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EU Affairs:

EBS 2013:

Opinion:

CROATIA'S EU UNLOCKING INDUSTRIAL STRENGTHENING MEMBERSHIP OPPORTUNITIES EU-CHINA RELATIONS

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Chairman Athanase Papandropoulos

Publisher Christos K. Trikoukis

Editor in Chief N. Peter Kramer

Editorial Consultant Anthi Louka Trikouki

Issue Contributors Sinan Ülgen, Wu Hailong, Judy Dempsey, Kolfinna Baldvinsdottir, Hans Hack, Nicholas Bray, Stephen M. Walt, Susana Machado, Loïc Verheyen, J. R. Thumann, Bart W. Schermer

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04 EDITORIAL Editorial, by N. Peter Kramer, editor in chief

06 OPINIONS

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Why the World Needs a Stronger Europe Strengthening mutual trust in China-EU relations

10 EU AFFAIRS What Croatia’s EU Membership Means for Europe A tale of two islands: bailout or bankruptcy?

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14 ECONOMIC OUTLOOK Tax reporting: are business leaders aware of what is coming their way?

16 TRENDS The DNA of the World's Most Innovative Companies

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20 THE WORLD The real threat behind the NSA surveillance programs

23 SPECIAL REPORT Is the European Union too dependent on Russian gas?

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39 EUROPEAN BUSINESS SUMMIT Brussels 15 and 16 May: 11th European Business Summit

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EDITORIAL

‘Stop creeping competences of the European Commission’ by N. Peter Kramer, Editor-in-Chief

The Dutch government has just said that it is convinced the time of an ‘ever closer European Union’ in every possible policy area is behind us. There is a need for ‘creating a European Union that is more modest, more sober’. The trend of the paper, leaked by the end of last week, is quite clear: ‘European where necessary, national where possible’. 54 points of action are mentioned.

The Dutch government highlights a recent fiasco on olive oil as ‘a good example’ of how EU law creates silly ‘administrative burdens’. In May the European Commission retracted a ban, justified on hygiene grounds, on refillable olive oil jugs in restaurants after a wave of ridicule in the media. In what it dubs ‘creeping competences’, the Dutch government’ paper says the European Commission should stop publishing non-binding ‘communications or recommendations’ in areas where it has no mandate. It aims to roll back EU projects on construction material norms, forestry management, anti-flood measures, and milk and fruit programmes for schoolchildren. The paper also says there is ‘no reason for EU level legislation’

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on quotas for women on corporate boards; and asks for more control by the member states of the implementation of acts because commission officials are tweaking to the existing laws in the obscure process called in EU-jargon ‘comitology. Recently other countries, more heavy weight and important then the Netherlands, are critisising the role of the commission and its President Barroso. German Chancellor Angela Merkel said in an interview that she doesn’t want more power for the commission. French President Francois Hollande told Barroso that the Commission ‘cannot dictate’ the economic policies of the member states. A week later, in a dispute about the conditions for starting EU-US trade talks, the President of the

Commission called French politicians ‘reactionary’(!) when they wanted (and got in the end) an exemption for culture. Anyhow, the Dutch initiative follows after British Prime Minister David Cameron January criticism of the notion of an ‘ever closer union’. William Hague, British Foreign Minister, promised review ‘meddlesome’ EU activities. This study is expected in 2014 and with no doubt will go further than the Dutch one, with a focus on EU criminal legislation and social politics. One last example from the Dutch government paper: EU officials’ salaries should be calculated in a way that lets member states cut them more easily. Undoubtedly that will bring the overpaid Eurocrats again to the streets for a strike.


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OPINION

Why the World Needs a Stronger Europe by Sinan Ăœlgen*

All Europeans are, by now, well aware of the costs of the euro crisis. It has fractured national economies, stagnated economic growth and taken a large human toll in terms of widespread unemployment. It has also created widespread political tensions in the EU and threatens to ruin the grand experiment of European unification.

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OPINION

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qually alarming but less well known, however, are the consequences of the EU’s tarnished image as a community of nations. The crisis, which has dragged on for years and is by no means over, has greatly diminished Europe’s ability to provide the regional leadership that is needed to drive the momentum of democratic reforms among its neighbours. This is likely to give rise to longer term effects that will shape the destiny of a number of nations. In many North African countries, the recent collective action for greater dignity and better governance was successful in toppling authoritarian regimes. The next step requires the setting in motion of a new social contract for a more democratic, inclusive and accountable system of governance – exactly the type of environment, where in the case of Central and Eastern Europe, the EU has played an invaluable role. The EU’s engagement helped those countries to steer their post-authoritarian transitions towards the goal of a better society. In short, the EU has been an important actor in democratic reconstruction. In the same vein, Europe had the vocation to play a scaled back, but nonetheless important role in facilitating the transitions in the Arab world. Indeed, Europe today is conspicuously absent in the debates within Arab societies on areas ranging from the independence of the judiciary to civil military relations. A more confident Europe can only result in more effective engagement with Arab nations at this crucial juncture.

In Turkey, for example, the EU was instrumental as the main external anchor for the wave of democratic reforms introduced by the AKP government, which took place mostly in the preeuro crisis period. But today, the EU has lost its leverage on Turkey and side-lined itself from the country’s domestic dynamics. One reason is the ongoing ambivalence among EU member states about prospects of an eventual accession to the Union by Turkey. But the other reason is certainly the growing perception that the EU is in fact a declining power. As a result, over the past few years, there has been a remarkable shift in Turkey’s priorities. The objective of EU membership has for all practical purposes disappeared from the official discourse. At the same time, Turkish support for EU membership declined from its peak of 74 % in 2004 to a historic low of 33 % in 2012. In its stead, Turkey is looking to become a regional power and is much more inclined to invest its diplomatic resources in the turbulent Middle East. But the loss of traction has had detrimental consequences for Turkey’s reform agenda. The perceived weakness of the European project makes it almost impossible today to champion an alternative narrative of Europeanization for the future of Turkey. Finally, and on a more universal scale, the EU was set to represent the liberal democratic answer to the challenge of globalization. The EU’s model of supranationalism was viewed as the most developed inter-state construct in human history designed to pool

the capabilities of the member states to tackle global challenges. The EU’s continued progress was particularly important at a time when competing models of governance – such as state capitalism of China or the illiberal and shallow democracy of Russia – started to gain increased visibility on account of the economic performance of these nations. The failure of the European project is therefore the failure of the liberal democratic order to protect its blueprint, nurtured for so many years, for the improved management of the many forces of globalization. Such an outcome can only increase the attractiveness of the competing models, not only for Arab states, but also for other developing countries in the midst of regime transitions. It is understandable that at times of economic hardship, European leaders’ attention is necessarily focused on the domestic aspects of the crisis. But true leadership requires a wider perspective. Europe’s leaders should look beyond the continent’s short-term predicament. This is absolutely essential to create the conditions for a better future in a post-crisis world, not only for Europeans but also for many other global citizens. *Sinan Ülgen is a visiting scholar at Carnegie Europe in Brussels, where his research focuses on the implications of Turkish foreign policy for Europe and the United States, particularly with regard to Turkey’s regional stance and its role in nuclear, energy, and climate issues.

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OPINION

STRENGTHENING MUTUAL TRUST IN CHINA-EU RELATIONS by H.E. Mr. Wu Hailong*

Since China and the European Union established diplomatic relations 38 years ago – and especially over the last ten years of our comprehensive strategic partnership - China-EU relations have become more mature, extensive and interdependent. This is because we have made relentless efforts to constantly overcome our differences with trust. The story of China-EU relations reflects the paramount significance of deep mutual trust to ensure the stable and sustainable growth of a relationship.

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utual trust comes from knowing and understanding each other. It develops and consolidates as we support each other over time. China has always backed European integration and Europe’s aspiration to play a significant role in ensuring global peace, stability, and prosperity. Over the years, China has remained steadfast in its support of Europe, during good times and bad. China is confident about the future of Europe despite the debt crisis and has assisted Europe to the best of its capacity. Down the road, China will continue to support European integration and the EU’s efforts to address the crisis and play a bigger role in international affairs.


OPINION

Mutual trust can be found in many areas of cooperation between China and Europe at multiple levels. There is enormous diversity among EU member states. Such diversity, coupled with the different backgrounds of China and Europe, makes our relations diverse and multilayered. In my view, China-EU cooperation advances at various levels, which complement and reinforce each other. Stronger cooperation at these different levels is conducive to increasing and enhancing the quality of China-EU cooperation, ensuring the comprehensive and balanced growth of our relationship and helping Europe address its current difficulties. China views the EU institutions as a high achievement of European integration and a key platform for China-EU relations. We attach great importance to the active role of the institutions in coordinating the EU’s China policies and in facilitating China-EU cooperation. Constant efforts are made to maintain sound communication and cooperation with them.

EU member states are also important Member states are also important in the delivery of the EUChina cooperation agreement. China views relations with member states as a key foundation for the overall China-EU relationship. Each EU member state has unique national conditions as regards natural resources and economic and social development. As a result, the focus and needs of each member states differs when cooperating with China, a factor that we take into thoughtful account in our cooperation with member states. With the changes taking place in the global landscape, more and more EU member states have begun to demonstrate similar needs and interests in their cooperation with China. This trend has opened up new channels for EU-China cooperation. Through our practical experience of ongoing cooperation between China and countries in central, eastern, and southern Europe, we have learned that such cooperation can meet the demands of both sides and can

ensure faster implementation of key objectives through incentives for public, social and private sectors to work together. The cooperation between China and member states across Europe is transparent, open, and inclusive. Such cooperation is an integral part of the overall ChinaEU relations, and is, in essence, an extension and in-depth development of China-EU cooperation, serving the interest of not only member states but also the EU as a whole. We are confident that by strengthening cooperation at all levels, we can add more substance to China-EU cooperation and make it broader, deeper, and more solid.

Managing differences Mutual trust also means the proper management of differences. Due to our different national conditions, development levels, and choice of development paths, China and Europe have different perspectives on some problems. In the future, we will continue to view and handle these issues with reason and objectivity, and continue to use dialogue and cooperation to remove misgivings and build trust. China and Europe are now presented with wonderful new opportunities to develop our ties. The two sides are working actively on a medium and long-term plan of cooperation. I strongly believe that embracing the spirit of equality, mutual trust, cooperation, and win-win solutions, China and Europe can open a new chapter of mutually beneficial cooperation. * Ambassador of the People’s Republic of China to the EU.

