Booz co insead-state-of-europe-revitalising-the-european-dream

Contact information

Per-Ola KarlssonSenior Vice President Booz & Company +46 8 50619049 [email protected]

Ludo Van der HeydenThe Mubadala Chaired Professor in Corporate Governance and Strategy INSEAD +33 1 60724003 [email protected]

Bruno LanvinDirector of e-LAB INSEAD +33 1 60712642 [email protected]

Robert Gogel European Executive Council +33 1 47237755 [email protected]

Revitalising the European DreamA Corporate View

ForewordWhen the next generation is willing to declare ‘We Believe in Europe’, then, and only then, can we be satisfied that we have left a positive legacy.

Table of Contents

Member states have been called upon to renew their commitment to solidarity in a context in which many fear that Europe has been passed over in favour of the emerging giants elsewhere in the world. Jean Monnet, the architect of modern European unity, commented that much of Europe’s history has been marked by its ability to transform adversity into an impetus for change and progress.1

Multinational corporations are constantly exposed to global shifts in economic power, political stability, and social movements. To survive across multiple and quite diverse geographic and cultural boundaries, these corporations have had to develop practical strategies for doing business while also helping significantly to shape the regional and local environments in which they operate. Corporations have a clear view and vision of the contributions required of them to support and even accelerate the required changes. It is entirely appropriate that their voice be heard in discussions of how the European Union should change to improve the lot for all.

Europe must undertake its transformation journey with passion and commitment. At a time when many are questioning the merits of the European model and debates are dominated by cynicism, it is important not to lose sight of Europe’s real and unique strengths. The European Union still remains a key destination for foreign direct investment, and its competitive advantages are substantial. Yet the sustainability of those advantages will require some fundamental changes to the governance process of Europe’s institutions as well as new pan-European and national policies that will require determination from all interested parties.

The revitalisation of the European dream is both a short-term necessity and a long-term obligation of us all if we are to ensure that future generations inherit something more than just unconvincing rhetoric. The European dream must inspire and motivate all parts of society, renew each citizen’s belief in the values that Europe represents, and ultimately, encourage all Europeans to achieve their individual and collective

ambitions of providing a stable, sustainable, and fair society. When the next generation is willing to declare ‘We Believe in Europe’, then, and only then, can we be satisfied that we have left a positive legacy.

Against such a backdrop, how do business leaders consider the European project and its record so far? Is Europe still a source of inspiration and energy? Can the dream of a globally competitive Europe be revitalised? Is the business sector ready to contribute to such a revitalisation, and if so how? These are the main questions at the core of this report, a collaboration between the European Executive Council (EEC), INSEAD, and Booz & Company, which is intended to support discussion and debate at the 2011 conference of business and opinion leaders, The State of the European Union, held in Brussels.

Dipak C. JainDean of INSEAD

Per-Ola KarlssonSenior Vice President & Managing Director, Europe, Booz & Company

Page 2 The State of the European Union: Revitalising the European Dream A Corporate View Page 3

Introduction 4

1. A Pragmatic Dream: How the Corporate World Sees the European Union 5

1.1. Where the EU Is Most Needed 5

1.2. Ready for Action 10

1.3. Ongoing Dualities and Apparent Contradictions 12

2. Dreams into Actions 14

2.1. Walking the Walk: The Economic Dimension 14

2.2. A Model to Reckon with: The Social Dimension 15

2.3. Keeping the Dream Alive: The International Dimension 15

3. Focused Energies: The Broad Picture Ahead of Us 16

4. Closing Thoughts 18

Acknowledgments 18

The eurozone and sovereign debt crises, cutbacks in member states’ social pension and welfare systems, slow progress in reducing unemployment, and important institutional changes have shaken Europe’s confidence.

1 Jean Monnet, Memoirs (Doubleday & Company, 1978).

Introduction In many respects, the European Union remains a work in progress.

1. A Pragmatic Dream: How the Corporate World Sees the European Union

In describing Europe as a ‘realistic utopia’,2 Mario Vargas-Llosa saw the European Union as a model for every country around the world looking to promote democratic ideals and commercial goals. We too believe strongly in that ideal. In hopes of helping shape the future of that ideal, and better understanding what Europe has achieved and what it can aspire to, we surveyed more than 2,000 European business leaders, policymakers, and policy shapers, both inside and outside the European Union. The goal of the survey was to better understand how they perceive the European Union, in particular its achievements and its potential. Their responses, as we shall see, say a great deal about their eagerness and ability to revitalise the European dream.

Overall, the corporate view that emerges from this survey is positive. Most respondents recognize the value of the achievements of the ‘European experiment’, and they believe in the EU’s potential to grow into a global leader. The results we found give us confidence that the corporate world is fully committed to continuing its pursuit of the European dream.

Yet European business leaders are also naturally pragmatic. They understand the challenges and ambiguities that pose a threat to the EU’s future. They see areas in which the EU is needed, as well as other areas in which ‘more EU’ may not be desirable. And they are willing to point out the areas where EU action can be most effective in unleashing the continent’s potential. In this section, we analyse the attitudes and opinions of European business leaders towards EU policy in various economic, educational, and social spheres.

This report is structured in three parts:

Part 1: Summary and analysis of the survey results, followed by a discussion of the region’s opportunities and challenges.

Part 2: Key messages regarding economic, social, and international agendas.

Part 3: Assessment of the EU’s ability to revitalize the European dream, in light of its capabilities, needs, and challenges.

1.1. Where the EU Is Most NeededOverall, our survey paints an optimistic picture of the EU’s future. The ongoing financial crisis has made some business leaders less confident in the ability of many European Union national governments to navigate successfully through economic turmoil. Yet these business leaders clearly believe in the ongoing importance of the EU itself, and they greatly value the EU’s role as a supranational institution that guides legislation and policy among its 27 member states—so that the trade opportunities currently offered by the EU-27’s €12 trillion market and a population of more than 500 million continue to prosper.

