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WHY YOUR BRAIN LOVES STORYTELLING

BUILDING A BANKING UNION

CAN INDIA CATCH UP WITH CHINA?

ISSUE 5 - 2014 / YEAR 18th • PRICE € 10,00 / $ 12,00

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Issue Contributors Jim O’ Neill, Siim Kalas, Gunther Oettinger, Jorge Nunez Ferrer, Daniel Gros, Gordon G. Chang, Kuo-Yen Wei, Jan Techau, Agnes Benassy-Quere, Guntram B. Wolff, Markus Kerber, Jean Tirole, Serguei Netessine, Karan Girotra, Christophe Pennetier, Paul J. Zak, Gail Horwood, Criseida Martinez Marco

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ISSUE 5 / NOVEMBER - DECEMBER 2014 / YEAR 18th Published bimonthly under the license of Christos K. Trikoukis. European Business Review trademark is a property of Christos K. Trikoukis. European Business Review is strictly copyrighted and all rights are reserved. Reproduction without official permission of the publisher is strictly forbidden. Every case is taken in compiling the contents of that magazine, but we assume no responsibility for the affects arising therefrom. The views expressed are not necessarily those of the publisher nor of the European Business Review magazine.

INDEXINDEXINDEXINDEXINDEXINDEXINDEXINDEXINDEXINDEXINDEXINDEX

06 EDITORIAL Pope launches attack on EU

08 OPINION Winners and losers in the global economy of 2025

Why the West will never understand Russia Energy security is within our grasp if the EU plays as a team

16 EU AFFAIRS Europe: Building a Banking Union “An appalling way to behave”

22 THE WORLD

Can India catch up with China? Integrating Taiwan’s Strengths into Global Climate Action

27 SPECIAL REPORT The Eerie Silence Before the EU Reform Storm France and Germany: a moment of truth What’s needed is a much more visionary EU industrial policy

Jean-Claude Juncker: the man of 300 (?) billion Four principles for an effective state

38 NEWS & EVENTS A new “Think-Tank” in the area of Strategic Studies

40 MANAGEMENT Geolocation is changing the Retail Business Model again

42 TRENDS Why your brain loves good storytelling Developing a global digital strategy Think Young and Huawei launched Entrepreneurship Summer School in Hong Kong

48 BOOKS Empathy is the new noir

50 LAST PAGE Are STEM graduates equipped with the right skills to match employer’s needs?

For previous editions archive and up-to-date information on major topics and events you may visit our website http://www.europeanbusinessreview.eu

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A BRUSSELS VIEW

Pope launches attack on EU by N. Peter Kramer, Editor-in-Chief

When EP President Schulz invited the Pope to visit the Parliament, he probably forgot that the new Pope isn’t a European. Pope Francis is Argentinian and is looking at the European Union not as an insider like his German and Polish predecessors but from a clear distance. His conclusions were quite undiplomatic and harsh. The Pope denounced the European institutions for a ‘rather selfish lifestyle marked by an opulence that is no longer sustainable and which is frequently indifferent to the world around’. He attacked the decadence of a political system that betrayed human dignity and abandoned too many elderly and young people to a life of loneliness. ‘In many quarters we encounter a general impression of weariness and ageing of a Europe that is now a ‘grandmother’, no longer fertile and vibrant; as a result, the great ideas that once inspired Europe seem to have lost their attraction and to be replaced by the bureaucratic technicalities of its institutions’, the Pope continued. Schultz and Commission President Juncker looked more and more uncomfortable whilst listening. But Pope Francis had more grist to the mill. Europe is forcing ‘a conception of unity seen as uniformity that strikes at … the democratic system’, he said. ‘The true strength of our democracies –understood as expressions of the political will of the people – must not be allowed to collapse under the pressure of multinational interests that are not universal, which weaken them into uniform systems of economic powers at the service of unseen empires’. ‘In recent years, as the EU has expanded, there has been growing mistrust on the part of citizens towards institu-

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tions considered to be aloof, engaged in laying down rules perceived as insensitive to individual peoples, if not downright harmful’, he continued. The Pope reserved some of his strongest language for the plight of people fleeing the Middle East and Africa. More than 3200 have died trying to reach Europe this year. ‘We cannot allow the Mediterranean to become a vast cemetery’, he said. ‘The boats landing daily on the shores of Europe are filled with men and women who need acceptance and assistance’. Europe’s poor welcome for the migrants ‘contributes to slave labour and continuing social tensions’ The speech drew strong applause from the European Parliament. It looked like the members of the Parliament hadn’t understand that Pope Francis was talking about them…

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OPINION

Winners and losers in the global economy of 2025 by Jim O’ Neill*

f the breakneck speed of change in the global economy is maintained, the world of 2025 will be very different to today. The coming eleven years see the global economy evolve at the speed of the past eleven, the world in 2025 will be a very different place. For Europe’s policymakers, this will represent a great challenge to status quo thinking, for Europe has long seen itself as the world’s most important economic region. In 2025, this will not be the case: there is even a good chance that its two closest post-World War II partners, France and Germany, will no longer be each other’s most important trading partners.

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In a decade from now, China will be almost as large an economy as the U.S., unless it departs dramatically from the path it has been on since 2001, when I first coined the ‘BRIC’ acronym to describe the rise of Brazil, Russia, India and China. Projecting towards 2050, I suggested that China’s economy could match that of the U.S. by 2027 – and based on new data from the World Bank’s international comparison programme, it probably has already done so in purchasing power parity (PPP). China’s GDP today is around about $9.2 trillion: over half that of the U.S., bigger than that of Germany, France and Italy combined, and almost double that of Japan.

OPINION

While China’s annual growth rate has slowed to about 7.5%, we shouldn’t exaggerate this as a ‘slowdown’. Many economists had long expected some slowing after three decades of growth in double digits, and much of this decline has actually been induced by government efforts to sustain a better quality of growth, rather than focusing on sheer quantity. In this future China, different areas will dominate their economic landscape and there will be new winners and losers. Although the days of China’s 10% growth rate may be over, by 2025 its economic development will remain the most powerful. China’s economy is already about one and half times the size of the other three BRIC countries put together, creating in economic terms the equivalent of a new India every two years. China is now the biggest export market for many parts of the world, as well as being the biggest source of imports. So as we go through the next decade, subtle changes in trade relationships are likely to occur. For countries leading in high value added exporting, China will become more of a key market than ever, and countries like Germany that have already benefited from this will continue to do so. It is quite likely that China will become Germany’s single largest export market long before 2025. Countries like the UK might, meanwhile, start to do better than in the past once China focuses more on higher quality service items like healthcare and on advanced technologies for energy efficiency. It is also possible that some European ‘losers’ of the past, especially those that suffered from China’s cheapness as a source of low value added exports, might start to do better. Portugal and Italy have been at the forefront of this challenge, but the increased value of the Chinese renminbi (RMB), together with the ongoing rise in Chinese wages, means that China will no longer be the competitive threat it once was. Each of the other BRIC countries has a GDP of approximately $2 trillion – similar to that of Italy – though the exact figures depend on their own exchange rate against the dollar. But by 2025, India should start to emerge as somewhat bigger than the others because its favourable demographics give the country a high growth potential. Of course, achieving this potential requires effective policymaking, but the strong electoral victory of

