Accenture Europe in Tomorrows World

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Europe in Tomorrows World

Harnessing new waves of growth: the views of business leaders.
Report prepared for the European Business Summit 2011
Sponsored by
Contents
Contents Executive summary IntroductionEurope in tomorrows world: harnessing new waves of growth Seven levers for accelerated growth and job creation Economic governance: a base for stronger growth Entrepreneurship and SMEs: breaking the ceiling Human capital and labour markets: bridging the gap ICT and social media: digital highways to growth Innovation: creating a pan-European innovation ecosystem Industrial strategy: a future for Europe in the global economy Trade and investment: building new bridges in a multi-polar world ConclusionEuropes new direction Methodology Acknowledgements References 2 3 6 10 10 15 17 20 22 26 28 31 33 34 35
An initiative of
Carried out by
Sponsored by
Executive summary
After the storm
After a period punctuated by sovereign debt crises and financial volatility, Europe has managed to pull itself out of an economic tailspin and engineer a modest resumption of growth. With the economic backdrop beginning to improve, our survey shows that over two-thirds of business leaders from both the European Union and the rest of the world now feel more optimistic about Europes growth prospects compared with this time last year. Despite continued volatility and sluggish growth, business leaders also remain convinced of the longerterm growth potential that Europe offers: 48 percent of business leaders plan a moderate increase in their investment levels in Europe over the next three years (6-20 percent), and 9 percent plan a much bigger increase (more than 20 percent). Viewed from a global perspective, Europe still ranks favourably against competing regions in terms of future growth potential and as a place in which to invest and do business. Yet, while business leaders are positive about Europes potential, they are equally realistic about the scale of the challenges currently confronting the region. Many of Europes economies remain mired in high levels of consumer and sovereign debt, and are beset by sluggish economic growth and persistently high levels of unemployment. In addition, volatility in energy and financial markets continues to cast a cloud over the outlook. Looking ahead, Europe must prepare for a world that is being transformed by seemingly inexorable internal and external forces. The regions population is ageing and the squeeze on global resourcesincluding land, water and foodis a major concern for citizens, corporations and policymakers. The worldwide financial crisis and recession have accelerated the shift to a multi-polar world, where economic activity and power are gravitating away from the core developed economies of the last century towards the powerhouse emerging economies. In the corporate arena, a new cast of emerging-market multinationals is also coming to prominence, intensifying competition in global markets as well as bringing new approaches to markets, business models, and risk and resource management.
New waves of growth

Europe must not recoil from these long-term trends but must instead confidently reframe them as opportunities for growth and job creation. An older population will generate growth opportunities in health care, third-age education, leisure, tourism and age-related consumer markets. With its global leadership position in environmental technologies, Europe is ideally situated to benefit from booming demand for intelligent energy, green infrastructure, alternative fuels, and waste and water management. Its expertise in many types of services gives Europe a head start in emergent sectors such as carbon finance and consultancy. Look closely at the driving forces of emerging-market growtha growing middle class and increased urbanisationand it is easy to see major opportunities for Europe to trade on its expertise in areas such as financial services, education, infrastructure and citizen services. Emerging markets need all of these services, and Europe can supply them competitively. These opportunities are real and within Europes grasp. But how can Europe become a smart, sustainable and inclusive economy? In other words, what is needed to fulfil the objectives of the EU's Europe 2020 growth strategy for the decade ahead? Our survey of more than 400 business leaders285 from the European Union and the rest from other parts of the worldprovides a comprehensive insight into the actions that Europe can take to stimulate renewed growth and job creation. New growth must be built on a bedrock of sound public finances and macroeconomic stability. This means tackling unsustainable public finances and addressing financial sector risks. Indeed, 41 percent of business leaders cite high budget deficits as the biggest challenge to European growth, and 36 percent believe that European governments must take faster action to rein in soaring deficits if they hope to restore market confidence and promote investment and long-term growth. Such views were expressed even more forcefully by business leaders from outside the European Union.
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Seven levers for accelerated growth and job creation

Drawing on detailed research and our survey of more than 400 C-level business leaders, this study identifies actions in seven key areas that can help position Europe to harness new waves of economic growth. These areas are as follows: 1. Economic governance: a base for stronger growth. Restoring order to battered public finances is only one element of a new approach to economic governance. Europe must take the following actions to promote long-term growth: 3. Human capital and labour markets: bridging the gap. The European Union has a large pool of educated workers. But Europe is failing to fully capitalise on this advantage, due to a combination of rigidities in labour markets and a longer-term mismatch between skills provision and future jobs. It is imperative for Europe to address these issues and possible actions include:
Improve geographic mobility. More than a quarter of business Widen the labour pool. Thirty percent of C-level executives
leaders cited better mutual recognition of qualifications as an action that would aid increased geographic mobility of workers within the European Union, while 37 percent said that tailoring immigration policies to attract skilled workers would be important.
Develop forward-looking approaches to systemic risks
Steady the shipget the macro fundamentals right. Many business leaders in our survey believed that more urgent action is needed to tackle budget deficits and debt levels in the Eurozone in order to restore financial market confidence. Only 26 percent of business leaders believed that governments are cutting deficits too quickly.
Incorporate pro-growth measures in economic
and imbalances. These approaches can include greater coordination of fiscal policy between member states (mentioned by 36 percent of respondents), early warning systems to spot the growth of asset bubbles and stronger mechanisms to monitor divergences in national competitiveness (endorsed by a quarter of business leaders). governance. Restoring macro-stability to public finances and financial markets is a necessary condition for growth and job creation. However, such action must be complemented with pro-growth structural reform. Forty-three percent of business leaders mentioned greater use of tax cuts to promote employment, 28 percent cited a greater focus on capital spending as opposed to current spending, and an equal proportion cited measures to free up bank lending to small businesses.
Invest in science, technology, engineering and mathematics
believe that Europe must take action to widen labour pools. Examples of actions to bring this about include reforming tax and benefit systems and aligning pension systems to encourage greater labour-force participation among older workers, as well as investing in lifelong learning and the wider infrastructure needed to help older workers stay in the workplace. (STEM) skills. Investment in education and training in general (34 percent), and STEM skills in particular (33 percent), were highlighted by business leaders as important in preparing Europe for the jobs of the future. Specific measures to achieve this include promoting STEM options from an early stage, as well as encouraging businesses to work more effectively with educational bodies to produce the right mix of academic and practical skills.
2. Entrepreneurship and SMEs: breaking the ceiling. Small and medium-sized enterprises (SMEs) are a driving force of the European economy. While creation and survival rates for European SMEs are roughly comparable to those in the United States, SMEs in Europe struggle to grow into larger enterprises. Our research and analysis of business views highlight the need for the following actions: leaders we surveyed indicated that reducing and simplifying regulation and taxation would be effective in encouraging SMEs growth. Necessary actions include introducing progrowth legislation through exemptions and incentives for SMEs that want to expand, as well as improving access to credit and financing.
4. ICT and social media: digital highways to growth. Information and communications technology (ICT) can be an important catalyst for faster European growth and job creation. But a focus on the technologies themselves is not sufficient; explosive growth will occur when investment in technologies is coupled with measures to promote widespread usage of IT in peoples home and working lives. Our survey results suggest the following measures:
Remove the ceiling to growth. Fifty-three percent of business
Outperform in digital infrastructure and market regulation.

The establishment and adoption of superfast broadband was the most-cited ICT imperative, with 38% of respondents choosing it among their top three actions for maximising the return from ICT and social media. A number of actions can assist with this, such as coordinating national responses to the European Commissions Digital Agenda and enhancing the ability of European consumers to compare broadband speeds and prices across the European Union and the world.
Help SMEs go beyond borders. Thirty-nine percent of our Scale up for growth. SMEs need to reach a critical mass in
respondents identified the need to dismantle barriers to cross-border trade within the European Union as a priority. Policymakers must focus on completing the Single Market and build export capabilities through language and managerial training for entrepreneurs. order to compete internationally. Partnerships and technology can play an important role. For example, they can use cloud computing to lower the cost of fixed infrastructure, create SME-to-SME hubs and build networks to promote collaboration and knowledge sharing between large and small enterprises.
Set clear ground rules. Twenty-nine percent of business
View digital skills as todays literacy. In our survey, 31
leaders we surveyed included consistent data privacy and cyber-security laws across Europe among their top three ICT priorities. Policymakers can do this by setting out citizens rights to consistent data security and privacy throughout Europe, setting a long-term vision of the responsibilities of companies that handle personal data, and encouraging the creation of ICT-intensive businesses by entrepreneurs and inward investors. percent of business leaders identified the improvement of IT skills among people unfamiliar with technology as a top ICT growth imperativesecond only to the call for superfast broadband. To support this effort, policymakers can encourage the spillover of workplace skills from consumer ICT, understand age-related and other digital skills gaps, and promote the role of businesses and the non-profit sector in shaping digital literacy.
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5. Innovation: creating a pan-European innovation ecosystem. While Europe produces a wealth of raw ideas and generates a large proportion of global research, it conspicuously fails to commercialise much of that research as new products, services, business models and processes. Our analysis highlights three key action areas that can help create a stronger innovation ecosystem in Europe:
Articulate a pan-European industrial strategy. A reinvigorated
Promote services innovation. Recommended actions
Develop and retain innovators and entrepreneurs.
include completing the Single Market in services, establishing standards to enable interoperability between new and existing products and services, and providing better methods of valuing intangible assets related to services innovation (to induce increased capital market funding of innovation). Providing the right framework conditions, such as simplifying and reducing the burden of regulation and taxation, is also important, with 34 percent of business leaders citing it as an effective action for boosting innovation. Suggested actions include incorporating business skills in STEM degrees and teaching STEM skills in business degrees, encouraging more placements between research institutes and industry, and attracting a critical mass of researchers from around the world. Twenty-five percent of survey respondents cited the introduction of measures to attract non-EU researchers as a potentially effective action. eight percent of business leaders said that knowledge exchange between research organisations and business is an effective way to stimulate European innovation. Key actions can include harnessing the power of technology to draw on the creativity of stakeholders, changing academic incentives to encourage more commercialisation of research, and supporting technology-enabled virtual clusters that link agglomerations of early-stage SMEs with venture capitalists.
industrial strategy can include forging stronger ties with emerging-market businesses (cited by 36 percent of business leaders), creating centres of excellence in key technologies or sectors where Europe has an identified comparative advantage (34 percent), exploring the role of common standards in eliminating investment uncertainty (32 percent) and creating a critical mass of users in new technologies across the EU market.
7. Trade and investment: building new bridges in a multipolar world. As the worlds largest trading bloc, Europe is in prime position to capitalise on its extensive trade and investment links with other regions. But it cannot rest on its laurels: the balance of economic power is rapidly shifting towards emerging economies. Europe can take the following actions to harness the benefits of this changing environment:
Explore new channels of economic diplomacy. Additional