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EU AFFAIRS

What Croatia’s E EU Membership Means for Europe by Judy Dempsey*

On July 1, Croatia became the 28th member of the European Union. For the first time, a country that was deeply embroiled in the Balkan Wars of the 1990s takes a seat in Brussels.

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ver since accession negotiations began in 2003, successive Croatian governments, despite wavering support from their domestic public, were determined to complete the talks quickly. For politicians in Zagreb, joining the EU was about drawing a line under the wretched and bloody past of recent civil war. It was also about proving to the EU, as well as to Croatia’s western Balkan neighbors, that the country was not condemned to crouch outside the EU’s door. Croatia’s accession has immense strategic implications for the EU. The most important question is what will happen to the enlargement policy, one of the bedrocks of the EU, after Croatia’s entry. There is an unofficial consensus that enlargement will come to a full stop for several years. This is not good


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news for the western Balkans or for Europe’s Eastern neighbors. Like Croatia, they all aspire to membershipand not just for the economic benefits. Joining the EU is about binding one’s country to a strong and proven system of values that can underpin a fragile democracy. Yet many EU governments are now unwilling to extend these benefits further afield. They say it is because of enlargement fatigue. But this notion serves mostly as an excuse to cover up the mistakes the EU made in admitting Bulgaria and Romania in 2008, when they were far from ready. Corruption was and still is endemic in both countries. The functioning of an independent judiciary is haphazard, to say the least. When Bulgaria and Romania were preparing to join, France and the other EU countries that supported the pair’s entry claimed that it was far better to have them inside the EU than outside. It would help Brussels keep up the reform momentum, they argued. Yet reform has been lacking-and not just in Romania and Bulgaria. Take Hungary, which joined in 2004. The former Socialist government and now the incumbent Fidesz administration led by Viktor Orban have run roughshod over the rule of law and basic norms of transparency and accountability. As for Croatia, even the European Commission says in its final report on the country’s accession preparations that Zagreb has yet to tackle corruption, trafficking, and organized crime. Once admitted, will Croatia really attack those problems, which after all affect Europe’s security too, or will it lapse into lethargy? Enlargement fatigue has become a synonym for disappointment, because the pressure for reform, despite new monitoring mechanisms by Brussels, largely disappears once countries have been admitted. Blaming fatigue also covers up the frustration in managing the EU’s security and defense policy at the level of the 27 or, counting Croatia, 28. But wasn’t the Lisbon Treaty of 2009 supposed to give the EU’s high representative for foreign affairs and security policy greater powers to strengthen Europe? Wasn’t it supposed to allow the EU to gain a sense of strategic purpose? Unfortunately, nothing of the sort has taken place. Some blame enlargement. But that is disingenuous. With few exceptions, several (big) national governments have flexed their muscles at the expense of a strong and coherent foreign policy. They have done so because they do not want the EU to assume more powers. Either they do not trust Brussels or they do not

want to see their influence back home diminished. In other words, it is not the new members who now bear the most responsibility for weakening Europe’s voice in global affairs, but those that have been part of the club for decades. Curiously, one of the rare occasions on which member states gave the EU’s High Representative Catherine Ashton carte blanche was over the issue of Kosovo’s independence. Her success last April in pulling off, against all the odds, an agreement between Serbia and Kosovo over the status of the partially recognized state was testament to her perseverance and skill as a diplomat. Yet she only got this chance because no member state wanted to claim responsibility for such a highly complex issue. They delegated it to Ashton because they did not want to be associated with failure. Now, national governments are boasting about Europe’s success, not acknowledging that it was only possible because they had left Ashton alone to get on with the job. It shows that the EU, however big and ungainly, can work effectively if the member states stop meddling or undermining the high representative. So critics should stop blaming enlargement for the EU’s lack of strategic clout. Instead, once Croatia has settled in, the EU needs to think hard about what use it should make of possibly its most powerful instrument: the promise of membership.

*Judy Dempsey is a nonresident senior associate at Carnegie Europe and editor in chief of Strategic Europe. She is also a columnist for the International Herald Tribune.

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EU AFFAIRS

A TALE OF TWO ISLANDS: BAILOUT OR BANKRUPTCY? by Kolfinna Baldvinsdottir *

Why should (German) taxpayers bail out Russian oligarchs who are in danger of losing their taxevaded money? Silly question. Of course they shouldn't - none of their business.

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here did the ECB and the IMF get the idea to rob the savings from guaranteed saving accounts from ordinary people in Cyprus? It is exactly contrary to what they are supposed to do. What a silly idea. Capitalism is supposed to be driven by the profit motive. The more you are ready to take risks, the heftier your profit. But risk has two sides to the coin: Profit and loss. High risks, big profits, but potential loss. Just as the American airline CEO quipped, when his company went bust: Bankruptcy is to capitalism what the idea of hell is to Christianity. Without hell (bankruptcy) there is no paradise (fortune). Many commentators on the Cyprus bank crisis have drawn attention to many similarities between Iceland and Cyprus. The similarities are striking. Both islands wanted to become sanctuaries for the superrich. Both offered high rates of interest and lax regulation. Both islands experienced cancerous growth of the banking system. In the case of Iceland it was 10 times the GDP in 6 years; Cyprus was more modest - 8 times the GDP and it took them a bit more years. Both have connections to the Russian

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mafia. Having amassed handsome profits in the alcohol business in St Petersburg in the 90s, Icelandic oligarchs bought the then recently privatized national bank of Iceland. For many years the Cyprus banks have been a sanctuary for Russian oligarchs, offering both necessary secrecy and generous rates of interest. So, is there anything the Cypriots could learn from the Icelandic experience five years ago? Well, there are differences. Iceland was and still is outside the EU and the EMU. Cyprus is in and supposed to be sheltered in that exclusive company. In both cases the crisis was started by illiquid (insolvent) banks but the reaction seems to be different. In the case of Iceland the banks simply went bankrupt. In the case of Cyprus (just as in the case of Ireland) there is a frantic scramble to

shore up the banks at taxpayers' expense. Why on earth? Why is there no respect for the basic principles of market economics? Those who take risks get high profits. That is why inequality is a basic feature of capitalist society. If things go wrong, those who earn the profits are supposed to take on the losses. Since when have capitalists become such eager admirers of the welfare state (admittedly the welfare of capitalists)? Why is everything being turned upside down: you privatize the profits but nationalize the losses. This means tearing up the unwritten social contract of market societies. People accept inequality to a certain degree, as a just reward for willingness to take risk or make extraordinary contribution in terms of effort, skill, innovation etc. What people are not ready to accept is that those


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who reap the profits in good times, could hand out the bill or refer the losses to the general public in bad times. That is the end of democracy. This is also the end of rule of law. In the past it was the beginning of a revolution. The Nobel laureate, Paul Krugman, once again (in his column in the Herald Tribune) cited the example of Iceland as something to learn from. (although he seems to applaud the magic of devaluations but forgetting all about the suffering of the victims). Ok, but what was the Icelandic way? Essentially it was this: The banks were not bailed out, they went bankrupt. Partly this was courtesy of Gordon Brown who put the Icelandic banks operating in London, as well as the government and Central Bank of Iceland, on a list of terrorist organizations, alongside Al Qaeda. After that, banks need not bother to open their doors again. The Icelandic banks had by that time outgrown the real economy 10 times. All of it was on borrowed money. Who were the creditors? Mostly German bankers. (Just as in the case of the Irish and Spanish real estate bubble). Who lost money on Iceland? German bankers. (They lost approximately 7x Iceland's GDP). What were the consequences? The German (and other foreign) banks simply wrote off their failed investments. After the Icelandic government had put the Icelandic banks into receivership, German banks sold their claims at fire sale prices in the aftermarket. Who were the buyers? Mostly American hedge funds, which picked up the claims for perhaps 5% of nominal value. In the meantime the Icelandic government,

through emergency legislation, nationalized the failed banks. They took all “Icelandic” assets out of the bankrupted banks (saving deposits and outstanding loans to Icelandic companies). When the banks were privatized again they came into the ownership of those American hedge funds. The hedge funds wanted to make windfall gains through the privatized banks' profits. But now they are up against another wall. Iceland still maintains its own national currency. Admittedly it was devalued to the tune of 70%+. For the Icelandic people that meant high inflation, doubling of debt, exorbitant interest rates, dispossession of a generation, higher taxes, cuts in social services and drastic fall in purchasing power. This by the way seems to have passed the notice of Mr. Krugman. For export industries it meant short term bonanza. Society is polarized as never before between those who benefitted from the crash and the others, who pay the bills and bear the burden. But Iceland itself went into IMFreceivership and to prevent another devaluation, the IMF imposed capital controls. They were meant to be temporary, but they are still there, getting more and more stringently implemented. What does that mean for the hedge fund managers who want to present their full claims (even if they were bought at fire sale prices)? It means that they have to accept negotiating with the government. Under capital controls they cannot convert their assets in the local currency (which is worthless) into euros or dollars. Either they have to reinvest their local currency money

in Iceland or seek exemption from capital controls. They are unlikely to get it, unless they accept massive “haircuts”. What is the moral of the story? Nation states – even small micro states – are not without power when it comes to dealing with the owners of capital. They are usually depicted as helpless victims of superior forces, almighty bond markets or speculative investors. But it ain't necessarily so. But it requires political leadership to take on the international predators. The way to do it is to let them go bankrupt and to (at least temporarily) abolish or limit the freedom of movement of capital. That is the Icelandic lesson. Can the Cypriots learn anything from this story? Perhaps they should invite the Icelandic Central Bank governor to Nicosia – rather than Mr. Draghi?

*Kolfinna Baldvinsdottir, is vicepresident of the Press-Club Brussels-Europe.

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ECONOMIC OUTLOOK

Tax reporting: are business leaders aware of what is coming their way? by Hans Hack*

As a business leader, following relevant legislative developments can be challenging. Even more so if these developments take place at the EU level, because it could take years before they actually impact your business. Within European legislative developments, tax policy is probably the last area that would keep a business leader awake at night. With unanimous voting (meaning every single Member State of the EU has to agree) and zero-sum game politics between the leaders, agreements on tax rules generally take a long time...

