprecedented era.
Last year, the Access to Knowledge for
Development Center (A2K4D), which
promotes universal rights to obtain and
produce intellectual content, published its
first book, Access to Knowledge in Egypt:
New Research on Intellectual Property,
Innovation, and Development.
Additionally, the School is working
with startups to promote social responsi-
bility and innovation in the renewable
energy sector, and thereby prioritize its
objective to produce business leaders and
ventures adaptable to ever-changing envi-
ronmental and ecological factors. Some
of the issues addressed are the develop-
ment of sustainable solutions for Egypt’s
most pressing environmental challenges.
ENTREPRENEURSHIP AND
INNOVATION PROGRAM (EIP)
Launched in October 2010, EIP is the
School’s cornerstone new initiative for
improving entrepreneurship in Egypt and
the MENA region. The program re-
sponds to the existing dearth of entrepre-
neurial empowerment, as compared to
available talent and ingenuity. According
to Dean Kamel, EIP aims for a more
straightforward and accessible path to
success for Egyptian entrepreneurs, whose
concepts “need fostering, supporting,
mentoring, and nurturing, not just finan-
cing.”
Building on EIP’s inventiveness,
AUC’s School of Business partnered with
TechWadi, a Silicon Valley-based non-
profit organization seeking to build brid-
ges between the U.S. and the Middle East
and North Africa region, to support inno-
vation and foster economic development
in Egypt. Progress is on its way to esta-
blish a business incubator at AUC to be-
come the center of the region’s
entrepreneurial ecosystem and will help
accelerate the growth of hundreds of en-
trepreneurial companies in the next three
years. In its short tenure, the EIP has also
May - June 2011 35
hosted the Global Entrepreneurship Pro-
gram, a joint delegation of American and
Egyptian investors, entrepreneurs, and go-
vernment leaders.
Far from being purely instructional in
nature, the EIP’s philosophy is to engage
faculty, students, alumni, extracurricular
clubs, research centers, and business lea-
ders in the problem-solving process. The
program helped facilitate the launch of
AUC’s Entrepreneurs’ Society in 2003,
and has collaborated with other student
organizations. For instance, in November
2010, an EIP mentoring program with
Students in Free Enterprise Egypt (SIFE)
hosted 700 students from 28 different
Egyptian universities. This April, the EIP
helped launch the first-annual Cairo Star-
tup Weekend – a marathon networking
and mentoring event for local entreprene-
urs. 58 entrepreneurs participated for a 54
hours weekend-long event sharing their
ideas where they were also being mento-
red by top calibers from the Egyptian en-
trepreneurial society.
BEYOND THE EGYPTIAN
SPRING
As a major source for constructive
commentary and research, the American
University in Cairo has and will act as a
key moderator for debating and discus-
sing socioeconomic change beyond the
Egyptian Spring. The School of Business
concurrently tapped into the past and an-
ticipating the future, will help lead Egypt
to transforming political change into local
and regional economic opportunity and
capitalizing on a wealth of youth passio-
nate, energetic and eager to make a diffe-
rence.
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