India’s new prime minister Narendra Modi offers a perfect opportunity to introduce powerful reforms that could accelerate the growth rate. And although India’s economy is unlikely to reach the size of China’s in the next decade (or even the next three), it is quite possible that the country could experience stronger GDP rates of growth, perhaps more than 7%, over the coming decade. Introducing a simpler governance structure will lie at the heart of India’s opportunity to reform, and if implemented could unleash years of powerful investment-led growth. This would be a great opportunity for countries like Germany, Japan and South Korea, which greatly benefitted from similar developments in China. If India continues on this path, its economy could by 2025 be the same size as Japan’s, and will most likely have surpassed those of all individual European nations. The two other BRIC countries, Brazil and Russia, are set to find the next decade more challenging, as they need to wean themselves off being so dependent on commodities by making their economies more competitive and allowing scope for more private sector investment. Though not impossible, such adjustments will require much more boldness than is currently being displayed by their policymakers. Despite these challenges, both countries should be able to match European countries’ growth rates, and so will easily figure by 2025 in the list of the world’s top 10 economies. If not bigger than Germany, they will by then be at least as big as France, and maybe even the UK. The BRIC countries will collectively be well on their

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OPINION

way towards becoming as large as the G7 economies (though it might take a further five years to mathematically achieve this fate). This will have profound consequences for global economic and social governance, requiring the world’s (relatively) declining economic powers to give up some space in the global order – and that’s going to be a big challenge for the leading European countries. China alone will be effectively the same size as the U.S. or the EU and will insist on playing a bigger role in the IMF, World Bank, G20 and, one presumes, a more effective and modernised version of the G7. The largest European countries will need to come to terms with the reality of no longer being individually represented in these fora, and instead accept a combined representation at the G7 and perhaps in the IMF too. If not, these organisations risk losing their legitimacy. It will be extremely difficult for these countries to accept this, but without such changes these international organisations will be unable to play roles they were created for. France, Germany and the UK are likely to remain among the world’s 10 largest economies, but Italy will by 2025 barely be hanging in there, against strong challenges from Mexico, South Korea, Indonesia and Turkey. Another ‘winner’ likely to profit from China’s rise is, in my view, the U.S., as long, that is, as Washington can handle the geopolitics of there being another economy as large as its own. In many ways, the next eleven years will be all about the U.S. and China being able to sit side by side as the world’s two dominant economies, accepting each other despite their different choices of governance and socio-political structures. If they can do this, both will benefit greatly. The threats felt in the U.S. that American industry is being hollowed out by China should dissipate. With the relative shift in the value of their currencies and the dramatic shift in the availability of cheap domestic energy, the U.S. is likely to see a modest resurgence of its productive industrial capacity, and with this its ability to export to the rest of the world, China included. The days of massive trade deficits in the U.S. and surpluses in China will, come 2025, be no more. Among the greater challenges to global economic governance is how the dollar will develop

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alongside the rise of the RMB – and this is very hard to predict. If this were based purely on economic size, it would be more straightforward and I would expect the RMB to supplant the role of the dollar in much international trade, possibly including the price of some commodities. But when considering domestic preferences, it is unclear whether China will want the RMB traded as openly and freely as will be necessary. And though it’s possible that China will push for some overhaul of the international monetary system, in which the major exchange rates do not trade freely, this is something the U.S. would oppose, and presumably would only agree to under crisis circumstances similar to those of 2008-09. It is similarly difficult to forecast confidently how the EU, and specifically the eurozone, will cope with this new world. If Europe were to truly develop an outward-looking mindset, all the predictions I have made would probably be very positive for Europe as a whole. This would, however, also require Europe to be a lot more flexible than it has been in recent years, less obsessed with protecting losers and bolder about finding winners. One can only hope that a new generation of leaders, perhaps not so encumbered by Europe’s 20th century history, might be better placed to deliver, for there is little sign of today’s leaders being able to grasp the opportunities.

* Head of Global Economic Research at Goldman Sachs International and member of the board of the Bruegel think tank

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OPINION

Why the West will never understand Russia by Siim Kalas*

Moscow will look for every way to circumvent the sanctions and encourage divisions within the European Union before the question of economic sanctions returns. In pursuit of her “near abroad” policy, Russia has occupied parts of Georgia, Moldova and Ukraine, annexed Crimea and supported Armenia in its partial occupation of Azerbaijan.

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o it is hardly surprising that Russia’s neighbors, the Baltic countries and Kazakhstan, are fearful of further aggression. Sweden deployed a significant naval force to look for a supposed Russian submarine in its territorial waters. The West, including the European Union, has responded with economic sanctions. But how relevant are these sanctions and what is their impact on the Russian economy and Russian politics? To Western thinking, their impact is substantial. Russia’s allies portray them as simply irrelevant. Which is closer to the truth?

OPINION

One factor which suggests sanctions do present serious problems for Russia is the credit crunch which is looming for many Russian companies. It will be at its most severe by 2016. In December of this year, the Russian corporate sector will have to repay $32bn, and any refinancing is likely to attract very high interest rates. Overall, between now and the end of 2015, Russian banks and companies will have to repay no less than $134bn. One of the flagships of Russia’s energy sector – the oil company Rosneft – is also in serious financial trouble. Heavily indebted and cut off from the EU and US capital markets, it is relying on state support from Moscow and pre-payment contracts with China to meet its debt obligations. The Russian budget is under pressure on both the revenue and cost sides. Moscow has tried to borrow via debt auctions, but nine successive auctions have failed. On the 24th was able to borrow a modest €208 million. But the rate of interest – 9.37% - looks more like usury. As is well documented, there have been unprecedented capital outflows, while at the same time the forecast for military spending in 2015 has increased by 21%. The Russian authorities, including the Central Bank, have firmly declared that there will never be any restrictions on capital movements or on the free float of the rouble. But given the usual level of reliability of Russian public policy statements, such promises should not be taken at face value. The vast majority of Russians have always lived under a rigid currency control regime. At the very least, we should prepare for limited debt defaults by Rosneft and the troubled Russian banks. There is also the real possibility of complete bank failures. All this points to a Russian economy in deep trouble. But Russian society is very resilient to economic sanctions. This is a society which has for centuries accepted the loss of prosperity as part of the cost of imperial and military objectives. And here lies the fundamental difference between affluent Western consumers and the people of Russia. Over the last twelve months, the trouble has depreciated by16%. against the dollar. Rouble holders have become significantly poorer compared with