channels that can complement the Doha trade negotiations include regional trade agreements, bilateral free trade agreements (FTAs), cross-country business delegations and a new strategic vision of Europes strengths. Specifically, 45 percent of business leaders indicated bilateral FTAs as a prioritythis was the most popular action among the survey respondents.
Rethink clusters to harness networking benefits. Thirty-
Become a magnet for emerging-market investment.
6. Industrial strategy: a future for Europe in the global economy. Industry remains the backbone of Europe. But a combination of emerging-market competition and disruptive business models wrought by technology now calls for a new approach to industrial policy in Europe. Required actions to enhance the environment for industry and to spur new business include the following:
Reach out to emerging markets. Promoting conditions for
Europe can benefit from technology transfers associated with foreign direct investment and the creation of new jobs through joint ventures or greenfield investment. Europe can show that it is open for business by establishing a stable investment climate with clear decision processes that apply in respect of inward investment, and by increasing regional coordination of European efforts to attract foreign direct investment. For example, a collective approach to attracting emerging-market investment could draw on areas of excellence residing in several European regions. European enterprises to go abroad is essential to help them capitalise on the increasing importance of emerging markets and to boost exports of goods and services. Actions to achieve this include encouraging partnership with enterprises outside Europe and investing in infrastructureincluding ICTsto pave the way to new consumers.
Reinforce the foundations. Among the business leaders
Strengthen the link between industry and services.
we surveyed, reducing or simplifying regulation and tax was the most popular action identified for stimulating industry growth in Europe over the next few years, supported by 47 percent of respondents. Increased investment in STEM skills was also cited by one-third of respondents, particularly leaders in larger firms, with 42 percent citing it as a key action. As the lines blur between manufacturing and servicesa process dubbed servitisationthe European Union needs to foster closer collaboration between the two sectors across the value chain. It can also support innovation within the manufacturing sector by encouraging greater linkages between manufacturing firms and universities/research institutes. Our survey revealed that one-fifth of business leaders favour a sharper focus on interdisciplinary research to stimulate industry growth.
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IntroductionEurope in tomorrows world: harnessing new waves of growth

After a year of battling a succession of economic and financial crises, Europe appears to be regaining its economic momentum. Despite a volatile and uncertain economic outlook, two-thirds of business leaders now feel more optimistic about Europes growth prospects in 2011 compared to last year, with the proportion rising to 88 percent in economically resurgent Germany (see Figure 1). This sense of renewed optimism in Europes growth prospects is shared by business leaders from outside the European Union, 60 percent of whom feel more optimistic about Europes prospects than in 2010. Yet business leaders confidence in Europes future is tempered by a sober assessment of the challenges that Europe still faces on several fronts (see Figure 2). These include the need to rein in soaring budget deficits and sovereign debt levels in a number of European economies, to stabilise financial markets, to contain inflationary pressures from rising energy and commodity prices, and to stem the damaging consequences of persistently high levels of unemployment. A particular feature of the recent crisis has been the precipitous rise in youth unemployment. Twenty percent of those under age 25 are now unemployed across the European Union;1 the proportion is even higher in economies such as Spain, where two-fifths of young people are struggling to find jobs.2
Key findings
Figure 1: What are Europe's growth prospects in 2011? Compared with this time last year, how do you feel about Europes economic growth prospects in 2011? 6% 61% 6% 64% 5% 54% 24% 18% 65% 5% 74% 40% 70%
70% 49% 31%
27% 25% 24% 14% 6% Respondents based in the EU Respondents based in the rest of the world 18%
30% 23% 21% 12% 5% Germany Italy Spain
05 26%
8% All respondents
9% France
6% United Kingdom
3% Respondents based in other EU countries
Very optimistic: prospects are much better than 2010 Optimistic: somewhat better than 2010 Neither optimistic nor pessimistic: prospects will be about the same as 2010
Pessimistic: somewhat worse than 2010 Very pessimistic: much worse than 2010
Figure 2: Challenges to European growth and employment in 2011 What do you see as the most significant challenges to economic growth and employment facing Europe in 2011? Select up to three. 50% 40% 30% 20% 10% 0% All respondents Respondents based in the EU Respondents based in the rest of the world
High government budget deficits
Financial market uncertainty
Growing Unsustainable competition sovereign from emerging debt levels markets
Inflationary pressures
Persistently high unemployment
Weak private sector investment
Currency fluctuations
Skills shortages
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Business Leader Insight
Europe needs to speed up reforms, encourage people to work longer and save more, increase productivity, and encourage immigration.
New domestic and global dynamics

Europe will need to address these economic issues against a backdrop of domestic challenges. For instance, many parts of Europes population are ageing and in some cases even shrinking. Between now and 2020 in Germany, for example, the over age 60 cohort will increase by 14 percent, to 24.5 million, compared with a total of 14 million people age 16 or below. Germany will also have more than 6 million people age 80 and above by 2020a 40 percent increase.3 Externally, the worldwide financial crisis and recession have accelerated the shift to a multi-polar world, where economic activity and power are gravitating away from the core developed economies of the last century towards the powerhouse emerging economies. Emerging markets now account for more than half of global GDP (at purchasing power parity)4 and show increasing heft in globally competitive markets for goods, services, talent, capital, resources and innovation. Economic interdependence is the name of the game, with Europes economic fate bound up with developments in Beijing or Mumbai as much as those in London or Brussels. In the corporate arena, a new cast of emerging-market multinationals is also coming to prominence, intensifying competition in global markets as well as bringing new approaches to markets, business models, and risk and resource management. This shifting balance of economic power is echoed in our survey of business leaders. More than onethird of them identified increasing competition from emerging markets as one of the most significant challenges to growth and employment facing Europe in 2011.
New waves of growth

Against this backdrop, how can Europe become a smart, sustainable and inclusive economy? In other words, what is needed to fulfil the objectives of the Europe 2020 growth strategy for the decade ahead? The first essential step is to restore macroeconomic stability by swiftly tackling budget deficits and debt levels within Europe. The resulting stability would provide the foundation for a return of long-term market confidence and investment. Europes system of economic governance must also be equipped with better forwardlooking mechanisms and tools to ensure fiscal discipline and detect the early warning signs of future economic crises. Yet sorting out the European debt trap is not sufficient in itself for long-term growth and employment. Beyond ensuring macroeconomic stability, Europe must find a way to kindle new sources of structural economic growth. Many of these will involve inventive responses to long-term challenges on Europes own doorstep, such as:
Resources: The squeeze on global resourcesland, water, Technology: Major breakthroughs are occurring in a whole
energy and foodwill present growth opportunities for Europe in areas such as clean technologies, wind turbines, carbon capture and storage, smart buildings and cities, carbon finance, agribusiness and water management technologies.
The emerging-market opportunity: A burgeoning group of
range of technologiessuperfast broadband, cloud computing, mobile and robotics, materials, nanotechnology and biotechnology. These technologies promise to transform business models and competition in sectors as diverse as education, health care, transport, music, manufacturing and logistics. middle-class consumers, rising income levels and increased access to credit are creating a critical mass of demand in emerging consumer markets such as consumer electronics, automobiles, health care, insurance and banking. Accelerating urbanisation is also powering demand for hard infrastructure such as transport and communications and soft infrastructure such as health care, education and citizen services. These are all areas from which Europe can stand to benefit.
Demographics: The greying of Europes population will
create opportunities in age-related demand such as health care, financial services, tourism, and leisure and consumer products.
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The landscape for investment in Europe