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ECONOMIC OUTLOOK

H

owever, a recent agreement between the European Heads of State to step up the fight against tax avoidance and evasion has changed these dynamics. Fueled by large budget deficits, ministers hiding money in Swiss bank accounts and high profile “aggressive tax planning“ cases such as Amazon and Apple, European leaders have caught businesses and administrations by surprise. At a May summit they agreed to oblige large companies and groups to report country-by-country on their turnover and taxes paid. It is time to sit up and take notice. Upon receiving the request from the 27 leaders of the European governments, the European Commission has indicated it will look to swiftly introduce the legislation. The most likely scenario is that the concept of country-by-country reporting will be integrated in negotiations on non-financial reporting, which have started after the legislative proposal was produced by the Commission in April of this year. Considering the fact that the Heads of State and Government got the ball rolling in the first place – and that the European Parliament has already signaled support through UK MEP Sharon Bowles, Chair of the powerful Economic and Monetary affairs Committee– negotiations on legislation will not necessarily take a long time.

What is it and how will it impact your business The official Conclusions of the European Council of 22 May state that: “the proposal amending the Directives on disclosure of non-financial and diversity information by large companies and groups will be examined notably with a view to ensuring country-bycountry reporting by large companies and groups”. This wording is far from specific but was repeated by European Commissioner for Internal Market and Services, Michel Barnier, in a speech on Thursday 23 May in Amsterdam at the Global Conference on Sustainability and Reporting: “The largest banks will also have to disclose their profits, taxes and subsidies in each Member State and non-EU country where they operate. And in the line with yesterday's conclusion of the European Council we will expand these reporting obligations to large companies and groups”. This seems to signify that the Commission intends to introduce a requirement for corporates to report the following:

a) N  ame(s), nature of activities and geographical location; b) Turnover; c) Number of full time employees; d) Profit or loss before tax; e) Tax on profit or loss; f) Public subsidies received.

So where does this idea come from? The background to this potentially game-changing proposal is that in times of austerity, the search for tax income has become more pertinent. In addition, the fairness of the social contract has come into question due to harsh measures being applied to all layers of society. To regain the trust of citizens, (who are also voters and tax payers), politicians need to demonstrate their efforts to ensure fairness. MEP Bowles succinctly described the political drive in a recent tweet: “country-by-country reporting for ALL sectors helps ALL countries get the tax they deserve”. Country-by-country reporting is a concept that first featured in the revision of the Accounting Directive. This Directive specifies a requirement for large companies and public interest entities in the extractive industries to disclose payments to governments. This requirement, also introduced in the US, is intended to promote government accountability and good governance, basically reducing the likelihood of bribes. Following on this, a country-by-country reporting requirement regarding turnover and taxes paid was surprisingly introduced in the Banking Capital Requirements Directive (CRD IV), on the initiative of the European Parliament, however with a different aim. The recital to this proposal states: “Increased transparency regarding the activities of institutions, and in particular regarding profits made, taxes paid and subsidies received, is essential for regaining the trust of EU citizens in the financial sector. Mandatory reporting in this area can therefore be seen as an important element of the corporate responsibility of institutions to stakeholders and society”. One can see how the next step of applying this requirement to all large businesses would be a logical one for politicians. Businesses need to be aware that this is coming their way. *Hans Hack is Senior Director at FTI Consulting, Brussels

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TRENDS

The DNA of the World's Most Innovative Companies by Nicholas Bray (INSEAD)

Innovation makes millionaires and undermines monopolies. It raises the profitability of companies and puts a premium on the shares of the most successful. But how can companies foster it? New research sheds light on the innovation process and how firms can tap into it to raise their performance and their share price.

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nnovative business leaders typically share certain qualities. They are always asking questions, experimenting, observing and networking. While building on past successes, they keep the doors open to future innovation. In a world where success often breeds more success, such behaviour can boost the market value of their companies well beyond what current profitability would justify. In a newly published study of what makes a successful innovator, “we looked at people who lead incredibly innovative companies”, says Hal Gregersen, INSEAD Senior Affiliate

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Professor of Leadership and Director of the Learning to Lead executive education programme and one of the study’s co-authors. “And we realised that these companies seemed to be incredibly valuable.” In reaching this realisation, Gregersen and his co-authors, Jeffrey H. Dyer of Brigham Young University and Clayton Christensen of Harvard Business School, had hit on what they call the “innovation premium”. And in their book, “The Innovator’s DNA”, they explain how for some of the world’s most innovative companies it can add 50 percent or more to their market value.

“Investors pay a stock price based upon two things,” says Gregersen. “One is the cash flow - the money coming from existing products, services and markets. The other is the belief that the company will develop new markets, new services and new products tomorrow.”

More jam tomorrow Take a company like Amazon. Given its reputation, suggests Gregersen, an investor might well say: “I’ll pay you this amount for your stock for the existing products and services, and for the markets that you’re in. But I also believe


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you will do something different in the future. You’ll have new markets. You’ll have new services. You’ll have new products you don’t even have today - and because of that, I’ll pay you a premium.” Building on this insight, Gregersen and his co-authors worked with HOLT, a unit of Credit Suisse Group, to draw up an innovation premium roll-call of innovative companies based on analysis of the relationship between their cash flow and their share price. To qualify, companies had to be listed on a stock exchange and have a market capitalisation of at least US$10 billion. They also had to have published financial statements over at least the past seven years. The results were striking. Companies like Toyota, Sony and Samsung, which frequently feature on other lists of innovative companies, sank to negative ratings. In their place emerged a number of unexpected and relatively

unknown companies - firms like California-based Intuitive Surgical, which builds systems for robotically assisted, minimally invasive surgery, Natura Cosméticos, a Brazilian manufacturer of cosmetics made from plants from the Amazon forest, and Keyence Corporation, a Japanese producer of electronic sensors for automated factory systems.

Cut-throat car market The list includes household names like Amazon, Apple and Google. But what makes it different from other similar lists is that it ranks firms not just by past achievements but by what investors expect going forward. “Our list is future-looking, forward-looking and it’s based on past performance predicting the future,” Gregersen explains. “These are organisations that systematically, over at least a five-year period, have generated this kind of premium. Investors bet with their

wallets: this company is innovative, not only now but in the future.” Common to all companies on the list is the fact that their share prices are 25 percent or more above what would be justified by cash flow alone. The leader is cloud computing company Salesforce. com, with its AppExchange that offers more than 1,000 applications for businesses, and which recently launched Chatter draws on features of Facebook and Twitter to provide social software for enterprise collaboration. Market expectations for further innovations have given it a premium based on 2010 results of no less than 75 percent. Bringing up the rear, PepsiCo scrapes in at number 50, with a premium of 25.45 percent. Companies like Toyota and BMW, by contrast, despite their known capabilities for innovation are nowhere to be seen. That, says Gregersen, is because investors expect them to find it hard to earn

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TRENDS

dividends from new innovations in the face of tough competition from Chinese manufacturers in today’s cutthroat car market.

businesses, new products, new services, breakthrough processes: things that will make a difference for any company or country.”

Think different, behave different

Down on the farm

So how do companies develop the innovative qualities that enable such results? “There are three elements to this,” says Gregersen. “The people in the company, the processes they have and the philosophies they have.” The essence of the innovator, he adds, is that he or she not only thinks differently from other people, but also behaves differently. Take Steve Jobs, the founder of Apple. “If we walked into his world and followed him for a day, we could see him behaving in ways that will generate new ideas. He lives the Innovator’s DNA skills. He observes the world really carefully. He talks to all different kinds of people. He’s more than willing to engage in different kinds of experiments, constantly peppering the world and the people around him with questions that provoke people and challenge the status quo.” Or take Mike Lazaridis, founder and co-CEO of Research in Motion, the firm that gave the world the BlackBerry, or Scott Cook, the founder of Intuit. They, too, are always asking questions and looking out for the unexpected: “Why not this? Why couldn’t we do that? What’s going on here? How could we do this better?” When someone “behaves that way, acts differently, asks lots of questions, observes like an anthropologist, experiments constantly, networks for new ideas,” Gregersen observes, “they’re likely to get incredibly insightful ideas about new

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That’s something most companies in today’s environment would pay dearly for. And the good news for those who really want to innovate is that, given the right environment, innovation can be within the reach of anyone. “About 25 to 30 percent of our innovation capacity is a genetic component, it’s our DNA,” says Gregersen. “But that’s one-third of the equation. The other two-thirds is the world we live in. It’s fascinating when we interview these famous entrepreneurs to realise that they grew up in worlds where adults paid attention to these innovation skills.” Most often these adults were parents and grandparents, but in about one-third of the cases they were master teachers at Montessori or Montessori-like schools.” To show how curiosity and willingness to experiment can be nurtured, he cites the founder of Amazon, Jeff Bezos, and the chair of Bain & Company, Orit Gadiesh. “Bezos had grandparents who taught him and reinforced to him that experimentation matters. He lived on a farm with them in the summertime and when things broke down, they fixed the things that broke down. They learned that when you try and experiment you can figure out a solution.” As for Gadiesh, “She grew up in a family where questioning was everything and it was reinforced to her that she question. So they both not only had some genetics around these skills, but they grew up in a world that said ‘keep them,

pay attention to them, use them, do something with them’. And then when they became adults they actually went out and did something with them.”

Everybody’s job What lessons does Gregersen draw for other firms that want a piece of this innovation bonanza? Firstly, innovation starts at the top. “Companies on this list are led by leaders who spend at least a day more a week than a non-innovative CEO doing these innovation skills: asking provocative questions, going out there and making real observations and not relying on second-hand data.” Secondly, innovation must be allowed to permeate every level of the company. In a truly innovative company, innovation has to be everybody’s job. “It’s just part of what you do when you walk in through the door today when you come to work. You need to figure out a better way, a more innovative process, a better product, better service.” Finally, however, a warning: innovation can be disruptive, and in a company with no innovation philosophy, it’s likely to be unwelcome. In this case, says Gregersen, a would-be innovator faces a Catch 22 situation. “If I’m in a company that’s not innovative and I just do what they ask me to do, I’ve sealed my fate to not have a future. If I start engaging these skills, on the other hand, I may get a lot of pushback and irritation, and I may even get fired.” In such a worst case scenario, he concludes, it’s time to use these skills in a more receptive environment, so as to “create a future that otherwise won’t be there”.