dollar owners. But who cares? For 130 million Russians, the exchange rate plays no part in their lives. The food embargo? There has been hunger and a shortage of food in Russia for decades; a little less sausage today makes no difference. Thousands of Russians may have bought property in London, Scandinavia, the Baltics, Dubai and elsewhere as escape-purchases against the day when things become unbearable. But only 8% of Russians spent their holidays abroad in 2013. 92% stayed at home. The number of Russian dollar millionaires may have doubled in the last year, but the overall prosperity of Russia’s citizens fell by 6% in the same period. The fact is that most Russian citizens live still in Soviet conditions – the same miserable apartments, the same relative poverty, the same almost total isolation from outside world. They inhabit a society which is highly resistant to Western economic sanctions and is always ready to suffer in support of higher political objectives – mostly involving aggression outside Mother Russia herself. It all adds up to a stable and deep-rooted power base for Russian assertiveness and confrontation with the West. So what are the implications? Russia’s problems with refinancing will come to a head at the end of 2015. The most probable date for the expiration of Western sanctions is August 2015. Does anybody seriously believe that Russia will end its occupation of territory in Ukraine, Moldova or Georgia? Of course, Moscow will look for ways to circumvent the sanctions. Switzerland is always ready to lend, even though the price paid by Russian companies to Swiss intermediaries is enormous. And what about the short-term? For Russia, it remains vitally important to encourage divisions within the European Union before the question of economic sanctions returns. Moscow will use every trick in the book – propaganda, blackmail, even bribery. They will work through lobby groups; they will use fake diplomacy; they will make false peace proposals. And if, by the end of 2015, things look even worse, what are the odds against another military adventure to boost morale?

*Siim Kallas is former Vice-president of the European Commission. He is currently a professor of international economics at the University of Tartu. ** First published at Euractiv.com

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OPINION

Energy security is within our grasp if the EU plays as a team by Günther Oettinger*

To ensure their energy security, the EU’s member states need to be able to help each other in times of need. That means that adequate interconnection and reverse flow options are crucial, and a solid infrastructure is indispensable if Europe’s internal energy market is to be achieved.

n turn, an efficiently functioning European internal market for gas will enhance our security of supply. And when gas becomes a freely traded commodity, its use as a tool in political power games is reduced. The EU Commission’s analysis shows that roughly €30bn could be saved every year till 2030 providing we can achieve the full integration of our national gas markets. These benefits would mostly come

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from more competitive gas wholesale prices. But that requires sufficient infrastructure to ensure that these markets are fully connected so that gas can be traded freely. What do we need to do to enhance our infrastructure and achieve these objectives? The EU’s gas infrastructure policy is driven by the regulation on trans-European networks for energy (TEN-E Regulation), and the new one that entered into force last year will help to improve Europe’s gas infrastructure in a number of ways. First, it consists of a flexible approach that is tailored to the specific needs and challenges of the EU’s different regions. This helps us identify the investments that are most urgently needed, not least in terms of the security of supply challenges we face. It therefore focuses on ending the energy isolation of the Baltic member states and overcoming single source dependency in central and eastern Europe.

OPINION

At the same time, it aims to promote further market integration in the West and also looks at supply diversification options through the Southern Gas Corridor. To support these goals, we identified “Projects of Common Interest” a year ago, in October 2013, which benefit from efficient permit-granting procedures and improved regulatory conditions. Among the 248 key energy infrastructure projects listed, 107 relate to gas; half of these are in central and south eastern Europe, 27 in western Europe, 15 in the Baltic Sea region and 12 in the Southern Gas Corridor, which will link the European markets to the Caspian region. There are also several LNG terminals and storage projects, as well as reverse flow projects. Under normal circumstances, it is expected that all the gas projects will be completed by 2020, and that will considerably strengthen Europe’s energy security. Second, the TEN-E Regulation tackles the greatest barriers to infrastructure development by streamlining permit-granting procedures and ensuring the fairer distribution of investment costs based on the benefits to be brought by each project. Third, it addresses some of the financing questions related to infrastructure projects. The Connecting Europe Facility, which earmarks €5.85bn for energy infrastructure until the end of 2020, may support the implementation of some of the Projects of Common Interest, but this applies only to projects with positive European benefits that cannot be developed on purely commercial terms. In the European Energy Security Strategy the Commission presented earlier this

year we gave a further indication of where our strategic priorities lie; 33 critical energy infrastructure projects were identified, 27 of which concern gas. If we want to speed up these projects, early support under the Connecting Europe Facility would certainly help, but in many cases it is political support that would be even more important. We shouldn’t forget that much has already been achieved in improving gas infrastructure around the EU. Reverse flow capabilities and new interconnectors, as well as new LNG terminals have been built during the past few years, especially in the aftermath of the 2009 gas crisis. Most of the projects have been co-financed by the EU, although the work is still not yet completed. To be absolutely clear, I must emphasise that words are not enough to improve the EU’s infrastructure. What we need is action, and this demands a greater effort

on all sides. It means a stronger commitment by project promoters when examining technical ways accelerating implementation; by regulatory authorities who must agree on cost allocation and funding; and by national ministries that need to ensure the necessary political support while also tapping into all possible financing sources, including the EU’s structural funds, cohesion funding and the European Investment Bank. Developing Europe’s energy infrastructure will demand close co-operation and co-ordination between EU member states. The energy challenges that now confront us underline the way in which we have to “think European” if we are to improve our energy security. The EU can only win if it plays as a team. *Former EU Commissioner for energy and now EU Commissioner for the Digital Economy and Society

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EU AFFAIRS

Europe: Building a Banking Union Source: Stratfor*

The recent stress tests by the European Central Bank offered few surprises and did not cause any significant political or financial reactions in the Continent. However, these tests were only the beginning of a complex process to build a banking union in the European Union.

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EU AFFAIRS

nlike the stress tests, the next steps in this project could create more divisions in Europe because national parliaments will be involved at a time when Euroskepticism is on the rise. More important, the stress tests will not have a particular impact on Europe’s main problem: tight credit conditions for households and businesses. Without a substantial improvement in credit conditions, there cannot be a substantial economic recovery, particularly in the eurozone periphery. The European Central Bank had two basic shortterm goals for this year’s stress tests. On one hand, it had to come up with a test that was tough enough to be credible after tests held in 2010 and 2011 were widely seen as too soft and lacking in credibility. On the other hand, the tests could not produce results dire enough to generate panic. The European Union is going through a phase of relative calm in financial markets, and the European Central Bank was not interested in creating a new wave of uncertainty over the future of Europe’s banks. While the tests did attract some criticism, the central bank achieved both goals. Of the 130 banks involved in the tests, 25 had capital shortfalls, a finding slightly more severe than forecasts projected. Of those 25 banks, 13 must raise fresh capital and come up with 9.5 billion euros ($12.1 billion) in the next nine months. None of the failed tests came as a surprise, however. Italy’s Monte dei Paschi, the worst performing bank in the tests, has been in trouble for a long time and had to receive assistance from the Italian government in 2012. Other failing banks are located in countries such as Slovenia and Greece, which have been severely affected by the financial crisis. And while the price of several banks’ shares dropped during the Oct. 27 trading session, no collapses occurred. The tests were not perfect -- they used data from December 2013 and were mostly done by each participating state. The methodology and scenarios were also criticized. For example, the most extreme “adverse scenario” included in the tests considered a drop in inflation to 1 percent this year, although the rate has already fallen to around 0.3 percent. The decision to include only 130 “systemic” banks while turning a blind eye on smaller -- and probably weaker -- institutions also drew criticism. But overall, markets considered the tests legitimate, especially in comparison with the

weak tests that have taken place since the beginning of the European crisis. The stress tests, however, are only the starting point in the much deeper and complex process of creating a banking union in Europe. The issue has traditionally been very controversial in the Continent. As Europe became more integrated, several policymakers proposed the creation of a banking union to complement the Continent’s internal market and common currency. Nationalism and diverging political interests, however, made this quite difficult, and the idea was abandoned during the Maastricht Treaty negotiations in 1991 and again after it was reconsidered during deliberations for the Treaty of Nice in 2000. But the eurozone crisis -- and the fear of financial instability spreading among the countries that share the euro -- has reignited the debate about a banking union. Simultaneous crises in countries such as Spain and Ireland, where national governments were forced to request international aid to rescue failing banks, made Europe consider the need to break the vicious circle between banks and sovereigns.