Despite its recent economic woes and longer-term challenges, Europe remains an attractive location for investment in the eyes of business leaders, a testament to its underlying growth potential (see Figure 3). Forty-eight percent of business leaders said that their company plans a moderate increase (6-20 percent) in their average investment levels in Europe over the period 2009-2011, while 9 percent plan a large increase (above 20 percent). Only a small proportion plans to reduce investment. German and French business leaders are particularly positive about their future levels of investment in Europe. Perhaps surprisingly, Europe continues to fare favourably with other regions in terms of perceived future growth prospects. Half of business leaders surveyed put Europe among the top three growth regions for their company over the next three years, the highest proportion of any region. But other regions are catching up fast, particularly China (34 percent), India (24 percent) and other emerging Asian economies such as Vietnam and Indonesia (21 percent). However, the respondents based outside the European Union took a much less sanguine view of Europes growth prospects. Thirty-six percent put Europe among their top three growth markets over the next three years, with 40 percent opting for China, followed by India (28 percent), other emerging Asian economies (27 percent), the Middle East and North Africa (26 percent), and the United States and Canada (23 percent) (see Figure 4). This is unlikely to bode well for Europes ability to continue attracting high levels of foreign direct investment from markets such as the United States and Asia.
Key findings
Figure 3: Future investment intentions in Europe Thinking about your companys average level of investment in Europe over the period 2009-2011, how do you anticipate that your average investment levels in Europe over the period 2012-2014 will compare? 9% 48% All respondents 6% 3% Respondents from companies with 2010 revenues above US$1bn 4% Respondents from companies with 2010 revenues between US$500m-US$1bn 1% Respondents from companies with 2010 revenues between US$100m-US$500m 8% 47% 36% 5% 3% 9% 57% 26% 6% 9% 42% 37% 8% 33% A large increase (increase >20%) A moderate increase (increase between 6% and 20%) About the same (+/-5%) A moderate reduction (decrease between 6% and 20%) A large reduction (decrease >20%)
Note: Totals may not add up to 100 as some respondents chose not to answer this question.
Figure 4: Where will businesses invest? Which of the following geographical areas offer the most significant growth opportunity for your company in the next 3 to 5 years? Select up to three. European Union China United States and Canada India Other emerging Asia (e.g., Vietnam, Indonesia) Middle East and North Africa Mature Asia (Japan, South Korea, Singapore, Hong Kong, Taiwan) Brazil Russia Other Non-EU Europe Turkey Other Latin America (e.g., Mexico, Argentina) Sub-Saharan Africa Australasia 0% 10% 20% 30% 40% 50% 60%
Respondents based in the EU Respondents based in the rest of the world
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Infrastructure investment is both a key to economic recovery and an extraordinary economic multiplier.
Europe is failing to capitalise on its strengths

These opportunities are real, sizeable and within Europes grasp. But, without the right set of supply-side factors in place to nurture and accelerate that growth, they could easily be lost. A sound innovation ecosystem, measures to augment Europes human capital, faster scaling of high-potential SMEs and greater use of technology to drive productivity improvements are just a few of these factors. How does Europe currently perform on these measures? Our survey of business leaders suggests that the report card is mixed (see Figure 5). Europe gets good marks for improving essential infrastructure, such as transportation, housing and ICT, and developing green opportunities. But across a range of other factorsarticulating a long-term industrial vision, creating a competitive intra-EU services market, and tapping into emergingmarket opportunitiesbusiness opinion is polarised or undecided on the effectiveness of Europes actions. Why is this? A common refrain in our research into each of these levers for growth is that, all too often, Europe fails to capitalise on its strengths and natural advantages. Europe has a welleducated and generally skilled workforce, but its labour-market outcomesin terms of productivity and employmentare less successful than those in the United States. Europe possesses an abundance of innovation inputshigh volumes of pure research and many research-intensive companies5but it has trailed other parts of the world in commercialising those inputs as new products, new business processes and new business models. Europe matches the United States in terms of the creation of new enterprises, but too few of these firms manage to break out to become larger firms. Europe also has extensive trade and investment connections with the emerging world, but it has not fully capitalised on these networks and is in danger of being supplanted by new competitors. The functioning of seven growth levers in Europe can be enhanced to maximise their contribution to economic growth and employment across the continent, through a set of concrete actions. These levers are: 1. Economic governance 2. Entrepreneurship and SMEs 3. Human capital and labour markets 4. ICT and social media 5. Innovation 6. Industrial strategy 7. Trade and investment
The longer Europe does nothing, the more it will be left behind.
Figure 5: Europe's report card Thinking about ways of boosting growth and employment in Europe, how would you rate Europes effectiveness currently in each of the following areas? Supporting the development of green opportunities Improving essential business infrastructure (e.g., transport, housing, information and communications technology) Improving the quality and efficiency of citizen services Creating a competitive intra-EU market for services Turning research into new products, services and business models Maximising the return from information and communications technology and digital media Developing the competitiveness of human capital and labour markets Tapping into emerging-market opportunities Supporting entrepreneurship and the development of small and medium-sized enterprises Articulating a long-term industrial vision Extremely effective Effective 11% 6% 6% 8% 8% 8% 7% 7% 9% 6% 23% 36% 34% 33% 32% 33% 33% 26% 32% 35% Extremely ineffective Dont know/not applicable 32% 35% 38% 42% 35% 34% 36% 40% 21% 31% 37% 16% 12% 18% 19% 5% 18% 17% 7% 3% 3% 2% 3% 2% 4%
22% 27% 6% 25% 9%
Neither effective nor ineffective Ineffective
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Economic governance: a base for stronger growth

Over the last two years, the Eurozone has endured the biggest test to its stability since its creation over a decade ago. It has survived. Significant progress has been made in stabilising debt markets and shoring up bank balance sheets. Europe is growing again, albeit less quickly than it needs to. These achievements testify to the innate strength of Europes economic governance. Nevertheless, significant vulnerabilities remain. First, large parts of Europe remain trapped in a debt crisis. Eurozone public-sector debt stands at around 88 percent of GDP. The figure is 158 percent of GDP in Greece and 120 percent in Italy (see Figure 6). Financial-sector bailouts and weak economic growth have also caused a sharp deterioration in public-sector budget balances, particularly in Ireland where the deficit is estimated to reach 9.9 percent of GDP in 2011, the United Kingdom with 9 percent of GDP and Spain with 6.7 percent of GDP (see Figure 7). High levels of indebtedness act as a brake on future growth prospects, increase the cost of borrowing and intensify investor uncertainty and market volatility. Second, financial market risks have abated but not disappeared. Forty percent of business leaders identified this group of risks as one of the most significant challenges to growth and employment in Europe in 2011. The International Monetary Fund estimates that total banking writedowns or loss provisions in the Eurozone over the period 2007-2010 were in the order of US$600 billion.6 Vulnerabilities remain, including a high proportion of short-term debt requiring refinancing and significant dependence on the wholesale money market and central banks for financing needs.7 Third, a multi-speed Europe is emerging, driven by a more fundamental competitiveness gap in terms of productivity and labour costs (see Figure 8). Germany is enjoying its strongest growth in a generation as its ultra-competitive manufacturing sector taps into rising export demand in international markets, especially from fast-growing emerging economies. By contrast, the more peripheral economies are increasingly lagging, buckling under the weight of unsustainable government debt levels, troubled banks and collapsed property markets.
While macroeconomic stability is the first step, Europe must review its economic governance systems and reforms for sustainable growth. Imperatives for Europe:
Steady the shipget the macro-fundamentals right
Business leaders in our survey clearly believe that more urgent action is needed to tackle budget deficits and debt levels within the Eurozone in order to restore financial market confidence and promote long-term growth. Thirty-six percent of European business leaders stated that governments in Europe need to cut deficits faster, while 35 percent were satisfied that the current speed of deficit reduction is about right (see Figure 9). Only 26 percent believed that governments are cutting deficits too quickly. This view was expressed even more strongly by business leaders from outside Europe, 44 percent of whom would like to see faster deficit reduction within Europe.
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Develop forward-looking approaches to systemic risks and imbalances

Fixing the current problems in Europes public finances and financial system is not enough. The financial crisis and subsequent recession provided a stark reminder of how macroeconomic imbalances, if left unchecked, can quickly spill over into assets bubbles and create contagion risks across highly interdependent economies. To prevent similar crises in the future, business leaders believe that the toolbox of economic governance should include more and better safeguard mechanisms to identify the buildup of imbalances and to defuse the risks associated with them (see Figure 10). In particular, they point to the following actions:
Design early-warning systems to prevent asset bubbles (for
Create stronger mechanisms for central monitoring of national

competitiveness (endorsed by a little more than a quarter of business leaders). Such measures form a cornerstone of the Pact for the Euro, which requires member states to review their competitiveness as embodied in wage and productivity developments. The Pact also requires member states to take actions to increase productivity, such as opening up services sectors to competition, promoting productivity and R&D, and improving the business environment for SMEs.
example, in property and financial markets), highlighted by one-fifth of respondents. This can include measures to monitor the evolution of asset prices over time to spot divergences, modelling of the risk-transmission channels between assets or markets and a renewed focus on macroprudential supervision of financial institutions.
Improve coordination between member states on fiscal
Enhance regulation to address financial sector risks (cited

by a quarter of business leaders) and restore stability to public finances. In practice, this can include measures to shore up levels of capitalisation or improve macroprudential supervision of the links between banks and the monetary system.
policy (mentioned by 36 percent of respondents). The Pact for the Euro, adopted by the Eurozone heads of state and government in March 2011, includes measures to address the sustainability of national pensions and health care systems, and stronger enforcement of Stability and Growth Pact rules on national budget deficits and debt levels.8
Incorporate pro-growth measures in economic governance