Economic policyEuropean business leaders today overwhelmingly believe that the EU adds value with regard to trade, monetary policy, and budgetary policy. In addition, they see the EU as having the power to amplify the voice of individual member states when it voices a unified European position on key international debates such as those involving climate change, sustainable energy, and security policy.

Completing the economic integration of Europe is clearly a top priority for business leaders that requires continued commitment. They are convinced that the EU has a unique opportunity—one that must be captured— to advance the European business agenda in a wide variety of specific areas:

Trade. An overwhelming 95 percent of business leaders believe that the EU should take a unified position on trade issues, and nine in 10 feel that any such policy should foster free trade. Results ranged from 100 percent support for free trade from Bulgarian, Norwegian, Danish, Polish, and Swiss respondents to 70 percent support from the French. There is also clear support for responding strongly to protectionist threats via complaints to the World Trade Organisation (WTO) or through the use of countermeasures. As to the use of protectionist measures by the EU itself, respondents from four countries (Hungary, Portugal, Romania, and France) tend to be relatively more in favour; their affirmative answers ranged from 23 to 39 percent. Still, these are, in the overall picture, certainly not dominant perspectives. They may be a reaction to the financial or economic crises these countries face, a desire to protect threatened local exports. These are also perhaps the sign of more local perspectives on liberalism or capitalism, and hence have to be heard and especially countered through actions rather than illusory discourse. Generally, the European project should not shy away from a need to prove itself.

2 Mario Vargas Llosa, ‘L’Europe est la dernière utopie réaliste’. In an interview published by Le Monde after Vargas Llosa received his Nobel Prize, 7 October 2010.

When members of the media address European questions, their attention is often focused on political, institutional, and regulatory issues.i The core roles of business in building and reinforcing Europe’s future are often understated, or even ignored.

As a starting point in developing this white paper, we sent an online survey to more than 38,000 European business leaders in February 2011. This white paper summarises and analyses the results of the more than 2,000 European business leaders who responded to

the survey. We have also considered the views of members of the European Commission and their cabinets, as well as of thought leaders from international institutions such as the Organisation for Economic Co-operation and Development, as expressed in extensive and fruitful interviews.

As could be expected, the answers we received were as complex and multifaceted as Europe’s business community. The concerns of large corporations are not the same as those of smaller firms; long-established

European Union members have views different from those of members who joined more recently; sometimes apparent contradictions emerge from the aggregation of responses. Yet the overall message that emerges from this study is loud and clear: For business leaders, the European dream is still alive. Revitalising it is worth the effort; business is ready to contribute actively to that effort, and it has strong views on how corporations and other stakeholders can best go about addressing the matter.


Its complexity often gets in the way of a full appreciation of the progress made since its creation more than 50 years ago. Recent setbacks (such as the rejection of the European Constitution by some members), difficulties (the economic crisis and its acute effects on other members), and challenges (to the euro in particular) have often received more attention than progress made in reinforcing the EU’s ability to speak with a single and more powerful voice in the world, or in advancing its infrastructure, or in strengthening its ability to innovate.

Monetary policy. Overall, eight out of 10 business leaders believe that the EU should lead European monetary policy, and fortunately respondents from eurozone countries were significantly more in favour (88 percent) than were their cohorts in non-eurozone countries (64 percent). (See Exhibit 1.) Unsurprisingly, just 47 percent of respondents from the United Kingdom were in favour of EU leadership on monetary policy, preferring national leadership on such issues. And that was an unusually sympathetic sample: U.K. business leaders are clearly more in favour of EU leadership than the U.K.’s population as a whole, amongst whom just 23 percent supported a single currency for Europe, according to a January 2009 Guardian poll.3 Ireland, too, stands out with the lowest support for unified monetary policy among respondents from eurozone member states, at just 62 percent in favour. This is likely a result of Irish frustration at the inability of its national government to devalue its currency to soften the impact of the debt crisis the country faces. The European project could be identified nationally as a scapegoat—but it ought to be stated that the crisis was fuelled by European integration, yet determined at the national level. Business leaders are thus more upbeat on the European project, with the clear conclusion that they also have a major role to play in supporting the project.

Unemployment and educationAlthough education, innovation, and unemployment lie outside the EU’s primary mandate, they are elements critical to a prosperous future for Europe—not only for their role in promoting economic growth but also for the help they can offer in ensuring greater social and economic inclusion. After decades of high employment in Europe, the current financial and economic crisis has returned the issue of unemployment to centre stage, both at the national and the European level. It is anticipated that changing demographics will lead to an overall decline in the EU workforce of 20.4 million workers, or 12.6%, between 2020 and 2060.4 Hope is not sufficient. Putting the EU to work, reducing financial support, and replacing that support with educational and technical development is the road that business leaders know from corporate practice. If the future of the EU is to be knowledge based, Europe as a whole must focus on preparing the workforce to contribute effectively through education and the development of appropriate skills. Moreover, in a rapidly changing global economy, innovation is the key to ensuring the future competitiveness of European business.

We asked business leaders for their views on these critical issues.

Budgetary policy. Six out of 10 European business leaders favour EU leadership on budgetary policy; when U.K. respondents are excluded, that rises to nearly seven out of 10. This is a clear approval rating for any democratic voting. When it comes to the business leaders from the three countries with the highest levels of debt (Greece, Italy, and Belgium), nearly nine out of 10 believe that the EU should be responsible for the budgetary policy of all its member states. Respondents from countries with low debt are more divided on the issue; still, a solid majority remain in favour. The vote from the business leaders is clear: On budgetary matters, the EU has much more credit than the national governments—and that support grows as leaders can directly contemplate the budgetary problems their national governments have created.