The Upcoming Political Debate In 2012, the European Union announced that the banking union would be implemented in two stages. During the first stage, the European Central Bank would centralize the supervision of participating banks’ financial stability. At a later stage, Brussels would introduce a “Single Resolution Mechanism” and a “Single Resolution Fund” to be responsible for the restructuring and potential closing of significant banks. The first stage of the banking union was controversial because some member states refused to

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EU AFFAIRS

give the central bank full power to supervise every single bank in the European Union. A compromise was eventually found, and the bank was given supervisor powers over banks with holdings greater than 30 billion euros or 20 percent of their host nation’s gross domestic product. This was not a minor compromise. National regulators remained in charge of supervising smaller banks such as Spain’s cajas and Germany’s Landesbanken, institutions generally having strong ties with local political powers -- and troubled balance sheets. The stress tests were a precondition for this stage of the banking union implementation process. As the November implementation of the banking union’s first stage draws nearer, the Europeans will have to make difficult political decisions regarding the second phase of the project. Twenty-six members of the European Union (Britain and Sweden decided not to participate) signed an intergovernmental agreement in May to create a special fund and a central decision-making board to rescue failing banks. According to the agreement, the fund will be built up over eight years until it reaches its target level of at least 1 percent of the amount of deposits of all credit institutions in all

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the participating member states, projected to be some 55 billion euros. The fund will initially consist of national compartments that will gradually merge into a single fund. The agreement also made official the “bail-in” procedure for future rescue plans. Members of the European Parliament have said the fund should be larger because it may not be enough to deal with a new banking crisis. There is also the question of how the Single Resolution Fund will be financed. On Oct. 21, the European Commission proposed that the largest banks, representing some 85 percent of total assets, contribute around 90 percent of the funds. Opponents have criticized that instead of designating the contributions in proportion to the risks each bank presents, the proposal assigns contributions using a bank’s total assets. The European Council, which represents member states, will have to ratify this proposal. More important, the transfers of banks’ contribution to the Single Resolution Fund are scheduled to start in January 2016. Before that happens, however, the parliaments of member states will have to ratify the intergovernmental treaty that was signed in May, a difficult proposition in the wake of rising Euroskeptical parties. In addition, a group of German

EU AFFAIRS

professors have said they would challenge the banking union before the German Constitutional Court. According to this group, the banking union represents a huge risk for German taxpayers while leaving Berlin without any oversight authority. This is the same group that is currently challenging the European Central Bank’s Outright Money Transactions bond-buying program.

The Real Problem: A Lack of Easily Accessible Credit While the stress tests and asset quality review offer a clearer view of banks in Europe, most European households and businesses are facing more immediate problems. On Oct. 27, the central bank revealed that loans to the private sector fell by 1.2 percent year-on-year in September after a contraction of 1.5 percent in August. The data shows a slower rate of contraction in credit lending but does not signal a strong recovery of credit in the eurozone. The data also confirmed that credit conditions remain particularly tight in the eurozone periphery. Since banking credit is crucial to households and companies, credit conditions are intimately linked to Europe’s economic recovery. The European Central Bank has recently approved a battery of measures, including negative interest rates and

cheap loans for banks. However, as banks are still trying to clean up their balance sheets, lending remains timid. Even in those cases where banks are willing to lend, they tend to impose strict conditions that are hard for customers to meet. There is also a demand problem. With weak economic activity and high unemployment in the European periphery, many households and companies are simply not asking for credit. Finally, the central bank’s latest policies have created significant disagreement within the institution. Some members of the governing council -most notably Germany’s Bundesbank -- are wary of measures that could finance governments and weaken the pace of economic reforms. The Germans are also concerned about the legality of measures such as quantitative easing and its potential impact on inflation. The current frictions within the central bank are representative of the wider debate that is taking place in Europe between countries led by Germany that believe reforms should come before stimulus packages, and those led by France that think crises are not the best time to apply deep spending cuts. In the coming weeks and months, this debate will be key in deciding the future of the European Union.

*“Europe: Building a Banking Union” is republished with permission of Stratfor (www.startfor.com)

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EU AFFAIRS

“An appalling way to behave” by Jorge Nunez Ferrer and Daniel Gros*

nce upon a time, the leaders of the EU agreed that they had had enough of endless discussions on how to raise sufficient resources to finance the expenditure of the EU. They decided to levy a mini flat tax of about 1% on the gross national income (GNI) of each member state. The tax rate was capped at 1.2%, but the exact rate to be applied each year was left to a complicated spreadsheet calculation, which a special committee would administer. But one problem arose: the data on GNI are subject to frequent revision (as are most macroeconomic variables). It was therefore decided to task the ‘GNI Committee’ to look at the data on GNI from member states, to validate the data and enter any new figures in the spreadsheet in order to (re-)calculate the contribution of each member state. This is done normally for the preceding four years, except in exceptional cases where specific open statistical issues are solved. This was the case for this current revision, in which data for the last ten years were used to recalculate contributions.1

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Up until this year, the GNI Committee laboured in blessed obscurity because the data were usually revised very little. In the few cases where there were major revisions, the rules were fully applied. Those member states having to pay more did so without any fuss, and those having to pay less counted their blessings in private.2 This changed when, a few weeks ago, the British Statistical office proudly communicated that it had found out that the UK GNI had been much higher than previously thought, not only in 2013, but also in all previous years.3 In essence, the British Statistical Office (not the EU!) declared that the UK GNI had been almost 4% higher in 2012 and by similar amounts in the previous years. The revised GNI data communicated now are about £350 billion higher than the sum communicated last year if one adds the revisions between 2002 and 2012. In October, the new data were communicated to the GNI Committee and dutifully entered into the standard spreadsheet. The result was an upwards revision of the UK contribution by about €2 billion, which provoked Prime Minister Cameron to

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exclaim “This is an appalling way to behave...I am not paying that bill on the December 1st.“ At first sight, one would have expected a higher sum since 1% of £350 billion would have been much more. But other countries also revised their GNI data and the UK has a special rebate. The latter explains why the UK actually contributes less than the 1% of GNI that most other member states pay. This is the essence of the ‘tax on prosperity’, which was so violently denounced. The commonly agreed rules are quite clear and seem fair: a small flat tax on the (gross national) income declared by the member states of the EU. Some members found out that their income had been much higher than previously thought and thus have to make up for past underpayments. Given the magnitude of the GNI correction for the UK, the change was particularly high, but not less in magnitude than the one for the Netherlands. The annual amount is in fact only a few hundred millions of pounds, but the sum over ten years appears large, although it is only a fraction of 1% of UK GDP or public expenditure.

