Robust regulatory frameworks are necessary if Europe is to reignite growth but innovation remains the great growth driver, writes Luca Rossi.
Luca Rossi is Head of A.T.Kearney EMEA.
The “European model” that has provided security and prosperity across the continent has, for the first time, found itself seriously questioned by a poisonous combination of political, economic and fiscal threats. Welfare models across Europe ? once taken for granted by generations ? are seen as no longer sustainable.
Flows of migrants have accelerated to crisis point and seen EU member states take conflicting stances as hundreds of thousands flee war to seek better lives. Support for xenophobic and anti-EU parties has grown across the continent.
With economic recovery remaining weak, and talk of “Grexit” and “Brexit”, the Europe of today is under serious threat.
Russia’s actions in Ukraine and Syria have raised serious questions about Europe’s security in a way unimaginable a few years ago. EU leaders are now looking for alternative energy suppliers as Russia becomes an increasingly unreliable partner.
Amid such a volatile mix of elements, is it even relevant to talk about reigniting growth?
Stability is key. The shocks of the past 18 months continue to reverberate but if the EU is able to achieve stability, there are long-term opportunities that could aid growth.
For example, just as Europe’s population ages, it is experiencing a surge of immigration. It is currently home to 7 million African migrants, a number that continues to rise year on year.
This migration, and the inflows of hundreds of thousands more fleeing war, has placed an immediate economic and humanitarian burden primarily on the southern European countries most impacted by the Eurozone crisis and least able to deal with its issues.
Yet long-term, migration is forecast to act like a shot in the arm to many European economies, particularly Germany, which accounts for nearly 30% of Eurozone GDP.
With Germany’s labour force expected to decline by 29.6% over the period 2012-2050, migration will act as a major growth driver. It is a similar story in Italy and Portugal.
In energy too, the jolt caused by increasing tensions with Russia, has forced the EU to seek new partners and has led to an acceleration in the shift to renewables.
But what of economic growth itself?
A.T. Kearney has identified four key policy areas that offer the greatest potential to unlocking European growth: increasing service sector productivity, labour market reform, the introduction of a fiscal union, and the creation of a digital single market.
Robust regulatory frameworks are necessary if Europe is to reignite growth but innovation remains the great growth driver. This is where European businesses should lead by providing stability and a positive “can-do” mentality. They must play an active role in driving forward the four key policy areas, providing leadership and cooperation with policy makers whenever possible.
Design and innovation embodied in digitalisation, robotics, big data additive manufacturing, bio- and nano-technologies offer huge potential.
Technologies such as collaborative robots and 3D printing will eventually replace conventional manufacturing operations and transform the traditional factory model.
Some EU countries, like Germany, have recognised the vast potential. Its car manufacturers such as BMW and Daimler are about to introduce collaborative robots at large scale to replace final assembly activities currently completed by hand.
With the global market for this technology currently growing at an annual rate of 20%, and worth up to $50bn by 2050, this is an area that Europe can ill-afford to ignore.
We also think that the future lies in companies with the largest share of intangible assets on their balance sheets.
According to a recent international study carried out by A.T. Kearney, most of the companies with high growth rates in the last decade boasted a remarkable share of intangible assets, e.g. software, R&D, brand and reputation.
One straightforward growth strategy is to focus investments on the sectors that yield more intangible values.
Striking a proper balance between the EU’s core principles and resolving economic, fiscal and political challenges will remain central to the ongoing story of the European project.
It is incumbent on business leaders and policy makers to work together and take bold steps to make the EU as dynamic and strong as possible.