THE WORLD

The real threat behind the NSA surveillance programs by Stephen M. Walt*

You might think that you don’t need to worry about the secret U.S. government programs to collect phone and Internet information on ordinary Americans, a program that is not quite so secret after all. There are over 300 million Americans and the vast majority of their online and cell-phone communications have nothing to do with national security and are unlikely to attract any scrutiny.

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We

are still some ways from Big Brother, “Minority Report,” or “The Adjustment Bureau,” and maybe we can trust the nameless, largely anonymous army of defense contractors and government employees (by one source numbering more than 800,000) to handle all that data responsibly. Yeah, right. In fact, you should be worried, but not because most of you are likely to have your privacy violated and be publicly exposed. If you’re an ordinary citizen who never does

anything to attract any particular attention, you probably don’t need to be concerned. Even if your Internet and phone records contain information you’d rather not be made public (an online flirtation, the time you emailed a friend to bring over some pot, or maybe some peculiar porn habits), there’s safety in numbers, and you’ll probably never be exposed. The real risk to our democracy is what this situation does to potential dissenters, whistle-blowers, investigative journalists, and anyone else who thinks that some aspect


THE WORLD

of government policy might be boneheaded, unethical, or maybe even illegal. If you are one of those people -even on just a single issueand you decide to go public with your concerns, there’s a possibility that someone who doesn’t like what you are doing will decide to see what they can find out about you. It doesn’t have to be the attorney general either; it might just be some anonymous midlevel bureaucrat or overly zealous defense contractor. Or maybe it will be someone who wants to suck up to their superiors by taking down a critic or who wants to have their own 15 minutes of fame. It really doesn’t matter: Unless you’ve lived an absolutely pristine online and cellular life, you might wake up to discover that some regrettable moment from your past is suddenly being plastered all over the blogosphere or discussed in the New York Times. Does this danger sound farfetched? Recall that when former diplomat Joseph Wilson published an op-ed debunking the Bush administration’s claim that Saddam Hussein was trying to score uranium from Niger, some government officials decided to punish him by blowing his wife’s cover as a CIA agent and destroying her career. Remember that David Petraeus lost his job as CIA director because a low-level FBI agent began investigating his biographer on an

unrelated matter and stumbled across their emails. Recall further that long before the Internet age, J. Edgar Hoover helped keep himself in power at the FBI by amassing vast files of dirt on public figures. Given all that and more, is there any reason to believe that this vast trove of data won’t eventually be abused for political purposes? My point is that once someone raises their head above the parapet and calls attention to themselves by challenging government policy, they can’t be sure that someone inside the government won’t take umbrage and try to see what sort of dirt they can find. Hoover did it, Nixon did it, and so did plenty of other political leaders. And that means that anyone who wants to challenge government policy has to worry that their private conduct -even if it has nothing to do with the issues at hand -might be fair game for their opponents. And the deck here is stacked in favor of the government, which has billions of dollars to spend collecting this information. Vigorous debate on key issues is essential to a healthy democracy, and it is essential that outsiders be able to scrutinize and challenge what public officials are up to. People who work for the federal, state, and local governments aren’t privileged overlords to whom we owe

obeisance; in a democracy, they are public servants who work for us. Right now, however, there are hundreds of thousands of public servants (including private contractors with fat government contracts) who are busy collecting information about every one of us. Citizens don’t have similar resources to devote to watching what our elected and appointment officials are doing, so we must rely on journalists, academics, and other independent voices to ferret out wrongdoing, government malfeasance, corruption, or just plain honest mistakes. But if these independent voices are becoming more vulnerable to retribution than ever before -and via completely legal means- then more and more of those voices will be cowed into silence. And the inevitable result will be greater latitude for government officials, greater corruption, and a diminished capacity to identify and correct errors. In short, the real reason you should be worried about these revelations of government surveillance is not that you’re likely to be tracked, prosecuted, or exposed. You should be worried because it is another step in the process of making our vibrant, contentious, and most of all free-minded citizenry into a nation of sheep.

*Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University.

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SPECIAL REPORT

SPECIAL REPORT:

Is the European Union too dependent on Russian gas? by Susana Machado & Lo誰c Verheyen

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EU-Russia: a marriage of convenience E

nergy is at the centre of a relationship that has not always been harmonious. Russia and the European Union (EU) rely on each other as energy trading partners. And, in this marriage of convenience, where natural gas plays a central role, one cannot live without the other. “There is a mutual strategic partnership between Russia and Europe. Europe is the biggest energy importer from Russia and Russia is the biggest energy exporter to Europe�, says Laszlo Varro, Head of

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SPECIAL REPORT

the Gas Division at the International Energy Agency (IEA). Russia has the largest natural gas reserves in the world, 21% of the total. And Europe, eager for energy, drew up plans to supply its market through sources outside its borders. The Russians gradually and persistently built their pipelines into the neighbour continent, and they are currently the biggest supplier of natural gas to Europe, representing 34% of its imports (BP Statistical Review of World Energy, 2013). Intensifying this depen-

dence, there is a drive to replace nuclear energy in Europe, which makes natural gas a strong option to meet the lost supply. Natural gas represents now about a quarter of the European energy consumption, and its demand should continue growing for the next years, but the energy dependence on Russia should not have a long life, according to many analysts. “Europe is working on diversifying its supply and on establishing a more competitive market, and of course Russia is also working on building its export potential to Asia, and that is absolutely a rational strategy for both”, claims Laszlo Varro, from the IEA. But many still see Europe’s dependence on Russia’s energy and its monopoly gas company – Gazprom – as a threat, fearing that Moscow would use the “energy weapon” to try to influence European policies. This comes from the fact that the Russians have always used different strategies to maintain their energy business with Europe. In recent disputes over gas prices with countries of Eastern Europe, Russia offered debt relief in exchange for the monopoly of the pipelines network that pass through those countries to carry Russian gas to Western Europe. This would increase Gazprom’s control over the transportation of energy supplies to Europe. But if on the one hand Europe is dependent on energy from Russia, on the other hand it plays an important role in the Russian economy, as its major trading partner. Thomas BarrosTastets, a consultant in European public affairs for Gazprom,

goes even further saying that Russia is more dependent on Europe than Europe on Russia. “Russia appears in the mind of many decision makers as a big threatening bear. But the reality is that this country desperately needs to sell its gas to Europe because it is one of its main income sources”, he considers. Russia needs strong investments in its vital energy sector, and the transfer of Western know-how, not to face a fall in production which could dramatically affect the state budget. Therefore, the flow of funds from the sale of gas to Europe is fundamental.

Good news from the Caucasus and Central Asia? Europe seeks alternative solutions to gas supply from other regions than Russia. The Caucasus region and Central Asia have become the new energy powers and the subject of the growing appetite of many countries. Turkmenistan has the fourth largest gas reserve in the world, and Azerbaijan officially has natural gas reserves totalling about 900 billion cubic meters, and prospects for its gas production to grow exponentially in the coming years (BP Statistical Review of World Energy 2013). Consequently, Europe has in the Southern Corridor (the set of projects that intend to connect the Caucasus region and Central Asia to the European continent) its main alternative to reverse the delicate situation in the energy field. Until now, two main projects, led by two large consortiums, were competing to obtain rights to carry

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the huge Azeri gas reserves from the offshore Shah Deniz II field in the Caspian Sea to the EU. But recently, Azerbaijan chose the Trans Adriatic Pipeline (TAP) over the Nabucco West pipeline (see box).

Both projects aimed to reduce the European dependence on Russian energy but not to the same extend. TAP will fuel the already well diversified Greece and Italy with one more gas source whereas the EU backed Nabucco could have provided the fully Russia-dependent Bulgaria with more energy security. Connecting to countries other than Italy TAP has established a cooperative relationship with the Greek gas network operator DESFA, which has concrete plans to install reverse flow of gas into Bulgaria through existing systems. In addition, cooperation with the planned Interconnector GreeceBulgaria (IGB) is being established, creating two opportunities to supply gas to Bulgaria via TAP, should the Shah Deniz Consortium wish to sell gas to Bulgaria. Historically, the Caucasus and Central Asia were under the aegis of Russia. And Moscow is trying to keep the area within its political control, making the energy flow to Europe go through its network.

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One of the Russian manoeuvres is to weaken Ukraine, a country that has a history of putting technical and commercial hurdles to the Russian gas passing through Ukraine to Europe. Therefore, Russia sought to end its dependence on Ukraine's pipeline. The RussianGerman project North Stream, which opened in 2011, provides Russia the opportunity to send gas directly to Europe through submarine pipelines built in the Baltic Sea. Another strategy would be to build the Russian project South Stream under Turkish waters in the Black Sea, which has already been authorized by Turkey. This project, if put into practice, would allow Russia to reach south-eastern Europe. Moreover, it has been seen as an attempt to sink the Nabucco project. An idea denied by the European Commission, to whom the more gas routes, the better. “There is no competition because Nabucco is supposed to bring new gas from new sources, while the South Stream is just redirecting the very same gas from Ukraine, now under the Black Sea”, says a well informed source from the European Commission’s DirectorateGeneral for Energy. An official position that can be questioned as plans to build the expensive South Stream are likely to be set aside now that TAP has won the race. The natural gas game between Europe and Russia will have new configurations in the medium term. The increased supply of natural gas (conventional, shale gas, or LNG) will stir not only the energy markets in Asia and Europe, but also worldwide. Curiously enough, when comparing the proven reserves of conventional gas and the volume of

recoverable shale gas one ends up with the same figure: 208 trillion cubic feet according to the IEA World Energy Outlook 2012. Within the next 20 to 40 years, this scenario of abundant gas will certainly influence the prices of fossil fuels and can even spill over into the renewable energy market.