There is no point in discussing whether the UK should contribute more to the EU budget because it has indeed become more prosperous. The basic point is simple: clear rules on the contributions of member states were agreed, by common consent, whose implementation essentially involved putting numbers into a spreadsheet. This was done expressly in order to take politics out of a potentially contentious process. Those countries contesting the numbers now are acting in bad faith. The EU cannot work if commonly agreed rules are thrown overboard whenever they do not suit a large member state. At any rate, the upwards revision of UK national income will over time also increase the UK’s obligations to many international institutions (IMF, World Bank, EBRD, etc.). Nobody seems to be complaining about this. The fuss about the EU budget is especially difficult to understand if one looks at the context in which this additional payment request arose. Like all complex international organisations, the European Commission has to follow strict rules with procedures carefully negotiated and agreed by all member states. Prime Minister Cameron should have known that such figures do not appear out of the blue and are the result of processes in which his country is fully involved. The Dutch Prime Minister also received a bill in which his country’s share of GNI was higher, but rather than launching into a populist rant, he announced that he would ask for details. Finance Minister Jeroen Dijsselbloem said that the Dutch will pay “if the facts and the figures are correct”. Another detail that Prime Minister Cameron neglected to mention in his speech is that by refusing to pay, he expects the other 27 member states to cover the UK’s share. Now that, in our view, is “an appalling way to behave”!

Jorge Nunez Ferrer is Associate Researcher at CEPS and Daniel Gros is Director of CEPS.

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THE WORLD

Can India catch up with China? by Gordon G. Chang*

Analysts used to ask, “Can India Catch Up with China?” Now, it looks almost inevitable. There’s no mystery for the change in narrative. In a five-weeklong election ending in May, 541 million voters went to the polls, and most of them demanded fundamental change. They rejected the ruling Congress Party of the Gandhi family, which had dominated national politics since independence in 1947, and gave a newcomer, the charismatic Narendra Modi of the Bharatiya Janata Party (BJP), an absolute majority in the Lok Sabha, the lower house of Parliament.

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odi had previously created a boom while serving as chief minister of a coastal western state. “He provided Gujarat with India’s first real free-market economy that led to new infrastructure and job creation,” said Subrata Mukherjee, a retired political science professor at Delhi University, to Bloomberg. A central pillar of Modinomics is that large businesses create jobs and prosperity. In his short time as prime minister, Modi has traveled to Japan and the United States for meetings with Prime Minister Shinzo Abe and President Obama and has hosted China’s leader, Xi Jinping, in New Delhi. A central element in Modi’s summitry has been obtaining investment commitments; he’s thus far gotten a total of $100 billion, according to his own count.

THE WORLD

“Now it is the turn of the states to capitalize on the opportunity,” he says. “The roads are wide open. The states that are ready can walk away with a major share.” Whether India’s state governments take advantage of the opportunity depends on whether they “de-bottleneck,” make available land, build infrastructure, and issue permits. Gujarat did those things when “SuperModi” ran it, but he now sits in faraway New Delhi, which has only limited influence with state officials. Yet Modi’s sweeping election victory not only brought his party to power in the capital, it changed the mood across India. As the Wall Street Journal’s Geeta Anand and Gordon Fairclough report, voters this year rejected the subsidies and giveaways of the Congress Party because they wanted India to become a larger version of Gujarat. The breath of Modi’s victory, therefore, signals a clear rejection of the socialism of India’s founders. No wonder Indians speak of the “Modi wave.” The new mood can be seen in Madhya Pradesh, the landlocked Indian state with a

population of 73 million and a growth rate of 11 percent last fiscal year. There, Chief Minister Shivraj Singh Chouhan, also from Modi’s BJP, says it’s time for even faster growth. “In the field of agriculture, Madhya Pradesh has reached its peak,” he told Bloomberg in an October 9th interview. “Now we need to move toward industrialization.” Not all of India’s 29 states and seven union territories will now follow Chouhan’s Madhya Pradesh, but those that don’t will get left behind, which means they will, in all probability, eventually begin to look for investment as well. The strength of India’s federalist system is that the best ideas compete as states and territories vie with one another. And now that there is a business-friendly ruling party in power, economic prospects for the country look brighter than they have for years. It’s about time. In the fiscal year ended March 31st, India grew a relatively unimpressive 4.7 percent, the second consecutive year of growth below 5 percent. It may take a few years for India to get back to 9-percent-a-year expansion, but now the country

is at least moving in the right direction. The Central Statistics Office reports that gross domestic product was up 5.7 percent in the quarter ended June 30th, compared to the same period a year ago. In the previous quarter, growth was 4.6 percent. Rajeev Malik, an economist with the firm CLSA, thinks that, given the current trends, 2016 will be “a big kicker” year. He predicts 7.2 percent growth then. He forecasts China’s will be at 7.1 percent. Move over, China. In a decade, India could have both the world’s biggest population and fastest-growing major economy. Yes, it’s premature, but we can see why Modi talks about our era as “India’s century.”

*Author of “The Coming Collapse of China and Nuclear Showdown: North Korea Takes On the World”. He lived and worked in China and Hong Kong for almost two decades as a lawyer. His writings have appeared in the New York Times, Wall Street Journal, International Herald Tribune, Commentary, the Weekly Standard, National Review, and Barron’s.

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THE WORLD

Integrating Taiwanâ&#x20AC;&#x2122;s Strengths into Global Climate Action by Kuo-Yen Wei*

Scientists inform us that modern industrial development has caused carbon dioxide concentrations around the world to exceed the carrying capacity of natural ecosystems. International negotiations on climate change have now entered a critical stage in the run up to the signing of a new global agreement at the Paris Climate Conference in December 2015.

esponding to climate change is a long and daunting task replete with both challenges and opportunities. In the Republic of China (Taiwan), due to the governmentâ&#x20AC;&#x2122;s ambitious policies to promote energy conservation and carbon reduction, carbon dioxide emissions from fossil fuels posted negative growth in 2008, for the first time since 1990, and have more or less stabilized in recent years. This underlines the positive effect that government policies and education are having on decoupling greenhouse gas emissions from economic growth.

