25 March sees the 60th anniversary of the signing of the Treaty of Rome in 1957, which established the European Economic Community (EEC) and set Europe on a path to closer unity. But the rise of populism strikes at the heart of this collaboration writes Michael Collins.
Michael Collins is chief executive of Invest Europe.
After the signing of the Treaty of Rome in 1957 to form the European Economic Community, financial crises in the 1970s and the end of fascism and communism on parts of the continent catalysed expansion of the bloc and even closer ties between member states. The European Union (EU) has since become the world’s largest free trade zone, with its single market and four freedoms paving the way for the EU institutional landscape as we now know it.
Over the same period – and not by coincidence – private equity has emerged and developed into a significant source of investment. The industry in Europe dates back to 1945, with the creation of specialist bodies to finance small and medium-sized businesses and stimulate economic recovery after World War II. Through the 1960s, 70s and 80s, the first private equity funds emerged with a focus on investments in developing companies.
Today, much of the concern fueling populism and threatening international cooperation stems from the deceleration of economic growth and the decline in Europe’s relative contribution to world GDP. The EU’s share of world trade and wealth is gradually being eroded, as Asia, in particular, grows rapidly. Anger in many member states about the disappearance of traditional industries and about the growth of offshoring and ‘delocalisation’ has not been offset by the benefits to consumers, to broader economic efficiency, and to the life-chances of millions of people in developing countries that have been achieved by this wave of globalisation.
As we mark the EEC’s 60th anniversary, Europe’s political leaders and policymakers are increasingly conscious of the need to ease these concerns. The question now is whether they will hold their nerve and continue to pursue the openness and integration that has been at the heart of the European project or allow a return to protectionism and populism. Europe can still be a leading light for openness, breaking down the remaining barriers to economic growth, rather than erecting new ones. But this case needs to be made confidently and repeatedly.
Invest Europe (initially the European Venture Capital Association) was established back in 1983 – ten years before the European Union was created. As the private equity market on this continent has matured, our association and its membership has also grown. The European private equity industry now oversees assets in excess of €564 billion and is present in most countries in Europe, employing around eight million people in the 30,000 companies it backs. It has provided investment, jobs and economic development across the continent, benefitting from the market opening that the EU has provided.
But to continue to invest in European businesses, private equity managers need the freedom to market their funds to investors around the globe, and European investors must be able to access the best funds and investments wherever they are located. This means extending marketing passports to authorised funds in designated non-EU countries. It means keeping the national private placement regimes as an alternative option for fund managers. And it means ensuring the fair and harmonious implementation of industry regulation across EU member states.
The European Economic Community was created 60 years ago to bring about economic integration among its member states. Europe’s economic growth over the last six decades owes much to its openness and to its rejection of economic nationalism. It is no surprise that Sweden ranked as the world’s top country for business in a recent Forbes ranking, with European countries claiming six more of the top ten slots. Strong and dependable legal and political systems, a highly-educated and trained workforce, and a willingness to embrace global competition and not to fear it continue to attract global investors.
The changing world order presents challenges, but it can also be a source of opportunity for Europe. We must ensure that the EU and the wider continent remains a bastion of openness and free trade while breaking down barriers to fund our companies, boost the economy and continue Europe’s growth story.