Russia targets Asian market: a serious potential threat for Europe? In order to reach more distant markets to which the access is difficult through pipelines, Gazprom has been focusing on the production of liquefied natural gas (LNG), which can be transported in vessels. The company is already exporting LNG to countries like Japan and South Korea. Besides that, the Chayanda-Vladivostok pipeline was a major piece of infrastructure contemplated by the former Russian Prime Minister Vladimir Putin in its Asian strategic approach. The 3000km long pipeline, already under construction, will send natural gas from the giant Chayanda field in Eastern Siberia to Vladivostok, a city not far from Russia's borders with China and North Korea.


SPECIAL REPORT

Russia has also an eye on the Chinese market, the largest potential consumer for natural gas in the world. Thomas Barros-Tastets, consultant in European public affairs for Gazprom, confirms that negotiations between the two countries are already taking place. “China is a very tough negotiator, so Russia didn’t have the results they were hoping for. But one day, if there is such a deal with China, Gazprom will be even more powerful than it is today, because it will have the choice between two very large customers. And who’s to say that Europe will be the preferred option?”, he questions. However, Simon Blakey, special envoy for Eurogas, a lobby rep-

resenting different European gas companies, does not believe the Russian plan is feasible. “They can’t just turn to the Chinese or Indian markets instead of Europe, because the physical infrastructure is linked to Europe. So it is very unlikely that western Siberia, that supplies Europe, will ever develop 7000km pipelines to take gas to China”, he says. However, if the commercial deal actually takes place, there are more advantages than disadvantages for China, although imports of Russian natural gas can lead to a long-term dependence for the Chinese and a threat to their energy security. First, the markets that export gas to China are at a considerable distance, and all the gas imports reach China by sea (LNG). Second, China needs a stable neighbour and partner

TAP vs Nabucco: epilogue! On June 28, 2013, the Shah Deniz consortium (led by BP and Azeri state energy firm Socar) has chosen the Trans Adriatic Pipeline (TAP) over the Nabucco West project to deliver 10bcm/year of its gas to Europe. This decision puts an end to a race that opposed two main actors for a decade. Although president José Manuel Barroso has welcomed the Azeri choice, it is clear that this outcome is a snub for the European Commission that originally backed the Nabucco pipeline before taking a safer and more neutral stand. The defeated Nabucco West was led by OMV (Austria), BEH (Bulgaria), BOTAS (Turkey), FGSZ (Hungary), GDF SUEZ (France) and Transgaz (Romania). This 1,326 km long pipeline was supposed to run from Turkey through Bulgaria, Romania and Hungary to the gas hub of Baumgarten (Austria).

to strengthen energy relations. In fact, China has recently started such an energy partnership with some countries in Central Asia, but their structural capacity is below the requirement to support safe long-term projects. With Asia appearing in the Russian natural gas exports portfolio, this gas might gain value in the European market, in the longterm, since the participation of rapidly growing consumer markets on Russian imports will force the production to increasingly meet their needs. Thus, to ensure future delivery and low investment (since there is already a consolidated structure between Europe and Russia, considering the South Stream), Europeans will have to pay more to make sure that the supply of Russian gas will meet the growing demand.

Shareholders in TAP, whose 870 km route goes through Greece and Albania to southern Italy under the sea, are Norway's Statoil, Switzerland's AXPO, Germany's E.ON Ruhrgas and soon Belgium’s Fluxys. While Nabucco was downsized, TAP has actually been extended to go all the way to the Turkish border and connect with TANAP. TAP's route has grown from 520 (back in 2010) to 800+ km. It is also important to underline that TAP has expandable capacity - from 10 to 20bcm. This was actually a key selection criteria of the Consortium to enable the transport of more gas volumes once these come on-stream. At first, the EU was pushing for the more ambitious “Nabucco classic” project, which would have transported 31 bcm/year from Azerbaijan, Iran and Turkmenistan to Austria. “The Nabucco project is over for us”, Gerhard Roiss, chief executive of OMV, declared at a press conference. The TAP is expected to start flowing in 2019.

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“Energy infrastructure is safe in Europe” Michael Ruehle is the Head of the Energy Security Section at NATO’s Emerging Security Challenges Division. Energy security was included as a new topic in the NATO Riga Summit agenda, in November 2006. In this interview, we try to understand why did the members of the Alliance feel the need to create such a section, explaining the importance of energy security in Europe. How would you define NATO’s energy security section? The energy security section is part of an energy security challenges division. This division seeks to bring together all the subjects that are likely to affect the security of NATO allies in the years ahead. These subjects had not always been very military in nature, nor will they necessarily require a military response, but they will affect our security in one way or the other. And the energy security section is there for basically focus on raising awareness in NATO about the vulnerability of energy supplies, about the need to protect energy infrastructures, and to exchange experiences and best practices among nations on how best to protect infrastructures. Why is there a need for such a special section? The first initial push came from a supply problem, which was caused by the Russian/Ukrainian arguments back in 2006, which left a number of member allies without gas. And the question was if a gas shortage becomes a national security problem, and NATO is a security organization where national security policies are organized, shouldn’t NATO therefore look also for the question of energy security, from this

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angle? NATO is also a mechanism for intelligence sharing, and NATO’s nations share intelligence on energy related developments, that’s part of an awareness raising idea.

Who is this section supposed to protect? The suppliers, the consumers or the transit countries? NATO is not on the protection business of energy supplies. The national infrastructures are a national issue, so the countries look after their own infrastructure and NATO has no role to play there. However, we can be a platform where experts from countries come together and exchange views on how best to do it. But there are other areas where NATO is, indirectly at least, protecting infrastructure. For example, when you look at the counter piracy operation in the Gulf of Aden, if you protect shipping lanes, by definition you also protect energy shipping. So, NATO is already having a protection role to a certain degree. I think the navies are the most obvious case, because NATO is on the business of keeping the sea lanes opened, and that is automatically a contribution to energy security. But, more specifically, NATO is not protecting a pipeline, except its own. And I think this is a

misperception that comes very easily because NATO is generally seen as a military organization that looks after military issues, through military means. And in energy security the situation is very different because is not a military issue, predominantly.

If you were asked by a Member State (MS) to precisely protect a pipeline or an infrastructure, because the MS cannot cope with the situation, would NATO be able to act on that? That would require a consensus decision by all the 28 members. Which I think it would probably happen, because NATO should be there for one and other. So far it hasn’t happened, because nations basically cope on their own. What are the types of threats that you want to prevent? More specifically, what are the main threats to energy security in Europe? In Europe you don’t have threats to infrastructure. You have cyber and terrorism threats. We are looking at the interaction of cyber and energy. This means that, for example, we study cyber threats to control facilities of energy installations, and we try to educate our political military leadership in better responding to these challenges.


SPECIAL REPORT

European gas networks undergoing radical transformation 30

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F

rom the start, European integration has been a long and difficult process. During negotiations for more integration, Member States push each other to delegate some powers to the European institutions while fighting for their own country to have a special treatment to keep as much national power as they can. In this regard, some sectors are more sensitive than others. Many experts argue that having an Internal Energy Market could stimulate fair and competitive energy prices and energy savings, as well as higher investment. However, integration in the energy sector proves to be difficult to achieve as it is still very much regarded as a national issue. However, as we can see with the financial sector, in times of crisis there is often a strong push for more integration, a sort of appeal to find a common solution, even on issues that were primarily considered as national prerogatives. In this regard, it is probably the Arab oil embargo crisis in the early 1970s that initially triggered some interest among the Member states for more energy integration. They realized that institutional mechanisms for increased coordination in the event of future supply disruptions were essential.

Although this Treaty sets specific and ambitious goals for a European energy policy, most actors argue that “there is no such thing as a European energy policy”. “The Commission powers are very limited in this field”, analyzes Thomas BarrosTastets, account director at G+, a consultant for Gazprom. “The reality of the business makes it very difficult for the Commission to enforce any policy. It can set There is no such thing as broad goals and agendas but a European energy policy” when you talk with big national Since then, there have been players they can do pretty much three important directives, also whatever they want”. known as “Energy Packages”. The reason for this lack of power The first Energy Package conof the Commission in the energy cerning common rules for the field also lies in the “Treaty on internal market in natural gas the functioning of the European was adopted in 1998 (Directive Union”. The text states among 98/30/EC). The Second Energy other things that the Package was adEU institutions “shall opted in 2003 and “It is not going to be like the establish the mearepealed the First euro which was sures necessary to Package (Directive a very top-down achieve the objec2003/55/EC). The integration tives in paragraph” rules that apply toproject”. but adds that “such day in the gas marLaszlo Varro Head of gas measures shall not ket were adopted in division at IEA affect a Member the 2009 directive State's right to de(Directive2009/ 73/ termine the conditions for exEC). ploiting its energy resources, its The spirit of these directives is choice between different energy to be found in the “Treaty on sources and the general structhe functioning of the European ture of its energy supply”. Union” that defines the scope of the powers that the European institutions have in each sector. It Toward a Single gas market states that “Union policy on enerFor over 20 years, the main goal gy shall aim to: ensure the funcof the Commission in the energy tioning of the energy market; sector has been to achieve a ensure security of energy supply Single Energy Market. But straightin the Union; promote energy efaway, Laszlo Varro, Head of the ficiency and energy saving and gas division at the International the development of new and Energy Agency, points that “It renewable forms of energy; and is not going to be like the euro promote the interconnection of which was a very top-down inenergy networks”. tegration project”. So instead of In 1991, the European Union launched the Energy Chapter Declaration, which promoted energy cooperation and more diversity in Europe’s energy supply. Following this Declaration, the Energy Charter Treaty was voted in 1994 and came into force in 1998. This Treaty set a framework of rules and agreements to promote international energy cooperation.

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building bi-directional pipelines crossing over the EU from West to East and from North to South, the Commission is pushing for more interconnection between the existing pipelines and is increasing efforts to encourage investments in the construction of cross-border pipelines. The idea is to make the pipe operators work together to make sure that the border points can operate in both directions. Laszlo Varro sees some improvements in the physical integration but notes that “there is still some work to do, especially in the new member states”. Indeed, countries like Bulgaria only have oneway pipelines coming from Russia and are cut off the rest of the European gas market. “Our objective is to eliminate isolation of the Member states in the gas sector by the end of 2014 at the latest”, according to a source from DG energy at the Commission. The 2009 gas crisis between Ukraine and Russia was a good opportunity for the gas companies to test the “European grid”. “The system is very resilient and hugely interdependent”, affirms Simon Blakey, special envoi for Eurogas, an association representating the European gas companies. “With the exception of Bulgaria and Poland, it is already a European system”. And to prove his point, Simon Blakey gives an example: “Until 2009, we didn’t think that Slovakia would be able to be supplied from the West but we found out it was. And know that if it happened again, we would even be able to supply Ukraine”.