Energy policy. Nine out of 10 business leaders look to the EU for a unified position on climate and sustainable energy. One exception is Poland, where support falls to 57 percent, most likely because of its position as the largest hard coal producer in Europe and the high proportion of coal in the country’s energy mix. Furthermore, Poland is heavily dependent on Russia for its oil and gas imports, so it is highly concerned about the security of its energy supplies. With that single exception, European business leaders are very prepared to stand in favour of strong, centralised climate and sustainable energy policies. Again, this represents a solid endorsement of the EU business leaders; they understand that national approaches just will not produce effective answers.

Unemployment. In order to offset the anticipated decline in the EU workforce numbers, 70 percent of business leaders favour subsidies for the reintegration of the unemployed into the workforce and 68 percent support subsidies specifically for women. Only among respondents from Switzerland—where unemployment is less than 4 percent—does support fall below 50 percent. Given the country’s low (and falling) unemployment rate, it may be that the Swiss do not view this as an effective lever. In any case, the Swiss are outside the EU. Unemployment rates elsewhere, however, do not appear to influence response levels. With regard to subsidies for women, respondents from every country except Hungary and Switzerland favour them, and more female respondents favour them than do males.

Education. Although educational policy remains the responsibility of individual member states, the EU plays a supporting role in promoting the quality of education and skill development. It encourages cooperation between states through exchange and joint study programs, language education, networks, and ease of mobility. According to our survey, business leaders think the quality of education in Europe is improving. Eight in 10 believe that education’s fit with business will improve by 2030; 70 percent believe that the education gap between eastern and western Europe will be closed; and a slight majority believe that the EU will be home to a greater number of top 100 global universities than it is today. The picture is one of gradual improvement.

Security. Fully 85 percent of business leaders also look to the EU for a unified position on security policy. This level of support is not surprising, given leaders’ concerns about supplies of raw materials, energy, and manufactured goods and other imports, as well as concerns about ensuring open markets for European goods and services. That support drops to 70 percent among 20- to 29-year-old respondents, reflecting a general trend of less support among younger members. This worrisome trend needs to be reversed. If Europe is not for its young, what future can be truly envisaged?

Industrial policy. Business leaders are evenly divided over the issue of EU leadership of industrial policy. Respondents from the energy and retail sectors are most in favour of harmonised industrial policy; approximately six in 10 are in favour in both groups. Members of the youngest age group are also more in favour than their elders; here, too, six in 10 are in favour of unified industrial policies. Those in the younger demographic also take a stronger position on the issue: Nearly 40 percent ‘strongly agree’, which is more than 20 percentage points higher than other age groups.

Portuguese and Greek respondents are among the most optimistic with respect to education, perhaps because significantly smaller proportions of their populations have currently completed secondary or tertiary education. As a consequence, respondents may believe that improvement is not only desirable, but feasible. Similarly, respondents from newer EU member countries are more optimistic about improvements in education’s fit with business needs than those from older member countries, most likely because they view current performance gaps as an opportunity for local improvement and because the lower industrialization level in those countries means such gaps are bigger there. Business leaders express a desire for closer university–industry partnerships, and that may be the next step in EU educational priorities after decades of exchanges.

Innovation. Business leaders see education and innovation as intricately intertwined, and are almost unanimous in their view that closer collaboration between universities and business is one of the best ways to foster innovation. In addition to collaboration, they cite increases in the share of funds going to applied research and creation of cross-border centres of excellence as the best ways to stimulate the innovation required to drive growth in the EU over the next 20 years.

3 ‘Poll shows little support for joining euro despite pound’s fall’, Guardian, 2 January 2009.

4 “In the euro area, the projected fall in labour supply between 2020 and 2060 is 12.6%, which translates into 20.4 million people (13 million if compared with the level in 2007)’. The 2009 Ageing Report: Underlying Assumptions and Projection Methodologies for the EU-27 Member States (2007-2060), 2008. Joint Report prepared by the European Commission (Directorate General for Economic and Financial Affairs) and the Economic Policy Committee (Africa Working Group).

Exhibit 1. Percentage of respondents who believe monetary questions should be decided by the EU rather than national states.

Source: Booz & Company and INSEAD 2011 State of the European Union Survey (2,034 respondents); Booz & Company analysis


Europe is a global leader in R&D spend. According to a recent Booz & Company survey of the 1,000 public companies that spend the most on research and development, European companies spent $162 billion on R&D in 2009, second to U.S. companies, which spent $194 billion, and ahead of Japanese companies, which spent $114 billion. European companies held five of the top 10 places in terms of R&D spend and seven of the top 20 places. 5

5 Barry Jaruzelski and Kevin Dehoff, ‘The Global Innovation 1000: How the Top Innovators Keep Winning’, strategy+business, Winter 2010 (published by Booz & Company).

UK

47%

Ireland

62%

Switz.

63%

France

93%

Bulgaria

93%

Italy

94%

Greece

94%

Spain

96%

Belgium

97%

Hungary

69%

Romania

71%

Sweden

71%

Poland

73%

Denmark

75%

Germany

76%

Norway

77%

Austria

83%

Nthrlnds

84%

Finland

84%

Portugal

85%

Non-Eurozone Eurozone

Respondents from countries more recently admitted to the EU tended to favour EU expansion more strongly than those from the founding EU member states. It may be that respondents from founding states fear the dilution of their voice and position within the EU, or are concerned that they will be asked to bear the financial burden associated with integrating new members not ready to meet EU requirements. Respondents from countries sharing a border with an EU candidate

country tend to favour expansion more strongly than those from non-neighbouring states, presumably because the candidate’s integration would give the respondent’s country more in common with its neighbour. If one is in the EU, it’s best to be in the middle.