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Climate change stands as one of this centuryâ&#x20AC;&#x2122;s most important political and economic focal points, a core issue affecting international politics, trade, and society. Its impact is broad and complex, and underpins all social, economic, and environmental considerations as they relate to sustainable development. However, given that climate change has such a direct bearing on the national development, competitiveness, and intergenerational equity of all countries around the world, the mitigating actions being taken fall well short of what is required. As far as Taiwan is concerned, there is no escaping that

THE WORLD

we are all in the same boat and should therefore be helping one another. Taiwan is heavily energy dependent and has a limited environmental carrying capacity, so it is imperative that we receive guidance on how best to fulfill our commitment to reducing carbon emissions. Through government restructuring, Taiwan is currently setting up its Ministry of Environment and Natural Resources to better focus its efforts on pollution prevention, climate change adjustment, river basin management, disaster prevention, and nature conservation, ushering in a new era for environmental protection. The aim is to reestablish environmental sustainability values, conserve energy, reduce carbon emissions and environmental pollution, and create a low-risk environment characterized by clean production, comfortable living standards, and unspoiled ecosystems. Besides promoting recycling and reuse, if Taiwan can seize the opportunity to develop a green economy, as well as integrate government policy and legislation, public and private sector involvement, market forces, and technological innovation, it can reduce its carbon emissions, make the transition to a low-carbon economy, and achieve its environmental protection objectives. After President Ma Ying-jeou announced this year that Taiwanâ&#x20AC;&#x2122;s Lungmen Nuclear Power Plant would be mothballed after safety inspections, he promised to hold the Fourth National Energy Conference. This will allow different points of view on a blueprint for future energy development to be exchanged in a rational manner. As we discuss energy supply and demand, we need to let the public clearly understand that the real potential for reducing emissions lies in our future energy choices. All stakeholders

must share the responsibility for carbon reduction and work together on the compromises that a longterm plan demands. The experiences of the United Kingdom, Germany, and the EU tell us that those in power must make bold commitments and have the courage to follow through with them. Equally, there is also a price to be paid if civil society is to do its part in making the world a better place. As we confront climate change, we should be clear that it is not what ideals we hold that matters, but rather what we are together willing to accomplish. For a long time Taiwan has quietly yet diligently trying to fulfill its role as a responsible member of the global village by signing bilateral agreements and engaging in multilateral cooperation. We have done our utmost to take practical steps that reflect the initiatives and efforts of the United Nations Framework Convention on Climate Change (UNFCCC). Regrettably, our country remains excluded from the UNFCCC even today, despite our desire to become meaningfully involved in its meetings and activities. Our participation would enable us to receive much needed support and assistance from the international community. It would also enable us to do our bit by sharing our experience in environmental protection with the international community and other countries in need, thereby integrating Taiwanâ&#x20AC;&#x2122;s strengths into global climate action.

*Author is Minister for Environmental Protection Administration of the Republic of China (Taiwan)

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SPECIAL REPORT

SPECIAL REPORT:

EUROPE NEEDS RETHINKING by N. Peter Kramer, Editor-in-chief, European Business Review

That the EU and his institutions need reform is accepted by many politicians and European dignities. The question is how to handle it? European Business Review bundled five different and interesting views in this special report. Not to present a manual how to reform but as an exchange of important views on the subject.

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SPECIAL REPORT

The Eerie Silence Before the EU Reform Storm by Jan Techau*

erhaps never in the history of the European Union has there been a greater mismatch between the need for reform and the political capital available to enact that reform. So what will bring the EU member states to the point where they embrace meaningful change in that union of theirs? This is the question that has been lingering in the air in Brussels as the new EU leaders have begun to take office. Everybody knows that it can’t go on like this, few trust that anything major will change, and many have an inkling that something big is about to occur. The atmosphere resembles a political drôle de guerre - that unnerving phase of silence and tension that everybody knows must end soon so the real battle can finally be fought. The current combination of challenges facing the EU is extreme, even by the union’s crisis-ridden standards. That calls for an equally momentous reform effort. First, the EU needs to address the possibility of the departure from its ranks of one of its leading members: the United Kingdom. The UK is a country with a positive long-term demographic outlook, firm liberal economic leanings, a strategic view on the world, and a rock-solid transatlantic orientation. There aren’t too many member states like that, and

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the EU certainly doesn’t want to lose them. Second, the EU faces a Europe-wide sclerosis that has created structural unemployment, enormous debt, low growth rates, and lackluster innovation across the continent. Europeans have lived beyond their means and at future generations’ expense to such an extent that harder times with longer work and diminished privilege are unavoidable. Europe’s lack of preparedness to deal with this sclerosis can be seen in the prolonged economic failure of France, another of the EU’s indispensable members and the second pillar, after Germany, of the single currency. The utter ossification of France’s political elite and the rusty mechanics of the country’s centralized republic have led to systemic paralysis and a huge populist backlash against modernity, openness, and economic and political liberalism. To be sure, reforming France is ultimately a French task. But so much depends on it for the EU that some hard thinking needs to be done - at least in Berlin, London, and Brussels. Third, the populist backlash visible in France is a harbinger of what might follow in the EU as a whole if the bloc does not decisively reform its governance structures soon. This will mean creat-

SPECIAL REPORT

ing some sort of democratic participation in the EU that makes Europeans true citizens of the EU, not just token ones. The European Parliament, in its current form, cannot address the EU’s democratic deficit. Nor can subsidiarity or stronger national parliaments improve the union’s democratic credentials. If the current level of EU integration is to be maintained - or even increased, as necessity seems to dictate - the union will have to establish real Europe-wide participation in EU decisionmaking in the not-so-distant future. This is highly unlikely. And yet, if it does not happen, the EU will start to come apart. Democratic participation and its logical consequence, political union, are more likely within the eurozone than across the EU. Just as the currency’s founders envisioned, the euro will require a political union of some sort that creates legitimate governance of the EU’s already deeply developed economic integration. What the founders did not envision is that political union for the eurozone will also force the fragmentation of the EU. Not all members want political union. But those inside the eurozone clearly need it. Between these two forces, the EU’s future will have to be negotiated. Fourth, the EU will have to forge a real common foreign policy, at least in those fields where the union’s survival could be at stake. This foreign policy should include integrated and hard-nosed approaches to the Eastern and the Southern neighborhoods, military cooperation, energy security, immigration, Europe’s attitude toward Asia, and cybersecurity. The EU is miles away from any of this. The union is, for the most part, a bystander in classical foreign policy with occasional success stories and lots of drift. It still relies on an order that it is ever less capable of underwriting with its own assets. That is not a survival posture. So far, so ugly. But what will bring about constructive, well-designed, daring change? The cynic’s view is that only more pain will do the trick. Europe has had it too good so far, so there is no real sense of urgency. Modern political science’s way of expressing this is what Joseph M. Parent, a professor at the University of Miami, claims in his 2011 book Uniting States: Voluntary Union in World Politics. His point is that throughout history, political union among nations has only ever sprung from a shared mortal

threat. Short of that, no union. Others are less pessimistic. Olli Rehn and Jean Arthuis, both Liberal members of the European Parliament, and a former European commissioner and former French finance minister respectively, recently stated in an op-ed for the Financial Times that “all the stars are aligned for big changes in Europe.” Rehn and Arthuis claim that 2017 is the magic year to watch. The UK will likely hold a referendum on its EU membership in that year, Germany and France will hold major elections, the EU’s multiannual budget will undergo its regular midterm review, and the EU’s fiscal compact is expected to become EU law. The year 2017 could well be an important one, but it remains to be seen whether the combination of these factors can free up enough energy to deal with so many fundamentals at the same time. No matter whether the political events calendar can instigate reform or whether existential threats from within or outside will spur the EU into action, reforms need to be enormous in scale and workable at once. The margin of error is small. Even under the best of circumstances, the slow nature of political decisionmaking and the enormous complexity of the issues at stake make reform unlikely. And at any point in the process, a breakup is a possibility. The EU’s dilemma is that clinging to the status quo will destroy it, but that resolutely moving on could equally tear it apart. Europe might still have its best days ahead of it. But before that time comes, Europe has something else ahead: the toughest calls it has ever made.