European Commission to regulate the gas market But the Single Energy market is

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not only about physical infrastructure. It requires some level of competition and regulation, two issues that have been addressed by the Commission in the Third Energy Package. For the regulation part, the Third Package gave birth to the Agency for the Cooperation of Energy Regulators (ACER) seated in Ljubljana, the capital city of Slovenia. Its purpose is to bring the national regulators together to coordinate their work. The idea being that, if a supplier wants to bring gas to a client through the grid, its competitors will not be able to obstruct this deal because ACER has to make sure that there is fair access to the network. Contrary to the national regulators, ACER does not decide on the energy prices but it does regulate the tariffs for transmission and access to the network. “But this system of transport pricing is still not well developed enough to allow fair access to everybody to the networks”, claims Georg Zachmann, energy expert and fellow researcher at the Bruegel think tank. Indeed, in the current system, the supplier has to pay a new tariff every time the gas goes through a pipe section owned by a different company. The solution would be to imitate the electricity system where a single tariff is imposed for the whole transport.

The end of state-owned monopolies Another concern of the Commission is to lower the energy prices for the final consumers by enhancing competition among the energy actors. The European

Commission may not have much power in the energy sector, but when it comes to competition the scope of actions that they have is much broader. The Third Package affirms the right of third-parties to a non-discriminatory access to transmission and distribution systems. In order to achieve this, the Commission had to break the state-owned monopolies. Therefore, it introduced the controversial notion of “unbundling” aimed at reducing the power of state-owned energy companies by obligating them to split up ownership of generation and distribution networks. The directive granted the Member States a choice between three possible models: -Ownership unbundling (OU): In this option, network companies are totally separate from the supply and generation companies. It already exists in the Netherlands, the United Kingdom, Spain, Sweden, Romania, Belgium, etc. - Independent System Operator (ISO): In this case, the vertically integrated company remains owner of the network assets and receives a regulated return on them, but is not responsible for their operation, maintenance or development. - Independent Transmission System Operator (ITO): In this third option, the energy companies would still be the owners of their transmission networks, but the transmission subsidiaries would be legally independent joint stock companies operating under their own brand name, under a very strict regulatory control.


SPECIAL REPORT

According to Laszlo Varro, “ownership unbundling is the right choice to make”. And very clearsighted, he adds: “But I’m not naïve and I fully understand that in a political decision process, you make compromises”. However, this legislation does not please the gas lobby at all.

Especially not the old statedowned companies that were used to have a monopoly over the generation and distribution of gas. “Pipelines require huge investments”, confides an anonymous source from the gas industry. “So who’s up to put that much money? Usually big utilities because they have the capacity to plan and foresee a return investment. But if you’re not allowed to invest in the pipeline, who’s going to do it?”. The spokesperson of Fluxys, the Belgian network owner, seems to have an answer to that question: “Unbundling brings the

certainty of non-discrimination for the customers and independence in the investment choices. Our view is that unbundling will lead to important changes in the landscape as we see infrastructures funds and pension funds becoming shareholders and to European consolidation”, Erik Maertens said. But the gas suppliers come with yet another argument: “The way the contracts are designed, you have to deliver certain volumes under certain conditions”, reminds Simon Blakey, a consultant in public affairs for Gazprom. “So if you’re not in charge

of the pipeline, how can you be sure that the gas will be delivered at the point, the time and with the volumes agreed?”. This is simply a matter of trust, the Commission replies. “As long as you trust that there are enough roads for you, you don’t need to own a road to drive a car”, explains a source at the DG Energy of the European Commission. For the moment, it is difficult to assess if the Third package will reach its goals as it is very recent. But monitoring the gas price for the final consumers will be a good benchmark to judge the efficiency of the directive.

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Finding alternatives Renewable energy: EU’s priority to reduce carbon emissions With the increasing environmental pressures, governments and international organizations decided to increase their commitment to replace fossil fuels. The European Union (EU) called for the 27 member countries to cut carbon dioxide (CO2) emissions by 80 to 95% below 1990 levels until 2050. There is a requirement to increase the generation of solar, wind and hydropower. Whether or not the EU meets its renewable energy targets by 2050, gas will still have an important role in this transitional phase, being a flex-

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ible back-up for renewables. “They cannot exist on their own. We need to have some flexibility, because we don’t have wind blowing or sun shining all the time”, says a well informed source from the European Commission’s DirectorateGeneral for Energy. Russia’s gas monopoly, Gazprom, sees Europe going greener as an opportunity and not as a threat. “The company welcomes the initiative for Europe to set ambitious targets when it comes to CO² reduction. It is fine to push renewables as long as that doesn’t mean eliminating gas from the energy mix (distribution of consumption per


SPECIAL REPORT

energy source)”, says Thomas Barros-Tastets, a consultant in European public affairs for Gazprom. The European Commission predicts that both sources of energy will be complementary, at least, until 2030. After that, the role of natural gas in the EU energy mix is still unknown.

LNG opens new markets for Europe The price paid for Russian gas increased considerably in recent years, approaching the Liquefied Natural Gas (LNG), which helped the tariffs for the latter to become more competitive. LNG offers advantages over pipe gas for transportation over long distances, which makes diversification of sources easier. The expansion of LNG terminals became, therefore, a major threat to the safeguarding of the Russian market share, which may lead to a significant loss of revenue.

LNG currently represents 24 % of natural gas imports in Europe, with Qatar being its bigger supplier (Eurostat, 2010). Spain, UK and France are, on the other hand, the main consuming markets. Spain could already reduce its dependence on Russian gas, since 65% of its gas imports are LNG (BP). In Eastern Europe, where almost all the gas still comes from Russia, one LNG terminal is being built (Poland), and some others are already announced (Estonia, Latvia and Lithuania), which might reduce the overdependence that those countries have with Russia. The transport between the production site and reception is done by ships specially built for this purpose. The production, transportation and regasification of LNG are operations that require high investments and losses of 10 to 15% of gas during the process, much more than an equivalent transport by pipeline (loss between 1 and 2%). This makes the choice of LNG restricted to cases where pipelines are not technically attainable

(deep seas crossings) or where the transportation distance in pipelines is too long.

Shale gas convinces US, but not Europe The new technique of natural gas extraction from shale rocks is shaking the global energy market. Unconventional gas production was nearly 60% of total gas production in the United States in 2010, where shale gas is expected to remain the main source of growth in overall gas supply in the coming decades (World Energy Outlook, 2012). In Europe, some exploration projects have been initiated by countries such as Poland or the United Kingdom, but the results are not visible yet. “There is nobody with an interest in making it happen, except the oil companies”, justifies Simon Blakey, special envoy for Eurogas, While Western Europe has a considerable environmental and political opposition to the exploration of shale gas, some eastern states strongly support the exploration and production of this gas, for geopolitical reasons. Last year, France was the first country to ban the use of this technology due to the danger of water contamination by the chemicals used in the extraction process. On the other hand, Poland is eager to explore its reserves of shale gas, the biggest in Europe, as an opportunity to reduce its dependence on gas supplies from Russia

Nord Stream to link Russia to Great-Britain

The president of the big Russian gas company, Gazprom, has announced that the Nord Stream pipeline might link Russia to Great-Britain thanks to an additional pipe under consideration. He added that the British oil company, BP, showed some interest in the project. The Nord Stream, inaugurated in September 2011, links Russia to Germany under the Baltic Sea. This 1.220km long pipeline was built to avoid the frequent gas disruptions due to arguments between Russia and Ukraine. The pipeline is owned by a consortium composed of Gazprom (51%), the German companies BASF and EON (15,5% each), the Dutch Gasunie (9%) and the French GDF Suez (9%). If the new section was built, the funds could come from a different set of shareholders. But no agreement has been reach at this point.

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SPECIAL REPORT

Conclusion W

hat would Europe do if, from one day to another, the gas from Russia would stop flowing through its pipelines? This catastrophic scenario is very unlikely to happen. But in Brussels the general feeling from political leaders, industry and energy experts is optimistic: Europe could temporarily survive. Its other energy suppliers would be delivering enough energy to ensure that the continent would not stop functioning. A cut in Russian gas to Europe -Russia being its main supplier- would have considerable consequences for several countries, but it wouldn’t be so severe for the larger and more powerful states. If we consider that institutional cooperation within the European Union (EU) needs the political will of its most powerful member states to operate effectively, and they are less dependent on Russian gas than the others, that could be an obstacle to the political will of the EU to create a common energy policy. Obviously, many people today no longer remember that pooling one energy source -coal- led to the European Union’s birth. The joint control of coal and steel, as well as the institutions created in the context of the European Coal and Steel Community (ECSC), was the starting point of the current European Union. Europe's dependence on Russian gas has a strategic potential to Russia and to Gazprom’s trade dominance. Therefore Russia is interested in maintaining this system of dependency while Europeans are interested in fighting it. In this relationship of interdependence, Russia is the privileged part-

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ner, but it should be noted that the European market is the largest source of revenue for Gazprom. So, after all: is Europe too dependent on Russian gas? Europe is, for sure, still dependent on the neighbor’s gas. However, the rules of the game are changing quickly and new players are present on the scene (New pipeline projects, LNG, shale gas), ready to change the final result of the match. But energy is an unpredictable market, and only time will tell us who the winner is. Susana Machado holds a Master in European Journalism from IHECS (Brussels) and a Bachelor’s degree in Media and Multimedia Education, from IPLeiria (Leiria, Portugal). She was a journalist at the Portuguese newspaper O Povo de Guimaraes, and a reporter for the international European affairs radio program at the students’ radio station LN FM, from Louvain-la-Neuve, Belgium. Contact: susanaoliveiramachado@gmail.com Loïc Verheyen holds a Master in Journalism from the University of Brussels and a Master in European Journalism from IHECS (Brussels). He currently works as an audiovisual reporter for RTL Belgium (RTL-TVI & BelRTL) and France Televisions. Contact: loic.verheyen@gmail.com OR Twitter: @loicverheyen The authors wrote this special report within the framework of their master in European Journalism at IHECS (Brussels). In September 2012, it was presented to a jury composed of EU journalists, communication experts and academics and was granted a high honors distinction.


