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THE EUROPEAN LANDSCAPE IN THE NEXT DECADE Prof. dr. Richard C. Kaehler Professor Emeritus Pepperdine University Director of Academic Affairs-Europe University of Phoenix June 23, 2001 Lisbon, Portugal IC² Fellows Special Session INNOVATION AND COMPETENCE BUILDING

POLITICAL Enlargement

* Began in 1951 between six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands * First Enlargement in 1973: Denmark, Ireland and the United Kingdom * Second Enlargement, in 1981: Greece * Third Enlargement in 1986: Portugal and Spain * Fourth Enlargement in 1995: Austria, Finland and Sweden 15 COUNTRIES WITH A POPULATION OF 375 MILLION

POLITICAL Enlargement

* There are 12 candidate countries with a combined population of 105 million people * Six countries could be admitted by 2005-2006: Poland, Hungary, Czech Republic, Cyprus, Slovenia and Estonia * The remaining six countries could take a decade: Slovakia, Bulgaria, Romania, Latvia, Lithuania and Malta BY THE END OF THIS DECADE THE EU COULD BECOME THE LARGEST FREE-TRADE ZONE IN WORLD WITH OVER 500 MILLION PEOPLE

POLITICAL Enlargement

POLITICAL Integration

* Germany has proposed a plan for European Integration. So far, it has received a “mixed review” * There will be a Constitutional Convention in 2004 * The central issue is: should the EU be a “Confederacy” with economics as the common base, or will there be a “Federation” with a strong central political base (a United States of Europe) From an economic point of view, Europe “looks like” the US: US Euro-zone Economy World trade share $8.0 trillion 18% $6.5 trillion 18% Exports/GDP Listed Companies 11% 9.900

11% 9.100

ECONOMIC Outlook

* At the summit meeting in Lisbon, EU leaders committed themselves to the creation of the “Most competitive and Dynamic Economy in the world by 2010” THE GENERAL OPINION FOR EUROPE OVER THE NEXT DECADE IS “BULLISH”

ECONOMIC Activity

* Both the “old” economy and “new” economy are on the upswing together * Successful corporate restructuring * Productivity growth (Renault makes 220.000 more cars with 20.000 less employees than 10 year ago) * Substantial tax cuts (Italy, Germany, France) * Best Employment figures in 10 years (overall 8.7%) * Labor markets are becoming more flexible *State-owned monopolies continue to be privatized *Significant progress in becoming a single market ALMOST ALL TRADE BARRIERS HAVE BEEN ABOLISHED

ECONOMIC EURO-zone

* The EURO has been adopted by 12 counties (the United Kingdom, Sweden and Denmark have not joined) * EURO-zone members have strict economic standards: - Debt not to exceed 60% of GDP - Budget deficits not to be larger than 3% of GDP * The “transparency of the EURO”has made price competition aggressive * A single currency has made it easier for companies to raise capital APPROXIMATELY 80% OF EUROPE’S TRADE IS DONE WITHIN THE EURO ZONE

SOCIAL Population Aging

* The European population is aging * If Europe wants to keep the ratio of older people to active workers at 1995 levels, the EU will need 135 immigrant workers by 2025 ECONOMIC GROWTH CAN BE DRAMATICALLY AFFECTED BY HOW THE IMMIGRANT ISSUE IS RESOLVED

SOCIAL Immigration

* Many Europeans are fearful of immigrant workers. (Only 36% of Germans support the EU enlargement) * Eastern countries will not be allowed complete access to job markets for seven years after being admitted to the EU * Average wages in 10 of the applicant countries are 14% of the wages in the 15 EU countries. The fear is a “flood” of illegal workers SAME FEARS WITH THE ADMISSION OF GREECE, PORTUGAL AND SPAIN, BUT NO LARGE-SCALE MIGRATION OCCURED

SOCIAL Computer Literacy

IN MARCH 2000, THE EU’S GOVERNMENT LEADERS VOWED TO TRANSFORM EUROPE INTO THE MOST COMPUTER-LITERATE SOCIETY IN THE WORLD BY 2010 * Since March 2000 the percentage of households connected to the internet increased from 18 to 30 percent.

* In Denmark, Sweden and the Netherlands, more than half of all household are now online, surpassing the U.S.level of 41% * Quicker growth in IT across the board in Europe in 2000. IBM Europe grew at 18% while IBM U.S. grew at 8 percent

SOCIAL Entrepreneur ship

* The US leads Europe in the: - Rate of new company formation - High-Tech business activity - Business investment in new assets - Business spending on R+D - Number of initial public offerings backed by venture capital EUROPE DOES NOT MATCH THE US CULTURE OF ENTREPRENEURIAL RISK TAKING

SOCIAL Entrepreneur ship

“THE AMERICAN ATTITUDE IS LET’S MAKE A FEW MISTAKES BECAUSE WE’LL LEARN FROM THEM.

THE TENDENCY IN EUROPE IS TO WAIT FOR ENABLING LEGISLATION” Ester Dyson US Venture Capitalist