Moreover, just 40 percent of respondents favoured enlarging the EU to make up for anticipated shortfalls in the European workforce, whereas 60 percent supported

Overall, as we have seen, business leaders believe the EU should take a strong role in economic issues and a supporting role in issues critical to future growth. They are much less willing to approve of an aggressive role for the EU in areas such as social policy, and of EU expansion generally.

In their view, the EU already has enough on its plate for the short and medium term in dealing with the issues and agendas described above; any diversion from the critical agenda items can be seen negatively. The advice for the EU from business leaders here is remarkably non-political (that is, it promises a broad agenda in which each voter can find something he or she likes) and can be summarised as follows: Stay focused on a few critical agenda items, maximize the ability to deliver in these areas, and play a subsidiary role in the less critical ones.

Even in areas where the EU has a demonstrated competence, it should not be ‘excessively proactive’, respondents felt, when other priorities require most of its attention.

Social policy and EU expansionIn particular, EU business leaders are wary of delegating authority to the EU in matters of social policy. A significant number also felt that the EU should not be enlarged further by the 2030 horizon. (For an overview of the EU’s expansion to date, see Exhibit 2.) Instead, migration from outside the EU and subsidies for the unemployed and for women should be used to promote higher participation in the workforce. The direction here: Stay focused on areas where progress is key; do not divert resources and lose momentum with an agenda that is too spread out. This seems to us eminently sound, businesslike advice.

Social issues. European business leaders are generally reluctant to delegate national sovereignty on social topics to the EU; the rate of support on social, educational, and health policies ranges from 41 to 44 percent. Even the 60 percent of respondents who advocate a common social model are divided as to which model to adopt. This may be attributable to the EU’s origin as an economic union; perhaps respondents feel that the economic and monetary processes

to which they have already committed should be brought to maturity before they embark on new and distinct endeavours, such as social uniformity. Or they may be reluctant to fund what they perceive to be lax social welfare policies through the EU and wish the EU energies to be focused on economic policies, leaving social issues to the nation-states.

Expansion. Less than half of business leaders agreed that enlarging the perimeter of the EU would help compensate for an aging workforce, and even fewer saw such a move as a means of stimulating economic growth. Indeed, two-thirds of respondents didn’t think that enlarging the EU to include high-growth countries would fuel economic growth across the region. (Interestingly, this was the only growth strategy proposition of the five we presented to respondents—including investment in innovation and member state fiscal discipline—that was rejected by the majority of business leaders.)

Exhibit 2.

EU accession: From the “Inner Six” to the EU-27

Note: The 17 members of the Eurozone are shown in bold. Source: European Commission (http://ec.europa.eu/enlargement/countries/index_en.htm)

Exhibit 3.

In the face of anticipated labour shortages, respondents preferred subsidies for workforce integration over migrations and EU enlargement

Note: Numbers may not add to 100% due to rounding

Source: Booz & Company and INSEAD 2011 State of the European Union Survey (1,949 respondents on reintegration of unemployed; 1,944 on female integration; 1,942 on extra-EU migrations and 1,938 on potential new members). Booz & Company analysis

6 Dr. Rolf Habbel, Dr. Wolfgang Zink, Katharina Dittrich, and Diana Heumann, ‘Smart Workforce Management’, Booz & Company white paper, November,2008.

subsidies for the integration of women and the unemployed or opening up the EU’s borders to further immigration (see Exhibit 3). Considered by country, respondents’ answers tended to reflect local perceptions of immigration. German business leaders tended to be more in favour of extra-EU immigration than the average, for example, no doubt reflecting their historically positive experience with immigration.


Leverage the demographic growth of potential new members

Resort to extra-EU migrations

Subsidise female integration in the workforce

Subsidise reintegration of unemployed in the

labour market

Disagree Strongly disagree Agree Strongly agree

16%

54%

70% 68%

57%

40%

22%

8%

18%

50%

25%

8%

10%

47%

30%

12%

8%

32%

40%

19%

1958

Founding members – Belgium – France – Germany – Italy – Luxembourg – Netherlands

1973 1981 ??

1981 Enlargement – Greece

1973 Enlargement – Denmark – Ireland – United Kingdom

Candidate countries: – Croatia (provisional 2013)– Iceland – Montenegro – The Former Yugoslav

Republic of Macedonia

– Turkey

1986

1986 Enlargement – Portugal – Spain

1995

1995 Enlargement – Austria – Finland – Sweden

2004 2007

2004 Enlargement – Cyprus – Czech Republic – Estonia – Hungary – Latvia – Lithuania – Malta – Poland – Slovakia – Slovenia

2007 Enlargement – Bulgaria – Romania

2002

Introductionof the euro in12 countries

Decreasing labour pools translate to increasing costs. Businesses are aware that the long-term cost of human capital is increasing: The war for talent has never been fiercer. This expected increase in costs is exacerbated in some countries by the fact that age is a decisive factor in compensation. As a result, even if there were no war for talent, the aging workforce would lead to higher costs. 6

1.2. Ready for ActionIn addition to their generally positive attitudes towards many of the EU’s economic and social policy goals, the European business leaders we surveyed expressed strong feelings about the future of Europe generally and the ongoing role of the EU in shaping that future.

The most striking conclusion that emerges from our survey is that European business leaders both male and female, from every country and from every industry, have a great deal of faith in Europe and even more confidence in the role the EU will play in Europe’s future. Many are, of course, quite reasonably concerned about the region’s current economic problems; indeed, only 20 percent feel the EU is a global power, and 30 percent see it as just a group of countries with limited international influence. Looking forward, however, 60 percent believe that the EU will be either a major or a primary power by 2030.

Respondents from the EU’s founding countries tend to be the most committed to the EU. But there are exceptions. Respondents from Germany and Ireland appear to be losing faith in Europe, on average, and eight out of 10 respondents from Bulgaria—not yet a member of the eurozone—believe that the EU’s position relative to the member states should be even stronger. Interestingly, business leaders from Greece and Belgium, countries that are currently experiencing national difficulties, also tend to favour the role and influence of the EU.

