The Golden State sees opportunities in Europe

November 4, 2013


The Golden State sees opportunities in Europe

Last week I spent a couple of days in San Francisco, visiting also the Universities of Berkeley and Stanford. The purpose of the mission was to explain to the influential academic and business circles of the Bay Area what was going on in Europe, and to sound out how all of that looks from the perspective of the American west coast. It was impressive to note how well informed and how interested both the academic and business communities there are of European developments.

At Berkeley the seminars with my long-time colleague and friend Professor John Zysman and his students were particularly enlightening: quite critical but always substantive, as the discourse should be in a research community. I’ve known John since he wrote “Manufacturing Matters” in 1987, although he got to know me much later. I still believe that manufacturing matters, and so do services, for we are not living in a post-industrial society. With Dan Brenitz, John has just edited a book called “The Third Globalization”, which ponders whether wealthy nations can stay rich in the 21st century and what kind of industrial strategies are needed for that.

Another memorable thing to do was my second interview in Professor Harry Kreisler’s series “Conversations with History” (we did the first one ten years ago, focusing on the rule of law and principles in politics). This time we went in-depth into the reconstruction of EMU. The interview will be available online in a few weeks, so you can judge yourself then.

In my talks, I explained that Europe is pursuing a comprehensive reform of the Economic and Monetary Union as a whole, but perhaps even more importantly, going through fundamental reforms of the economies of its Member States.

High public deficits are being brought under control, from close to 7% of GDP in 2010 to close to 3% of GDP this year. Structural reforms in the labour, product and services markets are starting to deliver the first results in terms of improved competitiveness and export performance. The European Central Bank has taken decisive action to stabilise the markets.

Work on establishing the building blocks of the Banking Union is moving forward well. The Single Supervisory Mechanism will become operational in a year, after the completion of a thorough balance sheet assessment of the banks that it will directly supervise. And a Single Resolution Mechanism will follow in due time, to complete the structure.

The investors who finance our member states’ deficits and debt have responded to these efforts with growing confidence and lower interest rates.

As a result, the European economy is experiencing a turnaround, which could transform into a solid and sustainable recovery next year, provided that reform efforts continue and nobody rests on their laurels. I did not yet have the new autumn forecast with me, but I felt sufficiently confident to claim that “Europe will be back”, to paraphrase a famous Californian politician of European origin.

We had good exchanges with academics and commentators whose task it is to observe critically economic policies in Europe and the US, and who found interesting comparisons and lessons to be learnt on both sides of the Atlantic.

Yet I was most encouraged by the business community and investors, who found that Europe offered increasingly attractive opportunities, and who were clearly turning their sights back across the Atlantic – especially since some of the emerging market economies were slowing down and therefore losing their attractiveness compared to the re-emerging Europe.

One of the most interesting discussions I had was with an investor with a strong track record in investing into start-ups in the high-tech sector. He considered Greece to be one of the most dynamic environments for his business at the moment, with many young, well-educated and innovative people wanting to take the initiative in their own hands and establish new businesses. In his view, young Greeks increasingly want to become entrepreneurs instead of public servants, which is one necessary feature of the turnaround which the economists like to call a “structural change from the non-tradeables to tradeables sector”.

If there were one message to bring home from California it would be that the academic and business communities there recognise Europe’s efforts in stabilising the economy and returning to recovery, even if we still have major challenges, notably the high unemployment in many parts of the EU. I left them with a commitment that we would not stop our efforts, but instead continue with the reconstruction of the EMU, by soon looking into what more we should do to make it function better.

Sometimes things seem clearer from a distance. It was definitely worth the time and paying the cost of the still prevailing jetlag to make this short visit to the eastern coast of the Pacific.


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