Restoring macro-stability to public finances and financial markets is a necessary condition for growth and job creation. It is not a sufficient condition, however. Pro-growth structural reformin areas such as skills, innovation and tradeis also needed. Business leaders indicated several ways in which the tools of economic governance can support a pro-growth agenda:
Make greater use of tax cuts to promote employment. This
Modify fiscal rules to encourage increased capital expenditure Adopt measures to free up bank lending to small businesses,
cited by more than a quarter of respondents. Business Leader Insight (for instance, on growth-enhancing infrastructure) in preference to current spending, an action cited by 28 percent of business leaders.
was mentioned by 43 percent of business leaders as opposed to 19 percent who favour increased public spending to stimulate employment.
As economic growth returns, member states must take immediate actions to facilitate the process of fiscal consolidation through far-reaching structural reforms.
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Key findings
Figure 6: Public sector debt (% of GDP) 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% European Union Eurozone Spain Germany United Kingdom France Ireland Italy Greece
2007 2009 2011
Source: Economist Intelligence Unit
Figure 7: Public-sector budget balances (% of GDP) 5%
-5%
-15%
2007 2008 2009 2010 2011
-25%
-35%
European Union
Eurozone
Ireland
United Kingdom
Greece
Spain
France
Italy
Germany
Source: Economist Intelligence Unit
The economic stimulus measures have worked but will not lastnow we must look for real economic growth.
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Figure 8: The competitiveness gap: evolution of unit labour costs for a selection of EU economies (index 2001Q1=100) 220 200 180 160 140 120 100 80 Q1-2002 Q1-2003 Q1-2004 Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009 Q1-2010 Greece Italy Spain France Germany
Source: Organisation for Economic Co-operation and Development
Figure 9: Is the speed of deficit reduction right? How do you assess the actions being taken by European governments to reduce their budget deficits and levels of public debt? Governments need to cut deficits faster; they need to restore the confidence of financial markets and promote long-term growth and investment Current speed of deficit reduction is about right Governments are cutting deficits too quickly; government stimulus still has a role to play in supporting short-term growth and employment Dont know
About right 35%
Too fast 26% Dont know 3%
Too slow 36%
Figure 10: Driving growth and job creation What macroeconomic actions should policymakers focus on in order to drive economic growth and employment in Europe over the next few years? Select up to three. 43% 36% 35% 28% 28% 25% 25% 23% 19%
Tax cuts to stimulate growth and employment
Greater coordination between EU member states on fiscal policy (including surveillance and enforcement of limits on public sector deficits)
Cut public sector deficits to restore bond market confidence
Greater focus on capital spending (e.g., infrastructure) as opposed to current spending
Measures to free up bank lending to small businesses
Stronger mechanisms for central monitoring of national competitiveness (e.g., relative labour costs)
Regulation to address financial sector risks
Introduction of early warning systems to prevent asset bubbles
Public spending measures to stimulate demand
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Fundamental fiscal, labour and financial reforms are essential to improving economic performance.
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Entrepreneurship and SMEs: breaking the ceiling

Europe excels at creating new businesses. There are more than 20 million SMEs in the European Union and they make up 99.8 percent of total European enterprises.9 This is a dynamic environment, where for every 10 European SMEs, a new one is created every year.10 Europe is also successful in ensuring that these SMEs survive. Two years after creation, around 70 percent of new enterprises are still in business11a result roughly comparable to that in the United States.12 Moreover, SMEs in Europe employ two-thirds of the active population13 and create more jobs than large enterprises do.14 However, European SMEs struggle to grow (see Figure 11). They are smaller than their US counterparts.15 Nine out of 10 SMEs in Europe are microenterprises employing an average of two people.16 Our analysis of Forbes largest companies by market capitalisation shows that only around 3 percent of European enterprises founded since 1980 have made it to the top 1,000. The equivalent figure for the United States is 11 percent.17 With increasing competition as well as opportunities coming from emerging economies, growth in the size of the enterprise can help SMEs better position themselves to unlock future growth.
Increasing European SMEs size as well as access to foreign markets will be fundamental to driving their future growth. Imperatives for Europe:
Remove the ceiling to growth
Regulation and administrative barriers must be simplified to foster SME growtha priority shared by 53 percent of C-level executives surveyed (see Figure 12). Simplified regulation and better conditions are often available for microenterprises. However, as they grow, their costs and obligations rise, making expansion an unappealing option. Europe must adopt a pro-expansion agenda for SMEs. To achieve this, policymakers can:
Introduce pro-growth legislation through exemptions
Increase visibility of existing EU funding programmes and

build partnerships with the financial sector to improve access to credit.
and incentives for micro- and small enterprises willing to expand, and drive down the cost of regulatory compliance.
Help SMEs go beyond borders

Internationally active SMEs are more innovative and report higher employment growth than SMEs that operate only in their home markets (7 percent versus only 1 percent).18 However, a large proportion of European SMEs are too small to cope with the costs of exporting. On the one hand, Europe must reap the benefits of fast-growing markets outside the European Union. On the other hand, SMEs exports are mostly directed to other European partners, so fostering intra-EU trade is equally important. Actions to help SMEs go beyond their borders include the following:
Increase awareness of existing internationalisation programmes Dismantle barriers to cross-border EU trade by completing Enhance SMEs export capabilities through initiatives aimed
at developing language skills, managerial capabilities and legal training. the Single Marketthe opening up of services markets being a top priority. and develop facilities to operate in emerging markets not only in China and India but also in other fast-growing economies.
Evidence that Europe is competitive would be to see 10 European start-ups becoming global companies in five years.
SMEs are very good foundations for economic stability and for durable economic growth.
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We need less and smarter regulation in order to create an environment where entrepreneurship both for SMEs and big companiesis stimulated.
Scale up for growth

SMEs need to reach a critical mass in order to compete internationally. Hiring new people is not the only way to do it: partnerships and technology can play an important role. Sixty-nine percent of SMEs have broadband access but their use of ICTs remains limited.19 Through better harnessing of the power of ICT, these firms can group together or join forces with larger enterprisesan option favoured by 28 percent of C-level executives surveyed. Possible initiatives to build economies of scale include the following actions:
Use cloud computing to drive down costs and implement Understand how to create virtual hubs and unlock the
functions such as electronic invoicing, HR services outsourcing and business process simplification. advantages of economies of scale among firms in different locations to share expertise and costs.
Promote collaboration between SMEs and larger companies
(for example, through job secondments, training and supply chains) to combine small enterprises creativity with larger firms reach.
Key findings
Figure 11: Challenges to European SME growth What do you see as the most significant challenges to SME growth in Europe? Select up to three. 47%
37% 32% 26% 24% 24%
23%
20% 15%
Administrative barriers (e.g., bureaucracy, regulation)
Insufficient or adverse incentives transmitted by the tax and subsidy system
Lack of access to additional rounds of financing and capital
Shortage of management capability among SME leaders
Insufficient trade finance (e.g., export credits, guarantees)
Lack of export Lack of access capabilities to professional (e.g., language expertise (e.g., skills, legal legal, financial or financial consultancy) expertise)
Trade barriers limiting the geographical reach of the SME
Rapid employee turnover in SMEs inhibiting investment in skills
Figure 12: Boosting European SME growth In your opinion, what actions would be most effective in encouraging SME growth in Europe over the next few years? Select up to three. 53% 39% 28% 28% 26% 26% 23% 17% 13%
Reduce and/ or simplify taxes and regulation
Dismantle barriers to cross-border trade within the EU (including for services)
Promote Invest in collaboration information between SMEs and and larger communications companies technology (e.g., job infrastructure secondments, to enable training, supply cost reduction chains) and market expansion
Establish SME-to-SME business hubs for sharing expertise and costs
Increase training in export capabilities (e.g., language skills, international marketing)
Increase investment in management training for SMEs
Identify SME role models to share best practices and success stories
Develop mechanisms for SME employees skills to be certified and recognised
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Human capital and labour markets: bridging the gap

The European Union has a large pool of educated workers, with around 19 million students in tertiary education20 and seven EU member states ranking in the top 10 of the World Banks Knowledge Economy Index, with each of the seven ranking above the United States.21 But Europe is failing to make the most of these advantages. In the short term, Europe faces labour-market inefficiencies as rigidities prevent the appropriate allocation of the available skills of the unemployed. There are 23 million unemployed people searching for a job22 but a large number of vacancies 3.5 millionremain unfilled as employers struggle to find people with the required skills.23 One in four employers reports difficulties in filling vacancies.24 At the same time, estimates show that in Europe 30 percent of todays employees possess a higher level of education than that required for the jobs in which they are currently working.25 In the long run, Europe will have to cope with a skills mismatch that is the product of a structural shift induced by factors such as globalisation, technological change and the move to a lowercarbon economyall compounded by the recent economic crisis. The resulting imbalances in European labour markets can become significant. For example, engineering graduates account for only 12 percent of Europes graduates26 despite the fact that vacancies for technicians and engineers are some of the most difficult to fill.27 This shortage will worsen in the future: estimates show that by 2015, EU member states will lack 2.7 million skilled workers in their IT, health and research sectors.28 Increasingly, Europe will have to expand the supply of skilled and adaptable workers who can be employed in jobs that do not yet exist.
Europe must act now to make the machinery of labour markets operate more efficiently and to develop the appropriate human capital for the jobs of the future. Imperatives for Europe:
Improve geographic mobility
On average, only about 2 percent of resident EU citizens take advantage of their freedom to live outside their native country. By contrast, non-EU nationals make up almost 4 percent of the EU population.29 According to 35 percent of all the business leaders surveyed, the lack of geographic mobility is one of the most significant challenges they face in labour markets (see Figure 13). C-level executives from large companies were particularly concerned, with 43 percent citing it as a challenge. Policymakers can facilitate greater geographic mobility through a range of actions:
Integrate existing European mobility tools, in order to
Encourage mobility among young people through a focus
increase awareness of their capabilities and broaden their take-up across sectors. There is also potential to widen the scope of these tools to address other key barriers, such as pension portability and housing market rigidities. An example of a tool that can be adapted in this way is Europassa service that aims to make qualifications easily understood in Europe. on the Europe 2020 Youth on the Move initiative. This initiative aims to support young peoples access to and take-up of job openings abroad, and encourages employers to create openings for them. between EU and non-EU countries. Thirty-seven percent of C-level executives surveyed agreed that this would be an effective strategy.
Ensure the mutual recognition of qualifications across
countriesan option favoured by 28 percent of respondents and encourage improvement in language skills and qualificationsmentioned by 29 percent of respondents (see Figure 14). Business leaders also highlighted the potential of a Europe-wide labour exchange to balance demand and supply more effectively in labour markets.
Tailor immigration policies to improve geographic mobility
Demography will translate into a lack of manpower in the future. We need more flexibility in the retirement age and new thinking on immigration.
Page 17
Thirty-eight percent of workers have no basic e-skills, but we expect that 90 percent of jobs will require these skills in five years time.
Widen the labour pool