EUROPEAN BUSINESS SUMMIT 2013

Brussels 15 and 16 May: 11th European Business Summit

‘Where business and politics shape the future’ by N. Peter Kramer

The theme chosen for this 11th edition of the European Business Summit (EBS), "Unlocking Industrial Opportunities - An EU Strategy for Competitiveness", dealt with the challenge of the reindustrialisation of Europe and the promotion of innovation in the European Union. At a time when Industry and Europe are facing unprecedented challenges, this Summit became very intense.

The EBS is an annual forum that attracted more than 1,500 participants from over 60 countries, including: European Commissioners, Prime Ministers, CEOs, public sector leaders, international financing institutions, think tanks, academics and 150 journalists. EBS General Manager, Arnaud Thysen, said in welcome: “The European Business Summit is a unique venue where business leaders can express their views directly to the policy makers. Let’s face it, expectations from industry are high. It is time to shape the future to set the right conditions in which industry can grow & innovate. This is crucial to keeping Europe competitive on global markets”. Many top speakers attended the 2013 EBS. Among them Pascal Lamy, Director-General WTO; Jose Manuel Barroso, President of the European Commission; Helge Lund, CEO of Statoil; Herman Van Rompuy, President of the European Council; Richard Pelly, Chief Executive of the European Investment Fund, and European Commissioners Connie Hedegaard, Neelie Kroes, Laszlo Andor, Antonio Tajani and Karel De Gucht. European Business Review was also this year a Media Partner and present with a booth at the Networking Village of the event. Former Vice-President of the Greek Government, Mr. Theodoros Pangalos was among the visitors of the EBR’s booth and spoke with N. Peter Kramer, editor-in-chief. You can find the openings speech by J. R. Thumann, President of Business Europe, and a selection of reports of the sessions during the EBS in this issue of EBR. More on www.EBSummit.eu

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UNLOCKING EUROPE’S INDUSTRIAL OPPORTUNITIES EBS Openingsspeech by J. R. Thumann*

H

aving discussed “skills for growth” and how to “educate for employment” last year, I was personally quite keen to focus this year’s edition of the EBS on the issue of industrial growth. Everyone recognizes that reindustrialising Europe is a must if we want to get out of the crisis. But this change of mindset is fairly recent and, in my view, still incomplete. And we really need to change mindset. All in all industry stands for 16 per cent of European GDP. Industry delivers 80 per cent of Europe's exports. 80 per cent of private sector Research and Development investment comes from manufacturing. And industry accounts for 45 per cent of Europe’s workforce. Each job in the industrial sector is linked with at least two high quality

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jobs in the service sector. No doubt, a strong industrial base is vital for the future of Europe. Unfortunately Europe’s manufacturing sector is not as vibrant as it should be. Despite the fact that the European Union is still the largest industrial producer in the world, industrial production is still 10 per cent lower than before the financial crisis. More than 3 million industrial jobs have been lost. No question, the decline in Europe’s manufacturing represents a major problem and it is time to restore our industrial base. The good news is we can do so. We can do so even quickly, because Europe has many assets, assets on which we can build to reverse this trend. So, if we put our mind to it, I have no doubt that we can increase our industrial output to 20% by 2020.

Re-industrialisation is the road to growth and job creation. To pick up speed on this road now, we must have the right framework conditions in place. 1. Access to finance is THE immediate concern for companies. Between February last year and this year, lending to non-financial corporations fell by -4.2% and credit conditions will remain tight. This is worrying. European financial market reforms need to balance the need to ensure financial market stability and meeting companies financing needs. 2. Access to energy and raw materials at competitive prices is another pre-requisite to the development of industrial activity. Energy prices for European industry went up by 28% between 2003 and 2011, which is signifi-


EUROPEAN BUSINESS SUMMIT 2013

cantly higher than in most industrialised countries. European leaders cannot afford to sweep coherence between EU energy and climate policy underneath the carpet. Rather than meddling with the Emissions Trading Europe should focus on finding competitiveness friendly and long term solutions for our energy and climate policies. Industry is not the problem but the solution to our climate challenge. With industrial innovations, we can find better ways of exploiting renewable energies such as sea tides, the sun or wind. We can pave the way to clean exploitation of shale gas in Europe and further improve nuclear safety. We can increase our energy efficiency by acting on the consumption side. And we can reduce the amount of energy lost in transport or find ways to store energy sources that are currently wasted. Like energy, only a secure supply of raw materials at competitive costs will lead to a thriving manufacturing sector. We are faced with protectionist policies in some supply countries and rising demand in emerging countries. Yes, the European Union has made progress in addressing export restrictions. But a lot still needs to be done. And there is undoubtedly also scope for improvement with regard to recycling and production of secondary raw materials. 3. The availability of a skilled workforce is another challenge to be met. To reap the employment benefits of better access to finance, energy and raw materials the availability of a skilled workforce is essential. Industry in particular relies heavily on Scientific, Engineering

and Mathematics skills. Labour productivity is another aspect of the skills dimension of Europe’s industrial future. Labour productivity in manufacturing has increased annually in the US by three times as much since the early 2000, compared to the Euro Area. And the gap in productivity with developing countries is narrowing too, because productivity increases there are much faster. Innovation is key to increase productivity. Europe has got brains but it lags behind in the commercial exploitation of its ideas. Boosting innovation requires much more than doing research. Effective policies must focus on connecting research results, experimental development, manufacturing and commercialisation. The creation of clusters and business networks must be encouraged, in order to generate innovation spill-over effects between large enterprises and SME’s. And to boost innovation and productivity you need a favourable business environment and open markets, internally but also externally. 30 million European jobs depend on export markets outside Europe. Completing trade agreements with major partner countries could boost our output by up to 1.5%. The Transatlantic Trade and Investment partnership represents an unmatchable opportunity in terms of growth. To give European trade negotiators the strongest possible support, BUSINESSEUROPE and other business organisations have created an alliance to bring this partnership agreement to fruition. “The future of Europe depends on business and the future of business depends on Europe”. We clearly need to work more and

better on growth. But the answer certainly does not lie in changing track and forgetting about public finances consolidation. Allowing Member States to use the room for manoeuvre existing in the EU fiscal framework is fine, provided the European Council does not show complacency about the course for national fiscal consolidation. And allowing member states to get away with insufficient reforms could endanger the entire European project. National governments have to set out credible plans to pay off public debts and improve competiveness. The new system of economic governance requires the European Council to say very clearly when it believes national reform programmes are not sufficiently ambitious. We also count on the European Council to send a clear signal that business as usual is not an option for EU climate and energy policy. We have to re-shape our climate policy to lower the tremendous costs impact on industries and reflect on the very limited progress in global climate talks. Without taking energy cost into the equation you can bet that Europe will not achieve its 20 % industrial GDP target. We will not be able to spend or borrow out way out the crisis. But we can grow ourselves out of the crisis. This growth must be achieved … the real way. We cannot continue with cycles of bubble and burst but must build a sustainable foundation of future growth. Re-focussing the European agenda on competitiveness and industry is the real way in achieving this! *J. R. Thumann is President of Business Europe

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Driving Innovation: T Bridging the Gap between Research and Markets

he moderator, Adrian van den Hoven, Deputy DirectorGeneral of BUSINESSEUROPE, opened the discussion with a reference to the need for a strong innovation policy within the EU and the many challenges involved. The question of whether companies are actively participating in research policy was taken up by David Harmon, Member of Cabinet of Commissioner Maire Geoghegan-Quinn. He highlighted that there is a regular level of participation in Horizon 2020 - this programme is tailored to make sure that it attracts innovation projects and a sufficient level of participation of SMEs. The Commission has also taken on board

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EUROPEAN BUSINESS SUMMIT 2013

certain criticisms and will address the calls to make the programme less bureaucratic. Mr Harmon also emphasised that the Innovation Union Flagship Initiative, as part of the Europe 2020 strategy, is generated to bring a range of different policy actions, so that the “innovation eco system can be strengthened and developed”. He also underlined the importance of Public-Private Partnerships and venture capital support in the effort to boost innovation. Seαn Kelly MEP, also reiterated the importance of the Horizon 2020 programme which, he said, should bring in all ideas and try to encourage more SMEs to unveil the opportunities in terms of financing and ensure that Europe becomes more competitive in the long-term. He also stated that Europe needs to change its approach to education, since “very few people can say I want to create and run a company”. Mr Kelly pointed out the importance of entrepreneurship with reference to a successful mentoring movement in Ireland, which encouraged many young people to be innovative and entrepreneurial. The point on investing in Research and Development was picked up by Patrick Deconinck, Senior VicePresident Western Europe of 3M, who stated that in difficult times we need investment in R & D and the efforts of the European Parliament and Commission in this respect should be welcomed. He stressed that in order to move forward - the EU needs to make it easier for companies to participate in Horizon 2020 and make sure that most of the companies know exactly what the Commission is proposing. “Let’s make sure we communicate it more, communicate that we need

innovation and provide easier access”, was his key message. Additionally, Mr Deconinck raised the importance of bringing manufacturing back to Europe and boosting the number of manufacturing start-ups in the continent. Asked whether the European Investment Fund (EIF) was delivering, Richard Pelly, Chief Executive of the EIF, emphasised that the EIB has a total focus on innovation and entrepreneurship. He was convinced that “EU capital should come in at a very early stage by developing a facility to ensure financing and raise certain ecosystems in Europe”. The need to reduce fragmentation was also addressed, together with the call for wider Member State partnerships in building common projects, ensuring venture capital and crosscountry lending. Eric Cornut, Chief Commercial Officer of Novartis, firmly stated that: “innovation is the life blood of the industry”. He explained that he sees a great source of research support from the Commission, potential collaboration across the Member States and public-private partnerships. Mr Cornut stated that he would welcome clear signals across the different DGs that they have made a strategic choice to support innovation and research, especially in the field of health. He remained critical of the current lack of full partnership between the different national systems in terms of data sharing. The panel closed with a call to improve co-operation and joined-up thinking in a wider policy space. For all participants, the problems with funding should be tackled urgently as producing innovation is of paramount importance in today’s world.

