Big businesses say Europe must do more
In Europe, credit spreads have narrowed, break-up speculation has receded and stock prices have climbed, but the economic recovery is not something to be excited about, four of the world’s leading businessmen and a well-known US economist told participants at the 44th World Economic Forum Annual Meeting in Davos-Klosters, Switzerland.
The summit took place under the theme, The Reshaping of the World: Consequences for Society, Politics and Business.
At about one per cent, GDP growth in the core countries is “lackluster and too one-sided,” said Axel A. Weber, Chairman of the Board Directors, UBS, Switzerland, and an ex-president of Germany’s central bank. “Things feel better in Europe, but policy-makers should not be complacent.” Two events this year may bring new risks: euro-skeptics winning seats in European Parliament elections and the stress-testing of Europe’s banks, which will almost certainly hand some institutions a failing grade.
“Europe has become much more stable, which is not a small political achievement,” agreed Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University, USA. “On the other hand, the youth unemployment situation is horrific.” Only the German economy has come back to where it was before the 2008 financial crisis. It could take at least five years for the rest of Europe to reach the same point.
Both Pierre Nanterme, Chief Executive Officer, Accenture, France, and Sir Martin Sorrell, Chief Executive Officer, WPP, United Kingdom, said they expect their respective businesses in Europe to perform much better this year. But companies are still meeting obstacles, Sorrell said. “We asked 80 of our clients what the critical issues in Europe are in terms of their expansion. The answer was labor market inflexibility.”
The panelists raised the specter of a lost generation of Europeans if the structural unemployment problem is not solved. If you cannot find a job two or three years after graduation, all could be lost, said Giuseppe Recchi, Chairman, Eni, Italy. “It is difficult for a company to hire a 30-year-old person without work experience.”
The panelists called on European leaders to be more aggressive in dealing with the unemployment crisis by, among other things, allowing labor mobility, making sure the skills taught in schools are the skills needed by business, and more investment in education, technology and innovation.
“Europe has tremendous advantages that are not going away overnight,” said Rogoff, pointing to the region’s high education levels, rule of law and technological innovations, particularly in Germany. But those advantages can wither away if Europe does not move faster on economic and business reforms to create flexible labor markets, enhance competitiveness and improve the ease and cost of doing business.