As older employees retire, workforces in Europe will lose these employees knowledge and expertise. At the same time, Europe must reverse the declining employment rate (it fell from 65.9 percent in 2008 to 64.6 percent in 2009) to reach its target of 75 percent by 2020.30 Widening the labour pool was considered an effective strategy by 36 percent of C-level executives from high-growth companies, compared with 26 percent of all other companies. To support widening of the labour pool, policymakers can:
Incentivise a longer working life by reforming tax and benefit systems and aligning pension systems with these. Invest in lifelong learning and the wider infrastructure
needed to encourage older workers to stay in the workplace, such as digital networks that enable remote and flexible working. Twenty-nine percent of business leaders agreed that using technology to enable lifelong learning would be an effective action.
Invest in STEM skills

Only four EU countries rank in the top 10 countries of the Programme for International Student Assessment in mathematics and science.31 Investment in education and training in general (34 percent), and STEM skills in particular (33 percent), were considered effective strategies by our surveyed business leaders. Specific measures can include:
Encourage businesses to work more effectively with
Promote STEM options from an early stage to encourage
Adapt curricula and teaching methods to the changing
educational bodies to produce the right mix of academic and practical skills: for example, through the establishment of business-run academies. needs of the knowledge economy and strengthen the role of vocational qualifications and training.
young people to pursue STEM subjects in their subsequent education.
Focus on career counselling that helps young people understand the link between STEM-related subjects at school and the future career paths these skills make possible.
We need to shift the focus of labour market regulation from job security to employability. Lifelong training is a key element of flexicurity.
Key findings
Figure 13: Skills challenges for companies What are the most significant skills challenges for companies in Europe? Select up to three. Lack of geographic mobility of workers within Europe Shortage of available workers in growth sectors Cost and complexity of sourcing skilled workers from outside Europe Lack of graduates with applicable skills in the job market Multiple and differing qualifications and training standards across Europe Low levels of basic and intermediate skills Lack of experienced employees due to retirement Loss of skilled workers to destinations outside of Europe (brain drain) Poor or limited information for employers about available skilled labour Poor or limited information for workers about available job opportunities 0% 10% 20% 30% 40% 50% All respondents Respondents from companies with annual revenues above US$1bn Respondents from companies with annual revenues between US$100m and US$1bn
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A competitive Europe would be a Europe where it is easy for companies to operate, where an open and challenging environment stimulates entrepreneurship, where the level of education is high, and where people are stimulated to be mobile.
Figure 14: Building the talent pipeline In your opinion, what strategies would be most effective in addressing skills challenges in Europe over the next few years? Select up to three. 40%
30%
20%
10%
0% Tailor immigration policies to attract skilled workers (e.g., simplification of work visa rules) All respondents Increase public and private investment in education and training generally Boost science, Widen the Use technology, labour pool technology engineering (e.g., extend to enable and math retirement age, lifelong (STEM) increase female learning training in participation, and the particular encourage development flexible of skills working hours) Encourage improvement in language skills across Europe Ensure better mutual recognition of qualifications across Europe Undertake better long-term skills planning Establish a Europe-wide labour exchange (e.g., an online platform for advertising demand and supply)
Respondents from companies with 2010 revenue growth <5%
Respondents from companies with 2010 revenue growth >5%
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ICT and social media: digital highways to growth

After years of promise, information technology and social media have finally come of age. Technological advances are transforming the business landscapeseparately and in combinationand Europe has a chance to benefit from these. Cloud computing, for example, puts business support services within reach of small businesses, at entirely variable costa significant boost to innovation and entrepreneurship. Mobile commerce promotes productivity in ways of working and opens up new channels to customers, particularly in overseas markets. Equally, the breathtaking rise of social mediajust think of Facebooks 500 million active usersis redefining advertising, marketing and product development. In an economy increasingly geared to knowledge and information, a greater focus on ICT has the potential to drive faster European growth and competitiveness. But several studies have shown that a major part of the productivity gap between Europe and the United States is attributable to differences in the take-up and application of ICT.32 Indeed, business leaders we surveyed identified productivity gains through more innovative business models as one of the most significant benefits from increased investment in ICT (44 percent), alongside the ability to gain better insights into customer demands preferences (see Figure 15). Yet a focus on the technologies themselves is not sufficient. Explosive growth occurs when new technologies reach a critical mass of users, unleashing a wave of creativity across the general economy.
Europes actions around investment in technologies must also be coupled with measures to promote take-up and widespread usage of IT in peoples home and working lives. Imperatives for Europe:
Outperform in digital infrastructure and market regulation
World-leading digital infrastructure is essential if Europe is to set in train a self-reinforcing wave of ICT-enabled growth and access to fast broadband is central in creating this. Yet there remains still a long way to go before the European Union can meet its target of giving all Europeans access to basic broadband by 2013 and to ultra-fast broadband by 2020. Business leaders share the European Commissions vision, with 38 percent of survey respondents citing the establishment and adoption of superfast broadband as an imperative for maximising the return from ICT and digital media (see Figure 16). To assist ICT leaders with the journey, policymakers can consider a number of actions:
Progressively coordinate national responses to the
Enhance the ability of European consumers to compare

European Union of the servers and other infrastructure required by cloud computer service providers.
European Commissions Digital Agenda to provide clear and durable frameworks for investment in fast broadband, regulation of next-generation access, and growth of mobile and satellite broadband. broadband speeds and prices across the European Union and the world, thus increasing market competition.
Create investment incentives for the establishment in the
Set clear ground rules

A clear and far-sighted understanding of Europes laws on data handling, migration, privacy and security is vital to confident business investment and consumer adoption in an increasingly ICT-intensive economy.33 Twenty-nine percent of business leaders we surveyed included consistent data privacy and cyber security laws across Europe among their top three ICT priorities; and 26 percent cited the improvement of intellectual property laws to promote the digitisation of content. As part of the process of building this essential base of ICT-powered growth, policymakers can:
Articulate citizens entitlement to consistent data security and protection throughout an increasingly virtual Single Market. Set a long-term vision for how the responsibilities of enterprises handling personal data are likely to evolve. Formulate incentives for the establishment of ICT-intensive
businesses within the European Union.
ICT and digital and social media are excellent fields for Europe to focus on.
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A digital single market can bring additional digits to GDP.
The EU must facilitate the flow of data both internally and with its international partners to promote global innovation.
View digital skills as todays literacy

As ICT increasingly plays a pervasive role in Europeans daily work and life, digital illiteracy is more disabling than ever. Being unskilled in the basics of IT excludes people from job opportunitiesand makes the process of job searching harder. As consumers, they can be denied the IT-enabled benefits of better information, wider choice and lower prices. In our survey, 31 percent of business leaders identified the improvement of IT skills among people unfamiliar with technology as a top ICT growth imperativesecond only to the call for superfast broadband. Actions to support this effort include the following:
Promote and harness the consumer adoption of new
Identify digital literacy or accessibility gaps in specific geographic, age or other groups. Encourage business links with the third sector and social
enterprises to transmit ICT know-how, particularly in disadvantaged communities.
technologies, which over time builds transferable digital skills for the workplace.
44%
44% 40% 36% 26% 26%
22%
19%
Productivity gains through more innovative business models
Better insights into customer demands and preferences (e.g., through analytics)
Better access to new customers (e.g., through social networking, mobile commerce)
More efficient supply chain operations
Boosting efficiency and reach of public services
Increased environmental sustainability (e.g., via intelligent energy solutions)
Harnessing innovation from multiple stakeholders (e.g., crowdsourcing)
Productivity gains generated by lower costs of communication
Figure 16: Maximising the return from ICT and digital media What actions would be most effective in maximising the return from information and communications technology (ICT) and digital media in Europe over the next few years? Select up to three. 38%
31%
23% 26% 26% 21% 21% 20%
18%
17%
The establishment and adoption of superfast broadband across Europe
Measures The to improve establishIT skills ment of among consistent people data privacy unfamiliar and cyber with security laws technology across Europe
Improved intellectual property rules to promote digitisation of content
Better use of online social networks for marketing and crowdsourcing
Measures to promote the adoption of cloud computing across Europe
Freeing up government data to enable citizensourced digital tools (websites, apps, etc.)
Closing digital skills divides across European economies
Public Assimilating procurement consumer of new IT for advanced workplace technologies use to and improve solutions productivity
Page 21
Key findings
Figure 15: The case for greater ICT investment In your view what would be the most significant benefits of increasing investment in information and communications technology (ICT) and digital media networks for Europe? Select up to three.
Innovation: creating a pan-European innovation ecosystem