On average, 70 percent of the business leaders we surveyed indicated that they have positive feelings about the EU overall; only 10 percent had negative or very negative feelings. Respondents from Switzerland, Norway, and other countries not part of the EU were more neutral or negative about Europe than their counterparts in the EU. Just six out of 10 respondents from the U.K. reported positive emotions towards Europe—which is likely the manifestation of the historically complex relationship between the U.K. and the EU, and a major weakness for the EU’s further overall development.

At the same time, however, the survey revealed a number of major concerns on the part of European business leaders that must be addressed in order to ensure the region’s future.

First of all, the consensus is that slow growth is here to stay. The end of the economic crisis that hit Europe in 2008 is approaching, and Europe has not suffered too badly from it. This can be explained by the economic links it has established with emerging countries—many of which managed to keep growing during the crisis—and by the fact that the financial crisis was less acute in Europe than in the United States. However, respondents believe that Europe will continue to grow at a relatively slow pace in the coming years— 2 percent or less per annum.

On average, more than half of respondents are ‘concerned’ about Europe’s current situation, and fewer than 30 percent feel either ‘confident’ or ‘enthusiastic’—attitudes shared by respondents from every country. Yet compared with the results of a poll taken last year in France, when almost 80 percent of respondents were concerned about Europe’s economy,7 these results suggest that business leaders now are actually more confident about the condition of Europe.

Many of the business leaders we surveyed see Europe as a declining power relative to the rest of the world, and they believe that the primary role of the EU is to counter this trend. That’s why the majority want to see the EU’s influence grow by 2030. A large majority of respondents would like the EU to increase its influence in Russia, India, China, Africa, and the Middle East. There is less consensus around the importance of EU influence in other Asian countries and in South America. As a rule, business leaders would like to see the EU—and hence their own business positions—gain influence in countries near them or those with high growth rates, particularly India and China.

Business leaders in a wide range of sectors, including energy, transport, education, infrastructure, and information technology, believe that to sustain growth, resources must be allocated more efficiently. Priorities need to be identified and market mechanisms put in place to encourage that level of efficiency. Respondents heavily favoured the creation of leadership structures to promote technological innovation and to improve the level of education and skills of Europe’s workforce in order to attract foreign investment in sustainable energy efforts. However, they

were more hesitant about the promotion of country-by-country specialisation in particular industries, and were against reinforcing subsidies to foster overall production or consumption (see Exhibit 4). Again, European business leaders are much more pro-Europe in economic and innovation matters than their governments are.

Another concern voiced at several places in the survey among respondents: Dialogue between the European Commission and the private sector is weak and must be improved. Business, it is agreed, is suffering from a lack of voice in the European Commission. The financial crisis has

helped bring business back into the discussion, but dialogue remains fragmented, and it will need to be nurtured by both sides if Europe’s full potential is to be realised. That may be the most significant finding of this survey: Business leaders wish to feel more engaged and want the EU to play a bigger role—in a focused way.

Finally, although Europe has a rich history of innovation, R&D expenditures in the EU continue to lag behind those of the U.S., Japan, and Korea. Market-based and regulatory tools are available that could enhance European research and innovation capabilities, but they are not being used to full advantage. The EU

could make progress towards the creation of a unique patent system, deregulation that would increase the competitiveness of national oligopolies (a step already taken in the telecommunications sector), and the encouragement of venture capital. The creation of cross-border centres of excellence, intra-European coordination to reduce the duplication of research, and incentives to stem the ‘brain drain’ of researchers looking for better working conditions elsewhere would also enhance Europe’s research environment. Europe’s business leaders wish to see more action from the EU.

Exhibit 4. Which EU policies could help attract foreign investment in sustainable energy?

Source: Booz & Company and INSEAD 2011 State of the European Union Survey (2,031 respondents on innovation; 2,022 on education; 2,018 on specialisation and 2,013 on subsidisation); Booz & Company analysis


7 INSEAD, Les états de la France (2010).

Disagree Strongly disagree Agree Strongly agree

Reinforce specialisation by country (wind, water, solar)

Strengthen education and skills of the workforce

Create leadership in technological innovation

Reinforce subsidy policy to foster production and

consumption

36%

58%

92%95%

6%

30%

47%

17%

20%

38%

32%

10%

42%

50%

7%

56%

39%

4%1% 1%

By and large, the business community is optimistic about Europe’s economic future. That doesn’t mean, however, that it is ignoring the complex, multifaceted challenges that the region faces as it looks to the future. As difficult as these will be, the business leaders we surveyed are for the most part united in their sense of how best to meet these challenges. And they see the EU as instrumental in the effort to overcome them, particularly with respect to macroeconomic policy.

The most glaring problem the region currently faces involves the conundrum of debt versus growth. Overwhelmingly, business leaders believe budgetary discipline is critical if Europe as a whole is to grow in the future. As business leaders, they know that no organisation can survive, let alone thrive, without good financial discipline. At the same time, they understand that financial discipline is only a ‘hygiene’ factor, and that other factors are also needed to stimulate growth. Aggressively investing in innovation, boosting the economic participation of small and medium-sized enterprises (SMEs), and strengthening education and workforce skills will also be crucial to the effort to attain high growth rates and to foster foreign direct investment in Europe.

These leaders’ thinking contrasts with the ongoing debate on how best to boost growth—through deficit reduction or economic stimulus to promote innovation? Respondents do not see this as an either/or choice, and indeed, so far most European countries have applied a mix of strategies, using stimulus packages to spur growth while reducing expenditures and increasing tax receipts. The answer formulated by

1.3. On-going Dualities and Apparent Contradictions

European business leaders is similar to their dual corporate agendas: Reduce costs yet simultaneously increase innovation. The ‘cut costs, grow stronger’ duality expected from the EU is one that these leaders apply daily in their businesses.