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The E Digitalisation of our Economies

uropean Commission VicePresident Neelie Kroes started the discussion with her firm belief that digitalisation has a growing presence in today’s life saying: “digitalisation is surely rocking the boat and changing our daily lives”. She linked up the topic with the growing concerns for youth unemployment by stating that the growing potential of the ICT sector provides many work opportunities and that the increase in broadband would bring higher levels of growth in Europe. The Commissioner gave the example of cloud computing which can bring an economic boost worth billions of euro. She remained critical of the present national fragmentation of the telecommunications sector,

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which provides users mainly with a choice between national operators. Vice-President Kroes made a firm pledge that within her mandate a proposal for a digital telecom market within the EU will be proposed and she would ensure that more players and stakeholders would “enter into the global digital Champion’s league”. Christian Morales, Vice-President and General Manager of Intel, further elaborated upon the topic by stating that the world is faced with a landmark transformation as in three years there will be more than 10 billion mobile devices. The amount of big data is also revolutionising today’s world and he explained that there is a joint responsibility to fight against threats to Europe's digital security. He followed up on Vice President Kroes’ pledge by stating that Europe should boost its competitiveness and respond to the needs of industry in order to “win the World Cup”. Afke Schaart, Senior Director EU Institutional Relations at Microsoft, reiterated the importance of cloud computing and stated that she was not surprised that the digital market is receiving growing attention. She argued that different national laws and overall fragmentation should be overcome with a functional regulatory environment. Ms Schaart presented positive examples of firms that have managed to reduce their operational costs by tapping into cloud technology. Andrea Renda, Senior Research Fellow at the Centre for European Policy Studies, commented on the fact that soon the digital agenda will be inseparable from our lives


EUROPEAN BUSINESS SUMMIT 2013

and overall convergence will surely increase. His main concern remains related to the place of the citizens and businesses in this process. In his view, citizens are of the biggest importance and so is job creation in this sector. According to him, infrastructure deployment is a priority and “we should be courageous for a panEuropean auction for a broadband provider”. A.S. Lakshminarayanan, President Tata Consultancy Services, focussed on the transformation aspect of digitalisation in business. He said he perceives a current opportunity for businesses to transform themselves and optimise the way they function using new communications technologies. He gave the example of farmers in India using mobile technology which helps them get a better price for their produce. According to him, digitalisation provides tangible evidence of how society can benefit as a whole. He concluded that the main issue at hand is one of skills and talent and how we can better implement breakthrough technology and solutions. Finally, Michael Duncan, CEO Europe of Telefónica, commented on the “unstoppable momentum for digitalisation which causes game-changing occurrences in every industry”. He elaborated upon the fact that consumption and costs can be reduced through digital solutions such as smart meters or remote management. Mr Duncan also stressed that Europe needs to regain its leadership in technology and once again become the agenda-setter it was more than 5 years ago in the digital market.

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Energy as a Driver of Industrial Growth

G

ame changers regarding the EU’s energy supply depend on whether the EU and the US conclude an FTA agreement that would allow for shale gas imports. “Why index the gas price to oil?” wondered Jean-Michel Glachant, Director of the Florence School of Regulation, European University Institute. “It does not make sense, so that should be changed. Coal is cheap and thanks to the EU, the emissions are free” .If change cannot be brought about on the price front, it can be done on the high-tech front, according to Glachant. Smart grids and smart metering would be

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more energy efficient. Given the dire economic situation in the Eurozone and the pressure on the competitiveness of the European industry, the energy price level should be brought down. Energy is a cost driver, argued Peter Köhler, CEO of Weidmüller. Therefore, he said, there must be a boost in the energy innovation in order to control energy costs. Köhler criticised the present system for being over-determined. Gas could play a bigger role for Europe, if the conditions for competitive gas pricing are set and there is an integrated energy network.


EUROPEAN BUSINESS SUMMIT 2013

According to the CEO of Statoil Helge Lund, there is scope for more on-shore gas exploration and extraction in Europe. “Gas could be a much stronger force in helping the European industry”, stated Lund. There must, he stressed, be “sensible regulation, a functioning internal market and freely flowing energy”. Artur Trindade, Portuguese Secretary of State for Energy, called for minimising the cost of energy in order not to lose Europe's competitiveness. The options for the low-carbon economy must be fine-tuned and energy efficiency is crucial. “The EU's internal market is not connected yet; there is, for example, no connection between the Iberian peninsula and Central Europe’, Trindade argued. EU measures should provide for better security of supply when moving towards a de-carbonization of the economy. Smart grids are capital-intensive, but the risk premiums are higher in Southern Europe. There must, therefore, be a solution to the distortion of the cost of capital, Trindade said. Chris Beddoes, Director-General of EUROPIA, was concerned with the increasing pressure on the chemical industry and the oil refineries. ‘If the value chain is attacked, the whole stack of cards can collapse’, Beddoes warned. Industrial infrastructure is, he continued, mutually dependent. As the energy demand is growing continually, transport energy will be difficult to replace. Beddoes set his hopes on increased energy efficiency, arguing that unsustainable technologies “cannot be supported”, calling for the use of market mechanisms to provide energy, not government plans. Reinhard Bütikofer MEP agreed that it is a question of the competitiveness game, which can only be won if there is a focus on innovation. “The EU should not lose the ability to promote innovation. Future competitiveness can only be built on the basis of sustainability”, he said. European shale gas, he continued, would likely not be a game changer as it was in the United States. Europe has a strong record in leading on energy efficiency. Philip Lowe, Director-General Energy European Commission, made the observation that price support to develop renewable energy sources should not be permanent. Environmental sustainability is a prerequisite for a sustainable economy. “We have a long-standing goal of interconnected markets for energy in Europe. In general, European countries are price-takers for energy commodities. Solutions would imply that larger networks are preferable”.

Conclusions: Any change to the European energy market will take heavy investment. The divergence in the cost of capital between the EU's periphery and its centre jeopardises investment. A stable market-based system would bring about innovation in terms of energy technology. Shale gas is not seen as a European panacea, but increased energy efficiency would give Europe an advantage. The challenge of replacing transport energy is no closer to a solution.

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LIFESTYLE

Located in the very center of the vibrant city of Athens since 1930, the King George, a Luxury Collection Hotel represents the absolute essence of a fascinating boutique hotel, having hosted a pantheon of celebrities and wellknown personalities. A state-of-the-art hotel, the King George has always been distinctively recognized for its iconic rooms with the finest natural hard wood floors. With 63 rooms, 39 suites and incomparable views of the luminous city and the Parthenon, this historic residence, encapsulates the unique experience of a Penthouse Suite with private outdoor pool overlooking the famed Acropolis. Journey to the 9th floor with a private elevator and discover a unique experience. Absorb the sparkling views of the city and relax with the tranquil senses evoked by the private pool.

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Located on the 7th floor, the Tudor Hall Restaurant & Lounge features a unique neo-classical dÊcor, unrivaled views of the Acropolis, Modern Greek cuisine as well as signature cocktails. The inviting environment of the King George finds its best expression in the outstanding and always personalized service. With exceptional attention to detail and thorough expertise on the Destination Treasures of Athens, the contemporary classic property promises to meet our global explorers’ expectations as well as convey the highest level of quality service. Unique personalized services and travel authority discoveries are just a few of the memories when visiting the King George. LIFE IS A COLLECTION OF EXPERIENCES. LET US BE YOUR GUIDE.


LIFESTYLE

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LAST PAGE

PrivacyChecker: your business compliant with current and future data protection law by Bart W. Schermer*

Privacy and data protection are high on the agenda of the European Union. At the moment, a major reform of the EU legal framework for personal data protection is underway: The General Data Protection Regulation. It is expected that the Regulation will enter into force in 2016. While there is still a lot of debate about the Regulation (some 4000 amendments have been proposed by the European Parliament), recent privacy scandals such as PRISM have sped up the legislative process.

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T

he General Data Protection Regulation will replace the current Data Protection Directive from 1995 and will harmonise data protection rules across the different member states of the EU. The provisions in the Directive had to be implemented in national law before they took effect, but the Regulation will have direct impact and doesn’t need to be implemented. The Regulation sets new, strict requirements for organisations processing personal data and gives citizens more rights. Among the new rules are strict requirements for businesses on accountability requirements, the appointment of a data protection officer, mandatory privacy impact assessments and implementing ‘privacy by design’. The penalties for non-compliance are severe: organisations risk massive fines up to €1.000.000 or 2% of the global annual turnover. Therefore, it is important to anticipate the arrival of the Regulation and to take precautionary measures where possible. But most businesses are as of yet unaware of the new rules under the Regulation. In many cases they do not even know the rules under the current data protection directive. To help businesses become more aware of data protection law and strengthen their compliance, legal consultancy firm Considerati (www.considerati.com) has

developed a free online tool: PrivacyChecker.eu. With this tool businesses can gain insight into their level of compliance with the current law and assess their risk under the new Regulation in a quick and easy way. PrivacyChecker.eu is a good first step towards compliance with the upcoming privacy rules. In three little tests on Privacychecker.eu businesses can: 1) assess whether they need to do a privacy impact assessment, 2) see if they are in line with current data protection law, and 3) determine the height of the fine that they will receive under the upcoming rules if they do not change their business. Each test is comprised of several short yes-or-no questions. Once the test is completed users get a free downloadable report with their results and the height of their potential fine. Of course all the tests are completely anonymous and no personal data is collected. PrivacyChecker.eu is based on the official proposal of January 25, 2012. It is possible that the proposal will be revised. If so, PrivacyChecker. eu will be updated as well. * Bart W. Schermer PhD LLM is Partner at Considerati Link to the English version of PrivacyChecker: http://www.privacychecker.eu


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European Business Review (EBR) 03/2013  

Issue 3/2013 of EUROPEAN BUSINESS REVIEW (EBR) magazine

European Business Review (EBR) 03/2013  

Issue 3/2013 of EUROPEAN BUSINESS REVIEW (EBR) magazine

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