The EU member states include world leaders in manufacturing, design, aerospace, telecommunications, energy and environmental technologies. The region accounts for a little more than 25 percent of scientific publications, the highest share of any region.34 As Martin Schuurmans, chairman of the European Institute of Innovation and Technology, points out, half of the Nobel Laureates for medicine originate in Europe, yet many of the global players in the pharmaceutical sector stem from the United States.35 So while Europe produces a wealth of raw ideas (see Figure 17), its innovation performance is lagging in the global arena, with the United States widening its lead and emerging markets catching up. The European Union spends 2 percent of GDP on R&D, compared with 2.8 percent in the United States and 3.4 percent in Japan (see Figure 18).36 China has increased its global share of scientific publications to 12 percent in 2007, a major improvement over the 2.5 percent it had in 1997.37 So far, Europe has failed to create a pan-European innovation ecosystem that can adapt to the new nature of innovation. On the one hand, innovation measures have been fragmented across member states and between various EU policymaking bodies. On the other hand, innovation has become increasingly global and dispersed. Innovation hotspots are springing up in emerging markets, and technology is enabling new models of innovation around crowd-sourcing and coproduction.
Europe must create an effective innovation ecosystem that hosts dynamic networks with rapid exchange of knowledge and capital between stakeholders. Imperatives for Europe:
Promote services innovation
The services sector makes up more than 70 percent of the EU economy, but accounts for only 20 percent of the European Unions internal trade.38 The appropriate framework can encourage business-model innovation and product innovation as businesses seek to tap into new markets. To unlock this potential, action must be taken to:
Establish standards to enable interoperability between new Support better methods of valuing intangible assets related Provide the right framework conditions, such as simplifying
and reducing the burden of regulation and taxation. Thirtyfour percent of all survey respondents cited this as an effective action for boosting innovation (see Figure 19). to services innovation to induce increased capital-market funding of innovation.
and existing products and services and to provide a platform for further innovation.
Complete the Single Market in services. This would make
it easier for economic activity to take place across borders and boost services, including business-to-business services.
Develop and retain innovators and entrepreneurs

Europe must develop a labour force with a broad skills base, a critical element in transferring high-value ideas all the way to market. But it must also retain and attract talent from around the world to create a truly networked innovation ecosystem. Suggested policy levers include the following: STEM degrees and teach STEM skills in business courses.
Encourage more internships and placements so that students Focus on measures to attract non-EU researchers, such as
and researchers gain hands-on experience with the technologies used by industry. visa arrangements and scholarships. A quarter of the survey respondents cited this as a potentially effective action for European innovation.
Reform education systems to incorporate business skills in
We need links between universities and companies R&D centres to develop new products.
Page 22
Programmes to stimulate innovation need to be simple if companies are to participate in them.
Rethink clusters to harness networking benefits

Innovation clusters are central to the knowledge architecture of modern economies. Their creation can bring together a broad and diverse mix of skills, venture capital, marketing and development expertise, universities, industry and spin-outs. Our survey found that promoting knowledge exchange between research and business would be the most effective strategy. This was markedly higher among high-revenue-growth companies (42 percent) than average- or no-growth companies (35 percent). Actions that can support knowledge exchange include the following:
Change academic incentives to encourage commercialisation Support technology-enabled virtual clusters or online platforms
of research and university spin-outs, and develop areas of excellence in areas of societal concerns. that link agglomerations of early-stage SMEs with venture capitalists; 29 percent of all business leaders agreed that a hub that connects investors with innovators was important for European innovation. For example, GrowVC is a communitybased social networking platform that brings together start-up companies with providers of seed capital.
Harness the power of technology, including social media
and digitisation of public data, to draw on the creativity of a wide range of stakeholders.
Facilitate greater understanding of industry among universities

and research institutes through secondments and collaborative projects.
1.5%
Japan European Union United States
1.0%
0.5%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Eurostat
Figure 18: Gross domestic expenditure on R&D (% of GDP) 3.5% Japan United States 3.0% European Union
2.5%
2.0%
1.5%
1.0% 1995
Source: Eurostat
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Page 23
Key findings
Figure 17: Tertiary education graduates in mathematics, science and technology (% of population age 20-29)
There is the need for a wake-up call: a momentum to boost creativity, innovation and entrepreneurship in the education system.
Key findings
Figure 19: Creating an innovation ecosystem What actions would be most effective in increasing the level of innovation in Europe over the next few years? Select up to three. 50% 40% 30% 20% 10% 0%
Promotion of knowledge exchange between research institutions and business
Reduction and/or simplification of regulation and taxes
Establish- Investment in Measures to An Measures to Establish- Identification Access to ment of a information attract integrated reduce the ment of a of innovation professional research and non-EU pancost of R&D European champions expertise for and communica- researchers European personnel innovation to share best commercialinnovation tions (e.g., visa innovation (e.g., relaxing bank to practice ising hub to put technology arrangestrategy rules on support research investors in infrastructure ments, immigration social ideas contact with scholarships) for non-EU funding of innovators skilled research workers) Respondents from companies with 2010 revenue growth <5%
All respondents
Respondents from companies with 2010 revenue growth >5%
Page 24
Europes leaders need to be real thought leaders who are inspirational and can set a new direction for entrepreneurship, innovation and education.
Europe in Tomorrows World Page 25
Industrial strategy: a future for Europe in the global economy

Industry remains the backbone of Europe, with manufacturing industry a major source of EU growth and jobs. Before the global financial crisis, European manufacturing accounted for around 17 percent of GDP and 22 million jobs.39 But the importance of the industrial base stretches far beyond the core activity of manufacturingit also encompasses the broader productive sector, associated business services and wider businesses that rely on industry (and vice versa). Including this broader definition, the servo-industrial economy accounts for nearly half of the EUs GDP.40 EU industry is a key player in the global economy and very competitive in new green technologies. Europes core ecoindustries have a turnover in excess of 300 billion and have global market shares of up to 50 percent in some sub-sectors.41 The European Union is also a specialist in niche marketssuch as craftsmanship, design and creative contentthat have high barriers to entry. And with careful nurturing, niche markets can turn into mass markets. But European industry faces a number of challenges. The current phase of globalisation, marked by the rise of emerging markets and low-cost centres, is placing pressure on European industry, especially on higher-volume markets that compete mainly on cost rather than service and quality. Emerging-market companies with functional business models are carving out market share in areas where European businesses previously dominated. As emerging markets focus on highervalue-added goods, they will also join advanced countries in competing with Europes newer growth successes. The European Unions first-mover advantage in the green sector could easily be eroded by rapidly expanding industries, particularly in the United States and Asia. In addition, competition from emerging markets is playing out beyond the corporate arena. Emerging markets often have a more strategic vision of industrial planning; their governments are striving to establish certain industries at the forefront of the global stage and are investing heavily in key sectors. Beijings 12th Five Year Plan, for instance, has marked out 4 trillion yuan (US$600 billion) of financial support for the development of key emerging industries: energy conservation and environmental protection, information technology, biology, advanced manufacturing, new energy, new materials and new-energy automobiles.42 At the same time, disruptive business models are emerging for EU industry. The lines between manufactured products and services are blurringthe so-called servitisation of products. Services are increasingly being built on the back of manufacturing, with the manufacturing workforce employed in less traditional roles including R&D, design and after-sales care. The automobile industry, for instance, sells vehicles with maintenance schemes, financing options and insurance. And the degree of integration between goods and services is intensifying. Some products and services cannot be separated, as demonstrated by the car-sharing service Zipcar.
Europe needs to build a dynamic and sustainable industrial base to remain competitive in areas such as the green sector and to take advantage of the growing trend in servitisation. Imperatives for Europe:
Reinforce the foundations
The basic conditions for growthsuch as a favourable tax and regulatory regime, low levels of bureaucracy, skilled staff to hire and access to financeneed to be suitably created for EU industry to prosper. Complex tax and regulatory systems discourage investment, and a shortage of appropriate skills inhibits industry growth and innovation. Reinforcing the foundations is vital not only to industry in Europe but also for attracting foreign investment. Among the business leaders surveyed, removing the obstacles to industry development included the following:
Reduce and/or simplify regulation and tax, as mentioned
Increase investment in STEM skills, endorsed by one-third of

respondentsespecially large firms (42 percent)to support emerging industries such as the green sector.
by 47 percent of respondents (see Figure 20). This view was expressed even more strongly by high-growth firms, with 56 percent of business leaders supporting tax changes.
There is the need for integrated policies at the European level to address climate, energy efficiency and sustainability issues.
Page 26 Europe in Tomorrows World
Strengthen the link between industry and services

The servitisation of industry can carve out new niches and areas of comparative advantage over low-cost, functional business models. As manufacturing and services become more intertwined, the growth and demand in manufacturing and in new services will reinforce each other. This virtuous cycle of growth can be encouraged through the following actions:
Support innovation within the manufacturing sector by
Foster stronger linkages and closer collaboration between

the two sectors, spanning the value chain, from product design to outbound logistics and marketing.
Create an advisory service to share knowledge and best
encouraging greater linkages between manufacturing firms and universities/research institutes. Our survey revealed that one-fifth of business leaders favour a sharper focus on interdisciplinary research to stimulate industry growth. practices in the servitisation of goods. Such a service can encourage the use and adoption of technologies to promote innovation in processes and business models.
Articulate a pan-European industrial strategy