The debate over free trade is by no means as evenhanded. Almost 90 percent of respondents believe that the EU should not adopt trade policies designed to protect the region or its individual countries from foreign competition.

At the same time, however, too many European business leaders continue to view economic issues through a narrow, national lens. They often see their primary competition as coming from other European businesses, not having realised yet that the real competition is coming from beyond the EU’s borders, from the U.S. and the BRIC countries (Brazil, Russia, India, and China). Almost all respondents favour boosting the participation of small and medium-sized enterprises in the region’s economy as the best strategy to reach high growth. However, while many large European corporations have emerged as truly global players, only a small portion of SMEs have succeeded in taking advantage of global opportunities. SMEs often limit their trading ambitions to their own national borders or local geographic region, rather than seeking out global or even pan-European markets.

This unfortunate tendency to impose political or linguistic boundaries on business efforts is not limited to sales; it also extends to sourcing and research. Many SMEs, for instance, in their bid to survive the economic crisis, reduced their R&D and innovation expenditures, making themselves that much less prepared to improve processes and launch new products once the recession was at an end. And while an overwhelming majority of our respondents support free trade, three-quarters support favouring intra-EU trade, a protectionist stance.

A final contradiction lies in the significant difference of opinion regarding whether the EU should provide a financial safety net to member countries when needed. Unsurprisingly, respondents from countries with high debt, such as Greece, back the concept, apparently assuming that such policies would enable their countries to cope with their budget and debt problems. Equally unsurprisingly, respondents from countries with lower debt burdens, such as Germany, are much less enthusiastic about the policy, assuming that their states would be the ones subsidising those with high debts. (See Exhibit 5.) The mixed responses to such issues make clear that the EU is not the land of solidarity many would like it to be.

Exhibit 5.

Exposed economies are more supportive of a financial safety net

Source: Booz & Company and INSEAD 2011 State of the European Union Survey (2,009 respondents); Booz & Company analysis


80%

75% 70%

65% 60%

55%

50%

45% 40%

35% 30%

Debt as % of GDP (2010)

0% 0% 20% 40% 60% 80% 100% 120% 140% 160%

% of respondents who agree on reinforcing

the �nancial safety net 85%

Debt burden and support for reinforcing �nancial safety net

Countries with high debt and high support for reinforcing the

�nancial safety net

Countries with low or medium debt and low

support for reinforcement of the

�nancial safety net

50%

Hungary

Romania

Portugal

Ireland

Finland

Greece

Denmark

Austria Poland

Sweden

Belgium

Netherlands

Spain

Italy

France

UK

Germany

HungHungary

e

2.1. Walking the Walk: The Economic Dimension

In Europe we believe—but not everywhere, and not all the time. Although business leaders favour EU leadership on trade, monetary, and budgetary issues, they are more reluctant to have the EU delegate social policy. A key question with which the EU will have to grapple is how to identify which policy domains should be handled via the principle of subsidiarity. The views of business leaders are a valuable source of pragmatism in this continuing debate. Often, certain areas of discussion seem to be condemned to endless, sterile political debate; business leaders would prefer that the EU focus its energies on more tractable issues, where a positive difference can be made through compromise and concerted action.

Belt tightening or bold investment? Respondents advocated both aggressive investment in innovation and education and fiscal and budgetary discipline. While at first blush the results seem contradictory, every successful business has demonstrated its ability to manage both sides of this equation8—and our respondents, understandably, feel that the EU should do the same. Identifying top priorities and sequencing policy actions should allow Europe to stabilise its long-term debt, while continuing to invest in the capabilities needed to create competitive advantage —research, innovation, education, SMEs. This would be a truly European way to put Europe back on the path to growth.

Shape the future before it shapes Europe. Formulating and implementing long-term visions for 2030 and beyond remains an essential part of revitalising the European dream. Various stakeholders have important roles to play in this exercise. The business community is ready to contribute its knowledge and experience, and to advocate for its views in such a debate.

The EU’s mission is to reinvent itself, yet business leaders are unambiguous: Remaining faithful to its initial raison d’être—security and economic prosperity —is still the prime agenda.

2.3. Keeping the Dream Alive: The International Dimension

Do not beggar thy neighbour. Judging by the responses of our business leaders, Europeans still want to see their region as a land of solidarity, but they do not practice this vision with sufficient consistency. They differ strongly in their opinions concerning national financial safety nets: Only respondents from countries with high debt loads want to reinforce them. Yet in response to the looming decline in the region’s labour force, they state clearly that they would rather open up the current borders to migrants from outside the EU than enlarge the EU itself.

The free trade debate rages on. Europeans like to see themselves as open and outward looking, yet they find it difficult to resist the temptations of isolationism and barriers to trade. Most European business leaders, for example, believe exports are a critical engine for growth, even as they simultaneously contend that accepting new members into the Union would neither stimulate growth nor address the coming labour shortages. Issues such as the admission of more eastern European countries or Turkey, and immigration, remain highly divisive. Respondents strongly support the concept of free trade, even as they all too frequently submit to the temptation of various kinds of ‘preferences’. And they see some value in the EU’s international aid policy, but their lack of enthusiasm suggests that they would prefer for the EU to concentrate on tackling poverty within its own borders.

2.2. A Model to Reckon with: The Social Dimension

A common social model—but which one? It will take time for all the member countries of the EU to agree on a common social model. As a consequence, this is another area in which subsidiarity remains the key principle—leave different countries and regions to their distinct social models, at least until common principles on matters such as labour market flexibility and pensions can be agreed upon. And in the meantime, the EU must ensure its overall social cohesion and stability by addressing the needs of those most affected by the current economic crisis. This is quite a subtle, perhaps risky social policy agenda: Enforce cohesion pragmatically, without invoking a clear model.