*Author is Director of Carnegie Europe, the European center of the Carnegie Endowment for International Peace. Techau works on EU integration and foreign policy, transatlantic affairs, and German foreign and security policy.

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France and Germany: a moment of truth by Agnès Bénassy-Quéré and Guntram B. Wolff*

o break out of the current economic impasse, a bold, coordinated Franco-German strategy is needed. France and Germany, which together account for half of euro-area GDP, are rightly considered the key to the euro area’s exit from the current impasse of low growth, falling inflation and increasingly dangerous debt trajectories. But more importantly, the GermanFrench couple is a clear example of the need for a coordinated strategy. Their unit labour costs

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have diverged by some 20% since the introduction of the single currency. This would not necessarily be worrying, but the world market share of French exports has fallen by more than twice that of Germany, and the current account gap has increased by more than 8% of GDP. France has not compensated for its rising costs by higher non-price competitiveness, while the German low-cost strategy has made the country more and more dependent on foreign markets.

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The steady decline in inflation and the increase in the euro area’s current-account surplus are an indication that aggregate demand is too low in the euro area and in France and Germany. The stagnation of total factor productivity since the mid-2000s in several euro-area countries (including France) is an indication that deep reforms are needed for long-term growth to restart, and therefore for the sustainability of social systems. To break out of the current economic impasse, a bold, coordinated Franco-German strategy is needed. It requires simultaneous implementation of measures in both countries. Currently, there is no political consensus in France for far-reaching reforms that would encompass structural spending cuts and changes to some services market regulations, and would also improving the functioning of the labour market. This could be done, for example, by reconsidering the labour contract in order to incentivise long-term hiring, or averaging working time across the year, rather than week by week, which would be a smooth way of reducing unit labour costs. There is also, so far, no consensus in France on the need for education system reform. Such reforms would boost French productivity growth, stimulate innovation and also help to narrow the unit labour cost gap with Germany. Before the full gain from productivity can be reaped, wages and other costs such as housing will need to grow more slowly in France than in Germany, so that the former can regain competitiveness and the latter can alleviate its excess dependence on external demand. Germany should gear its efforts to boosting its own economic activity. Boosting domestic demand is part of the answer and could be quickly achieved through lower taxes on low-income households and a credible strategy for public investment. For this, accepting that the “black-zero” balanced budget must be given up is essential. But structural reform to develop the non-traded goods sectors, for example IT services, is also essential. The introduction of a minimum wage next year increases the need to focus on such high value*Agnès Bénassy-Quéré is the Director of the CEPII, the leading French research institute in international economics, and a Professor at University Paris X – Nanterre (on leave).

added sectors. The education system should support a shift to the new growth sectors of the 21st century, where Germany is lagging behind. This renewed economic dynamism needs eventually to lead to an inflation rate of above 2 percent, which is required to support the rebalancing. With the prospect of an increase in demand and inflation in Germany, the French government would have more leeway to cut social contributions and social spending, and to implement far-reaching structural reforms. The French government’s recent announcements of reforms to protected sectors, although going in the right direction, will not be sufficient. Aggregate demand is not only a question of fiscal stance. France needs to reduce the uncertainty surrounding future policies, which is currently a powerful drag on private investment. Clarifying the future path of tax rates and energy and carbon prices is one issue. Agreeing on a number of medium-term fundamental objectives covering issues such as vocational training, tertiary education, lifetime working hours, the health system and housing subsidies, are needed to anchor expectations. Credibility, through political agreement on medium-term objectives is needed to trigger private investments. The success of such a joint strategy will of course depend on what happens at euro-area level: on the ability to finance European Commission president Jean-Claude Juncker’s €300 billion investment project with fresh money, on the willingness of the European Central Bank to do what it considers necessary to meet its target of an inflation rate “below but close to 2 percent”, and on the ability of the European Commission and the European Council to enforce the fiscal rules without suffocating the economy. France and Germany have a major responsibility as shareholders in the European Investment Bank and as direct participants in the European Council. But, equally importantly, they have a responsibility to reduce the structural divergence between them by introducing coordinated deep economic reforms at national level.

Guntram Wolff is the Director of Bruegel since June 2013. His research focuses on the European economy and governance, on fiscal and monetary policy and global finance.

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SPECIAL REPORT

Whatâ&#x20AC;&#x2122;s needed is a much more visionary EU industrial policy by Markus Kerber*

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SPECIAL REPORT

The start of the EU’s 20142019 legislative term offers a unique opportunity to rethink Europe’s future political priorities. We urgently need more growth to reduce unacceptably high unemployment rates in the EU’s southern member states, to consolidate public finances and overcome growing divergences within the eurozone.

ut over the next five years, economic growth will mainly be generated outside Europe, so the key challenge will be to fashion and implement an industrial policy that strengthens Europeans’ global competitiveness and preserves our high living standards. The European Commission aims to increase industry’s share of GDP from 15% to 20% by 2020. But different strategies exist around Europe for achieving this. National industrial policies based on intervention and state aid are seen as key instruments for reindustrialising an economy. In France, recent state interventions in the cases of Peugeot and Alstom have shown that promoting national champions is still a top priority, whereas in Germany the traditional focus has been on creating the right framework conditions for the hidden champions of the “Mittelstand”. “A far more determined effort to complete the internal energy market, including strong incentives for private investment in cross-border energy infrastructure, is required” An EU industrial policy should complement national approaches by focusing much more on pro-

viding European public goods for globally-competitive value chains. The EU and its member states must provide a truly integrated and open single market that will promote joint production and innovation within Europe and beyond. Europe needs a more pragmatic approach in its industrial policy to the roles of states and markets. Whether or not more state intervention is needed to boost competitiveness and growth should become less of an ideological question. In many cases, the urgent need is for less state intervention. Italy, for instance, could make its strong industrial base more competitive by liberalising the labour market and reducing the labour tax wedge. The need in Germany is to ensure more competition in services, and Europe as a whole should set a new quantitative target for reducing the EU’s regulatory burden. But in some cases, what’s required is a stronger or better state. In many European countries, corruption remains an important brake on economic development. The European Commission says that corruption costs the European economy €120bn a year, which happens to be exactly the amount that Germany should invest in infrastructure over the next ten years. “What Europe needs are common rules to promote a fast and reliable internet in Europe and enable companies to better run complex European value chains” What Europe really needs, therefore, is a political debate about how to achieve convergence between industrial competitiveness and energy and climate targets during the next legis-

lative term. A strong industrial base is vital if we are to integrate Europe into international value chains. But in practice, ambitious Europe has been giving its highest priority to energy and climate targets. Too often, this has been however, at the expense of industry. Between 2000 and 2012, the EU’s share of world manufacturing value added declined by 5%, while Asian emerging market economies increased their share by 18%. During that time, six million industrial jobs were lost in Europe. The aim of the European Commission to reindustrialise Europe is very welcome. But it will demand a fundamental change in EU governance affecting industrial competitiveness. The Competitiveness Council will have to be significantly scaled-up to become a monitoring and control body with real decision-making powers. The incoming European Commission should carry out the announced structural changes to strengthen industrial value chains and ensure a more consistent and transparent application of competitiveness-proofing. The EU has to avoid imposing unnecessary regulatory burdens. Once its new forward-looking industrial policy aims are agreed, the EU and the member governments should agree on the most efficient balance between states and markets needed to achieve them. For greater competitiveness, public intervention should be focused much more at a European level. More European-level decisions on public goods are needed to boost competitiveness and growth. An integrated European single