As barriers to trade and capital erode, and as technology opens up more sectors to international competition, Europe will need a more strategic vision of industry. A number of actions can frame an EU industrial strategy, including the following: cited by 36 percent of business leaders.
Consolidate areas of existing comparative advantage to
Encourage stronger ties with emerging-market businesses,
Implement common standards across the European Union
create emerging centres of excellence. Thirty-four percent of our business leaders agreed that Europe needs to prioritise business sectors seen as advantageous to Europe, such as finance, aerospace and automotive. to eliminate uncertainty and encourage investment in new technologiessupported by 32 percent of respondentsin order to create a critical mass of users in new technologies across the EU market.
Given its current positioning in the sustainable technology field, Europe must lead the world in breaking the link between the production of wealth and the consumption of resources.
We need to invest in areas of existing competitive advantage such as manufacturing, aerospace, pharma and clean energy.
47%
36%
34%
33%
32% 28% 21% 16% 14%
Reduce and/or simplify regulation and tax
Encourage stronger ties between European and emergingmarket businesses
Articulate a panEuropean industrial strategy, prioritising business sectors seen as advantageous to Europe (e.g., finance, aerospace, automotive)
Increase investment in STEM skills (science, technology, engineering and mathematics)
Implement common standards across Europe to eliminate uncertainty and encourage investment in new technologies
Encourage stronger partnerships between business and labour to reduce risk of industrial action
Apply more Facilitate focus on more interapprenticeship disciplinary programmes research (e.g., information technology, genomics)
Facilitate greater emphasis on management training
Page 27
Key findings
Figure 20: Stimulating industry growth How can European industrial policy most effectively stimulate industry growth in Europe over the next few years? Select up to three.
Trade and investment: building new bridges in a multi-polar world

Europe is the worlds largest trading bloc. It is the biggest exporter of manufactured goods and services as well as the largest export market for more than a hundred countries. In 2009, European firms exports reached 1.6 trillion, 13 percent of Europes GDP.43 Europe has effectively positioned itself in trade with a number of emerging markets.44 Over the last decade, the share of EU exports towards BRIC economies (Brazil, Russia, India and China) nearly doubled, reaching 19.7 percent of total exports.45 Overall, foreign direct investment dropped after the global financial crisis, but flows towards Africa and Asia kept increasing.46 A main actor within the World Trade Organization arena, Europe is an active player in economic diplomacy. Yet Europe cannot rest on its laurels. Emerging economies are rapidly shifting the balance of economic power, and Europe must review its external policies to fully reap the benefits of this transition. In 2010, emerging economies grew 6.9 percent, more than twice as much as developed economies.47 Between 2010 and 2015, more than 85 percent of global GDP growth will be generated outside Europe, with 22 percent coming from China alone (see Figure 21).48 Emerging economies are investing abroad more consistently, and trade between emerging markets is growing faster than world trade.49 As a result, emerging economies now boast 95 multinational corporations in the Fortune Global 500 list, up from just 20 a decade ago.50 Moreover, these economies are transitioning from being the worlds manufacturers to becoming fully fledged consumer markets, thanks to a growing local middle class. They are therefore opening up significant opportunities for European exporters (see Figure 22).
To avoid getting squeezed out and to reap the benefits of collaboration, Europe must proactively build bridges with emerging economies. Imperatives for Europe:
Explore new channels of economic diplomacy
Economic diplomacy is essential for paving the way to new markets. Completing the Doha Development Agenda (DDA) and all the ongoing free trade agreement (FTA) negotiations would increase the EUs GDP by more than 0.5 percent.51 However, after almost 10 years of negotiation, the DDA is still incomplete. In a rapidly changing and competitive environment, Europe must keep pushing for a conclusion of the DDA. But it must also explore alternative routes to maximise its involvement with emerging markets. Examples include the following:
Emphasise bilateral FTAs with fast-growing economies Rethink the role of economic diplomacy by fostering the
a solution favoured by 45 percent of the business leaders we surveyed (see Figure 23) and topping the list also for those based in emerging markets, with 54 percent citing it as an effective action. role of trade delegations that encompass business leaders and policymakers from different European countries.
Focus on the areas where Europe has a comparative advantage.

Forty-three percent of business leaders suggested that exports of services to emerging markets would represent one of the most significant opportunities.
Europe should not limit itself geographically it should feel like it has no borders. Europe has ideas and innovation to offer.
Page 28
Being competitive inside Europes borders is no longer enough.
Become a magnet for emerging-market investment

The growth in foreign direct investment by emerging-market companies and sovereign wealth funds has been one of the striking phenomena of the latest phase of globalisation. Outward flows reached a high of US$300 billion in 2008,52 and emerging economies currently hold approximately 65 percent of the worlds foreign exchange reserves.53 Attracting foreign direct investment can benefit Europe. Inward investment can be a medium of technology transfer and contribute to productivity improvements. Greenfield investment and joint ventures can create new jobs for Europes workers and, through enhanced competition, benefit Europes consumers. For Europe to show that it is open for business, its leaders can take the following actions:
Establish a stable investment climate, with clear decision
Increase regional coordination of European efforts to
processes that apply in respect of inward investment. Simplifying regulatory rules for emerging-market multinationals doing business in Europe was cited as a priority by 41 percent of business leaders globallyand by 48 percent of those based outside the European Union, making it (jointly with bilateral FTAs) their most popular choice. attract foreign direct investment. For example, a collective approach to attracting emerging-market investment could draw on areas of excellence based in several European regions. Business leaders were in favour of greater coordination of efforts to encourage investment into Europe, with 38 percent of respondents citing this action.
Reach out to emerging markets

According to our survey, the business leaders of high-growth companies see China (40 percent) and India (30 percent) as the most significant areas for their businesses future growth outside of the European Union. Emerging economies are growing rapidly and are home to an expanding middle class of consumers. By 2014, the number of households in emerging economies earning more than US$5,000 per annum (at purchasing power parity) will reach 405 million, more than in the developed economies.54 Therefore, promoting conditions for European
Foster stronger ties between European and emerging
enterprises to go abroad is essential to help them capitalise on the increasing importance of these markets and to boost exports of goods and services. To achieve these goals, policymakers can: economies businesses as a means to access new markets and reshape European enterprises operating models.
Invest in infrastructure to enable better access to customers
in emerging markets. For example, use ICT tools such as social media and analytics to understand consumers preferences.
Figure 21: Breakdown of global GDP growth (US$ billion at 2005 prices and market exchange rates) 59,536 Developed economies = 40% CAGR = 2%
Emerging economies = 60% CAGR = 5.8% 50,674 Global GDP 2010 China India Brazil South Korea Russia Mexico Africa Other United emerg- States ing Japan European Union Canada Other Global devel- GDP oped 2015
Source: Economist Intelligence Unit, Accenture analysis
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Europes large companies are well positioned to establish their brands in markets outside Europe.
Key findings
Figure 22: Benefits of engaging emerging markets What do you see as the most significant opportunities for economic integration between Europe and emerging markets over the next few years? Select up to three. 43% 38% 37% 35% 34%
30% 24% 19%
Growth in exports of services (e.g., health care, education, financial services)
Greater opportunities to source talent from overseas
Growth in exports of capital goods (e.g., machinery, plant, industrial equipment)
Greater opportunities for collaboration between European businesses and overseas partners (e.g., knowledge transfer)
Growth in exports of manufactured goods
Outsourcing production or service functions to lower-cost locations
Increased investment from sovereign wealth funds (or similar)
New sources of corporate finance
Figure 23: Unlocking the emerging-market opportunity What actions would be most effective in helping to capitalise on the growing importance of emerging markets over the next few years? Select up to three. 45% 44% 41%
38% 29% 25% 23%
Increasing bilateral free trade agreements between the EU and emerging market economies
Investing in infrastructure (e.g., air and rail links, information and communications technology) to enable better access to customers in emerging markets
Simplifying regulatory rules for emergingmarket multinationals doing business in Europe
Increasing coordination of efforts to encourage foreign direct investment into Europe
Expanding the use of economic diplomacy (e.g., trade delegations)
Completing the Doha round of world trade negotiations
Continuing the pursuit of EU expansion and neighbourhood policy (e.g., Turkey, Albania)
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ConclusionEuropes new direction

Europe is being confronted with new domestic and global dynamics: persistently high unemployment, continued financial market volatility, ageing populations, increasing squeeze on resources and accelerating globalisation. But Europe must not turn away in the face of these challenges. Instead, it must confidently reframe these long-term trends as opportunities for growth and job creation. For example, an older population will generate growth opportunities in health care, third-age education, leisure, tourism and age-related consumer markets. The rise of emerging markets will create significant openings for Europe to trade on its expertise in areas such as financial services, education, infrastructure and citizen services. These opportunities are within Europes grasp. To unlock them, however, policymakers and business leaders need to step up. They must take actionseparately and togetherin seven key areas central to future growth and job creation: economic governance, entrepreneurship and small and medium-sized enterprises, human capital and labour markets, ICT and social media, innovation, industrial strategy, and trade and investment.
Europe has the opportunity to take a new direction. It must act now to harness new waves of growth and become a smart, sustainable and inclusive economy.
Europe has a decade, until 2020, to reposition itself and reassert its leading global position. It can either use that decade well, or waste it.
A dynamic digital Europe, with creativity, innovation and a young and dynamic workforce to face the ever increasing competition from East and South.
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Methodology
During March and April 2011, Accenture conducted the research in preparation for this report. The aim was to understand the views of C-level executives in Europe and the rest of the world. The research consisted of two components: ended questions (excluding classification questions). The questions were designed to gauge the views of C-level executives on the challenges and opportunities facing business in Europe and possible effective strategies to help Europes performance. We defined Europe as the European Union. For most questions, respondents were able to choose up to three answers; for this reason, responses do not necessarily add up to 100 percent.
Online survey of C-level executives of companies doing

business in Europe. 402 C-level executives participated in the online survey. Respondents were selected from the Economist Intelligence Units C-level panel, so as to reflect the views of the very diverse base of companies operating in Europefor example, the views of C-level executives of SMEs vs. C-level executives of large companies and across various industries. The questionnaire included 19 closed-
Interviews with leaders of companies/organisations
operating in Europe. In-depth interviews were conducted over the telephone and lasted, on average, 45 minutes. We have included excerpts from these interviews throughout the report.
The demographic profile of the online survey sample was as follows:

Company revenues, 2010
US$100 million - US$500 million US$500 million - US$1 billion Greater than US$1 billion 153 (38%) 109 (27%) 140 (35%)
Revenue growth in 2010

More than 5% growth Between 0% and 5% growth No change Between 0% and 5% decline More than 5% decline 161 (40%) 185 (46%) 30 (8%) 16 (4%) 7 (2%)
Personal location of respondent

EU incl. France Germany Italy Spain United Kingdom Rest of EU Rest of world 285 (71%) 33 (8%) 33 (8%) 37 (9%) 38 (9%) 35 (9%) 109 (27%) 116 (29%)
Note: Three respondents chose not to answer this question.
Page 33
Acknowledgements
This report and the research it is based on would not have been possible without the generous participation of many people. We acknowledge the support and contributions of various team members from the Federation of Enterprises in Belgium (FEB) and Accenture. In developing this report, we have especially relied on Wytze Russchen (EBS Conference Director) and our Accenture colleagues Ladan Davarzani, Athena Peppes, Mark Purdy, Matthew Robinson and Stefano Scuratti (from the Accenture Institute for High Performance) and Charlotte Raut (from Accenture Research). We wish to thank the 402 business leaders who completed the survey. We also want to thank the 10 leaders who took the time to speak with the research team in great detail about Europe in tomorrows world. They are: tienne Davignon, Chairman of the Board of Directors, CMB, Genfina, Recticel Pierre Alain De Smedt, President, FEB (Federation of Enterprises in Belgium) Mikael Hagstrom, Executive Vice President, EMEA and Asia Pacific, SAS Ralf Hamers, Chairman and CEO, ING Belgium Mauro Moretti, Chief Executive Officer, Ferrovie dello Stato Jan Muehlfeit, Chairman, Microsoft Europe Jacek Olczak, President, European Union Region, Philip Morris International Allan Rushforth, Vice President, Hyundai Motor Europe Jrgen Thumann, President, BUSINESSEUROPE; chairman of the advisory board, Heitkamp und Thumann Group Bernard Wientjes, President, VNO-NCW (Confederation of Netherlands Industry and Employers) Ekrem Yener, Chief International Expansion Officer, Turkcell
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References
1 Eurostat news release, Euro area unemployment rate at 9.9%, April 1, 2011. 2 Ibid. 3 German Federal Statistical Office. 4 Economist Intelligence Unit, Accenture analysis. 5 Hamilton D.S., Europe 2020, competitive or complacent? Washington, D.C., Center for Transatlantic Relations, 2011. 6 International Monetary Fund, Global financial stability report, October 2010, Ch.1, pp.11-15. 7 Ibid. 8 Conclusions of the Heads of State or Government of the Euro area on 11 March 2011. 9 European Commission, European SMEs under pressure: annual report on EU small and medium-sized enterprises 2009, 2010. 10 Ibid. 11 Ibid. 12 US Small Business Administration, Advocacy Small Business Statistics and Research, 2010. 13 EIM Business & Policy Research, First section of the annual report on EU small and medium-sized enterprises, 2009. 14 EurActiv, EU to promote SME exports, February 21, 2011. 15 High Tech Federation, Towards a European Small Business Act for innovative growth companies, 2005. 16 EIM Business & Policy Research, First section of the annual report on EU small and medium-sized enterprises, 2009. 17 The Forbes Global 2000, Accenture analysis. NB: Calculations exclude companies originating from M&As, spinoffs and privatisations and refer to 2008. 18 EIM Business & Policy Research, Internationalisation of European SMEs, 2010. 19 European Commission, eBusiness guide for SMEs, 2008. 20 European Commission, Tertiary education statistics, September 2010. 21 World Bank, Knowledge Economy Index, 2009. NB: Denmark, Sweden, Finland, the Netherlands, Norway, the UK and Ireland. 22 Eurostat news release, Euro area unemployment rate at 9.9%, April 1, 2011. 23 European Policy Centre, Europe 2020: delivering wellbeing for future Europeans, March 2010, Ch.14. 24 Ibid. 25 CEDEFOP (European Centre for the Development of Vocational Training), Skill mismatch in Europe, June 2010. 26 Eurostat, Key data on education in Europe 2009, 2009. NB: 2006 data. 27 European Commission, DG Employment, Social Affairs and Inclusion, European vacancy monitor, March 2011. 28 European Commission. 29 Eurobarometer, Geographic and labour market mobility, June 2010. NB: EU and/or non EU. 30 Eurostat, European economic statistics, 2010. 31 Organisation for Economic Co-operation and Development, Programme for International Student Assessment 2009 rankings, 2010. 32 Van Ark B., Mary OMahony, and Marcel P. Timmer, The productivity gap between Europe and the United States: trends and causes, Journal of Economic Perspectives, Volume 22, No.1, Winter 2008, pp.2544. 33 Harris J.G. and Allan E. Alter, Cloudrise: rewards and risks at the dawn of cloud computing, November 2010. 34 Hamilton D.S., Europe 2020, competitive or complacent? Washington, D.C., Center for Transatlantic Relations, 2011. NB: 2007 data. 35 The Lisbon Council, An action plan for Europe 2020, Ch.12. 36 Eurostat. 37 Hamilton D.S., Europe 2020, competitive or complacent? Washington, D.C., Center for Transatlantic Relations, 2011. 38 Eurostat, Statistics in focus, 2008. 39 European Commission, EU manufacturing industry: what are the challenges and opportunities for the coming years? April 26, 2010. 40 Ibid. 41 Ibid. 42 International Business Times, China underlines emerging industries in 12th five year plan, October 19, 2010. 43 European Commission, Trade, growth and world affairs: trade policy as a core component of the EUs 2020 strategy, 2010. 44 European Commission, EU and BRICs: challenges and opportunities for European competitiveness and cooperation, Industrial Policy and Economic Reform Papers No.13, 2009. 45 Eurostat, The EU in the world: a statistical portrait, 2010. 46 Ibid. 47 Economist Intelligence Unit, Accenture analysis. 48 Ibid. 49 International Monetary Fund, Accenture analysis. 50 Fortune Magazine. 51 European Commission, Trade as a driver of prosperity, 2010. 52 United Nations Conference on Trade and Development. 53 International Monetary Fund. 54 Economist Intelligence Unit, Accenture analysis.
Page 35
About the Federation of Enterprises in Belgium (FEB)

The Federation of Enterprises in Belgium (FEB) is the only multi-sector employers organisation representing companies in all three regions of Belgium. Its members, Belgiums leading sectoral federations, represent companies in key industrial and service sectors. www.feb.be
About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 215,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.
About the Accenture Institute for High Performance

The Accenture Institute for High Performance creates strategic insights into key management issues and macroeconomic and political trends through original research and analysis. Its management researchers combine world-class reputations with Accentures extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses.
About Accenture Research

Accenture Research is an in-house research capability providing data, analysis and insights to Accenture and its clients. The staff consists of 150 experts in economics, sociology and survey research from Accentures principal offices in North America, Europe and Asia/Pacific.

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An initiative of

Europe in Tomorrows World

Report prepared for the European Business Summit 2011

New waves of growth

Europe in Tomorrows World

Seven levers for accelerated growth and job creation

Develop forward-looking approaches to systemic risks

Incorporate pro-growth measures in economic

Invest in science, technology, engineering and mathematics

Remove the ceiling to growth. Fifty-three percent of business

Outperform in digital infrastructure and market regulation.

Set clear ground rules. Twenty-nine percent of business

View digital skills as todays literacy. In our survey, 31

Europe in Tomorrows World

Articulate a pan-European industrial strategy. A reinvigorated

Promote services innovation. Recommended actions

Develop and retain innovators and entrepreneurs.

Explore new channels of economic diplomacy. Additional

Rethink clusters to harness networking benefits. Thirty-

Become a magnet for emerging-market investment.

Reach out to emerging markets. Promoting conditions for

Reinforce the foundations. Among the business leaders

Strengthen the link between industry and services.

Europe in Tomorrows World

IntroductionEurope in tomorrows world: harnessing new waves of growth

70% 49% 31%

30% 23% 21% 12% 5% Germany Italy Spain

3% Respondents based in other EU countries

High government budget deficits

Financial market uncertainty

Growing Unsustainable competition sovereign from emerging debt levels markets

Persistently high unemployment

Weak private sector investment

Europe in Tomorrows World

Business Leader Insight

New domestic and global dynamics

New waves of growth

The emerging-market opportunity: A burgeoning group of

Demographics: The greying of Europes population will

Europe in Tomorrows World

The landscape for investment in Europe

Respondents based in the EU Respondents based in the rest of the world

Europe in Tomorrows World

Business Leader Insight

Europe is failing to capitalise on its strengths

Business Leader Insight

22% 27% 6% 25% 9%

Neither effective nor ineffective Ineffective

Europe in Tomorrows World

Economic governance: a base for stronger growth

Europe in Tomorrows World

Develop forward-looking approaches to systemic risks and imbalances

Design early-warning systems to prevent asset bubbles (for

Create stronger mechanisms for central monitoring of national

Improve coordination between member states on fiscal

Enhance regulation to address financial sector risks (cited

Incorporate pro-growth measures in economic governance

Make greater use of tax cuts to promote employment. This

Europe in Tomorrows World

2007 2009 2011

Source: Economist Intelligence Unit

Figure 7: Public-sector budget balances (% of GDP) 5%

2007 2008 2009 2010 2011