Europe’s youth are its future. A large majority of respondents believe that by 2030, education in the EU will be much better suited to meet the region’s economic needs. Focusing on closing the education gap between western and eastern Europe and developing capabilities to strengthen Europe’s competitive advantage in R&D and innovation will position the region for sustainable growth.

Emotions are positive and are the best insurance for the project. Business leaders believe that the image of the EU will improve by 2030. The concept of a unified Europe still generates positive emotions. And although a variety of concerns inevitably colour specific perceptions of the region’s current situation, business leaders remain hopeful about the future of Europe and the major role it will eventually play on the global scene.

Watch out, look out. The vast majority of Europeans still see themselves as French or German or Polish first. Yet the EU’s future as a major power depends on its ability to influence other parts of the world. The business leaders we surveyed very much felt that the EU needs to strengthen its presence and influence throughout Europe, and also abroad, for example in Russia and India. Speaking with a single voice on trade, security, and diplomatic issues is, for these leaders, essential to increasing the EU’s presence as a global leader. The world is moving fast around Europe, and in ways the region risks being passed by; it is high time that Europeans start thinking about Europe in a more global way. The new global competition is unfettered by old European attitudes, and the new Europe needs to be equally agile and pragmatic if it is to maintain its competitive advantage.

8 “Dominic Dodd and Ken Favaro, ‘Managing the Right Tension’, Harvard Business Review, December 2006.

2. Dreams into ActionsOur survey of European business leaders reveals a complex set of attitudes, opinions, and beliefs. Taken together, they provide a comprehensive view of how these business leaders envision the EU’s future, and allow for the development of a road map of actions that should be taken to revitalise the European dream in three primary dimensions: economic, social, and international.


The Physical Quotient: A remarkable track record, and unrivalled strengthsArising out of the ashes and destruction of World War II, the concept of a unified Europe stands as a remarkable innovation to this day. Created out of a jumble of separate national entities, the EU project remains torn between nationalism and the dream of full unification; it will likely remain that way for a long time. At its best, this proper management of duality between EU integration and national sovereignty ought to serve as a source of further innovation in the EU’s effort to combine its available energies to build an even more efficient, and more common, identity. This duality is akin to the management of the proper balance between centralisation and decentralisation in any corporation. Every business leader knows that one needs both; the skill consists in finding the proper balance, and shifting it as required by changing contexts. In crisis lies opportunity. We believe that the crisis the EU currently faces will in the end strengthen the EU, and thus Europe itself. What really matters—the deeper significance of the crisis—is how we respond to it. Overcoming obstacles is what will make Europe stronger. Yet obstacles remain in the way of solutions. The EU must not allow itself to waste energy on sterile debates or hamper the creativity and innovativeness of its citizens and businesses with overly complex regulations and excessive red tape. Instead, it must stay focused on simplicity, transparency, and agility.

The Intellectual Quotient: Brains and minds, skills and talentsA key challenge in unleashing Europe’s potential is to broaden and improve the EU’s labour markets, goals that can be achieved in many different and complementary ways. In doing so, sharply differing visions of those markets, and indeed of the EU itself, must be reconciled, and compromises made on issues including pension and social security reform and migration.

There are many indications that Europe as a whole is struggling to generate and keep certain types of skills. European R&D is seen as far removed from the real needs of business. European managers are often perceived as Eurocentric, and not fully equipped with the global knowledge economy skills required to participate in multidisciplinary and cross-border teams. That ought to change. Some promising examples of homegrown global skills are beginning to emerge—most notably in Scandinavian countries, and particularly Finland. Their emergence should be nurtured, scaled up, and disseminated throughout the EU.

Good ideas and strong skills are not enough, however. Europe needs to enhance its ability to translate these ideas into innovations, and transform innovations into marketable products and services. A unified European patent system; the consolidation of research centres into a European research network and incubators into world-class clusters; support for creative companies (especially SMEs); and greater openness to ideas, talents, and cooperation from the rest of the world—all will be essential in promoting the EU’s growth and competitiveness.

The Emotional Quotient: How do Europeans feel about the EU project?Despite the difficulties in communicating its ideals and goals at an emotional level—not just basic principles such as subsidiarity, which to us look eminently sensible, but also the EU’s governing and decision-making processes—the EU remains a very innovative project, and the business community sees it that way. That message ought to be repeated continuously and shown in its concrete manifestations. Europe is in difficulty, but without the EU it risks falling into irrelevance—and that fact ought to be presented clearly to sceptics.

Social issues, because they involve people and daily lives, are at the heart of the EU’s emotional quotient. Cohesion, solidarity, and well-being must be seen as a way to ‘pull Europe upwards’, not simply a way to create

The physical quotient, which includes physical assets and the ability to execute and perform, is the basis of our ability to compete.

The intellectual quotient combines mind, thought, competencies, and knowledge, and provides us with efficient ways to mobilise our physical assets.

The emotional quotient covers not just emotions but also trust, commitment, ambition, and heart, and allows us to transcend our physical and intellectual limits.

In such a situation, any entity, whether it is a business, a country, or the EU, needs to think like a high-level athlete. For athletes, the key issue is properly managing the energy needed to perform—the creation, use, and conservation of that energy. In this view, athletes run on four ‘batteries’, or quotients.

The spiritual quotient mixes intuitions, aspirations, and beliefs, and drives us towards higher goals.

The concept of managing these four quotients, together with the findings of this report, can serve as a valuable framework for assessing our collective ability to revitalise the European dream.

a level playing field. But most importantly, the EU must create a stronger Europe, which will mandate being a strongly competitive and continuously innovative region. The requirement for good social policy remains strong economic performance.

The EU continues to be subject to any number of basic dualities: open trade versus preferential tendencies, financial rigour versus investment, common policies versus national competencies, and hopes versus fears. For this reason, effective management of emotions away from extremes will keep continue to be a major factor in allowing the EU to shape the region’s economic and social agenda. A spirit of compromise in the hope of a better common tomorrow must prevail, and the business community has a leading role to play in engendering that spirit. It may and ought to be the EU’s strongest supporter.

The Spiritual Quotient: What is the spirit of the entire EU enterprise? The EU was founded on the strong belief that peace and reconciliation could be the basis of common prosperity. This was the spiritual engine of the European project at its founding. It remains the spirit that should guide the EU today.

The EU is an innovation in itself: Polities that agree to keep sovereignty in places, but agree to give up sovereignty to a larger organization in several key domains, had not been seen since the birth of the United States nearly 200 years earlier. But the divide to be crossed here is much bigger. That is why the project is receiving so much attention from regions outside the EU, most notably the Association of Southeast Asian Nations and Latin America. The EU should not be shy about communicating its ideal to the rest of the world. This is the true spirit of the project, transcending differences in political and economic systems, as well as in philosophical and religious values. Europe is still a ‘great experiment’ 10, as Robert Schuman, first president of the European Parliament, said, both for Europeans and for the world.

3. Focused Energies:The Broad Picture Ahead of Us

The data and analysis summarised in the previous two sections of this report suggest that the European Union is currently engaged in a race in which it has to simultaneously manage its own growing pains and counter greater competition and challenges from the rest of the world. This is a formidable assignment.

9 We thank Alain Goudsmet, director of the Mentally Fit Institute, for providing us with this analogy.

10 Speech in Strasbourg, 16 May 1949.


Jean Monnet once stated, ‘Preparing for the future . . . by definition is not illuminated by the lights of current affairs’ 11. The great economic, social, political, and security experiment is not yet complete, nor is the path of the future fully traced. The experiment is being tested as never before, the stakes have only grown, and integration that was meant to give us security has suddenly shown a very dark side. The conclusion is that the European dream requires enlightened revitalisation if we are to ensure that future generations will inherit a great experiment

Acknowledgments This white paper was written by Ludo Van der Heyden, the Mubadala Chaired Professor in Corporate Governance and Strategy, INSEAD; Bruno Lanvin, director of e-LAB, INSEAD; Per-Ola Karlsson, senior vice president, managing director, Europe, Booz & Company; and Robert Gogel, Co-founder and Moderator of the European Executive Council (EEC).

that brings hope, confidence, and strength—so that they can adopt it and further shape it as their own.

One thing we are convinced of is that the revitalisation of the European dream is an imperative that corporate leaders support, not at the expense of other regions, but as a critical requirement and contributor to a healthy and sustainable global economy. The corporate views of focus, persistence, adaptability, and continued revitalisation truly matter, and the corporate sector can be a much bigger player than it is today in the entire construction.

The authors express their appreciation for the contributions, insight, and vision of Denis Zervudacki, founder of the State of Europe. In addition, Neil McArthur, Art Kleiner, and Tom Stewart of Booz & Company provided expert guidance in the development of this paper, as did Costas Kastrinakis of Kantor Management Consultants and consulting

Although the revitalisation no doubt faces numerous challenges—social, political, and economic—it is equally true that the intellectual and practical contributions that the corporate view provides should be seriously considered by the political and institutional establishments that govern Europe.

Europe is neither an improbable nor an impossible dream, but an exciting reality that continues its quest to achieve the ideals and values set out at its founding.

editors Edward Baker and Victoria Beliveau. The survey, analyses, and interview campaign were led by Melissa Jacob and Anna Cohen of Booz & Company. We are also grateful to our expert communications team, composed of Christine Hirzel, INSEAD, and Rob Norton of Booz & Company.

4. Closing ThoughtsBorn of a dream shared by its founders in the wake of two devastating world wars, Modern Europe has come a long way in its 53 years. From the European Coal and Steel Community to the European Union of the Lisbon Treaty, the path has not been straightforward and the transition has not been smooth. Recent challenges have shaken Europe’s confidence. Yet Europe has always grown from crisis.

11 Jean Monnet, Memoirs (Doubleday & Company, 1978).

i In this document, different terms will be used to define different geographic areas. From broad to narrow in scope:

– Europe is one of the seven continents and corresponds to the westernmost peninsula of Eurasia. It is separated from Asia by the Ural and Caucasus Mountains. According to some definitions, it comprises 50 countries.

– European Union is an economic and political union of European countries. It started in 1958 with six member states and, with successive enlargements, has reached 27 member states. Hence, the term EU-27 can also be used for European Union. It has a population of more than 500 million inhabitants and generates €12 trillion of GDP annually.

– Eurozone (also known as the euro area) is an economic and monetary union of 17 members of the European Union that use a common currency: the euro. Currently, the euro area consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The monetary policy of the zone is under the responsibility of the European Central Bank.

ii Methodology: INSEAD and Booz & Company developed an online survey and sent it to more than 38,000 European business leaders. The questionnaire was designed to address specific social, economic, and international trends, issues, and concerns. In this white paper, we summarise and analyse the results from the more than 2,000 members of the business community who responded to the survey in February and March 2011. Respondents mostly came from the EU-27 states; France (17 percent), the United Kingdom (16 percent), and Germany (12 percent) were the top three countries of origin. Beyond the EU-27, respondents came from Switzerland (3 percent) and Norway (2 percent). Three percent of responses came from individuals from non-European countries. By industry, respondents worked in business services (20 percent), information and communications technology (19 percent), and finance and insurance (18 percent), among others. Most respondents were male (90 percent) and middle-aged (84% were between 30 and 59 years old).

To complement this questionnaire and benefit from other insights, we extensively interviewed members of the European Commission and their cabinets, as well as thought leaders from other international institutions such as the Organisation for Economic Co-operation and Development.