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market with well-functioning infrastructure is crucial if the EU’s full potential in innovation and crosssector as well as cross-country production is to be realised. Europe is the world champion in industry service integration and joint production of industry and services together contributes 8.5% to total value added in Europe, whereas the worldwide average is only 3.7%. Europe’s success is notable in producing innovative, tailor-made products that are difficult for our international competitors to copy. Another important factor is the way countries are specialising within value chains that stretch far beyond their own borders. Today, 21% of intermediates are imports from other European countries, but only 14% of patents are joint patents registered by at least two member states. This shows that there is still a lot of potential for cooperation within European innovation networks. Improved European value chain management is needed if we are to use Europe’s historically-rooted diversity in economic structures as a comparative advantage in global competition. What this boils down to is the urgent need for a 2014 – 2019 EU industrial policy agenda that provides the right infrastructure for a well-functioning single market that’s open to the world: Europe needs a much more integrated internal energy market. A European Parliament estimate suggests a more integrated energy market could yield efficiency gains of €50bn a year. At present, each member state decides its own national targets and policy measures, leading to differences in energy prices and distortions of competition. Industrial electricity prices have increased by 37% in the OECD’s European members between 2005 and 2012, yet decreased by 4% in the U.S. This is weakening Europe’s competitiveness and has led to “investment leakage” with major projects being off-shored. A far more determined effort to complete the internal energy market, including strong incentives for private investment in cross-border energy infrastructure, is required. Much more could be done to create Europe’s digital single market. Another European Parliament study says a truly integrated digital market could result in efficiency gains of as much as €260bn per year. The telecoms market in Europe, for instance, remains highly fragmented along national lines.

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The U.S., unlike the EU, has a unified telecommunications market of 315m customers, served by only four operators who compete within a single framework. What Europe needs are common rules to promote a fast and reliable internet in Europe and enable companies to better run complex European value chains. The EU institutions should be making the single market more open to the rest of the world. European leaders and their U.S. counterparts should make sure that work on a Transatlantic Trade and Investment Partnership (TTIP) is strengthened substantially. With 16.6% of European exports going to the U.S. in 2013, it is by far Europe’s most important export market. And beyond market access for goods, services, investments and public procurement, industry would like to see bold and rapid progress in transatlantic regulatory cooperation, thereby increasing the EU’s growth and jobs prospects. Europe is at a turning point. For the next five years, we need to go far beyond merely preserving the status quo. The EU’s institutions and member states must agree on much greater convergence between industrial competitiveness and other headline targets. The key will be fashioning an EU industrial policy that complements national policies and so provides Europe with a truly integrated and open market.

Author is Director General of the Federation of German Industries (BDI)

SPECIAL REPORT

Jean-Claude Juncker: the man of 300 (?) billion by N. Peter Kramer

ean-Claude Juncker played his game. During his campaign for the Presidency of the European Commission, one of his promises was that he would start a European investment programme of 300 billion Euro for the next three years. The money should be allocated to infrastructure, renewable energy and the triplet education/research/development; a brilliant idea that could change the prevailing perception of a European Commission never anticipating but always following economic problems. ‘Economies without investment can’t grow. And non-growing economies can’t create new jobs’, said Juncker in his speech in the European Parliament on July 15, the day he received green light by the EP for his Presidency. When questioned where he was going to find the money, his answers were very vague. But … In the last week of November President Juncker presented his €315 billion programme, called the European Fund for Strategic Investments, for increasing smallbusiness lending and investments in roads, renewable energy, schools and other public services. To realise the total amount, the EU and the European Investment Bank will put up €21 billion of guarantees to encourage the private sector to participate in the programme. Most of the money has to come from private investors, insurance companies and pension funds. There is no doubt that Europe needs to do more to pump up investment; and the new investment plan is better than the status quo. However, the plan seems to sit short of the 300 bn. euros at just slightly more than €100 billion a year. Europe needs more. Some comments call the new investment programme inadequate and overly complicated. The plan has still to be approved by the European Par-

liament; the Socialist and the Liberal group (second and fourth biggest political groups in the EP) have already asked for more, up to double the amount. The European Council, (leaders of the member states) also has to approve it. This will be the first real job for the new President of the Council, the Pole Donald Tusk, successor of Herman van Rompuy since December 1. The European leaders are adamant that they will not increase debt because the national budgets are already stretched and must be balanced under the terms of the EU treaties. This insistence on not increasing debt even as the economy weakens, especially in the 18 countries of the Eurozone, looks self-defeating. The effect of austerity is causing a growing number of unemployed, especially young people, and demolition of social security systems in countries as Greece, Spain, France and Italy. An anti-EU climate is flourishing in many of the EU member states. Maybe it’s too early to conclude that President Juncker and his Commissioners are trying to find other and better ways out of the crisis. But their decision to offer countries with budget problems, (France-Italy-Belgium), more time to find a creative solution, could be a signal. An important factor also is that Germany’s economy, the engine of the EU, is stuttering. As one analyst wrote in a note to his clients, ‘these days Germany is more of a one-eyed king in the land of the blind than an economic superman’. The December-summit of the EU leaders will be significant. Juncker called his new college the Commission of the last chance (for the EU) and maybe he is right. But the real responsibility for the EU lies in the hands of the 28 leaders.

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Four principles for an effective state by Jean Tirole*

This column by the 2014 Nobelist Jean Tirole was originally posted on 16 July 2007. It gives his views on reforms that are as necessary today as they were in 2007. Meeting the expectations of its citizens will require the French state to become more effective. A four-pronged approach is required: restructuring, competition, evaluation and accountability.

igh quality public services, infrastructure that facilitates “economic dynamism”, a reduction in the debt left to our children. These expectations of the French people cannot be met unless the state becomes effective. Reforms are urgent, but difficult. To achieve them, a four-pronged approach is required: restructuring, competition, evaluation and accountability.

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Restructuring Many countries have undertaken fundamental governmental reforms based on a consensus between political parties and unions. In the 1990s, the Swedish Social Democrats government made large cuts in the civil service. Ministers, who formulate overall strategy and make decisions on resource allocation, have to rely on a small number of civil servants. Operational details must therefore be delegated to a large number of independent agencies, each of which can recruit and remunerate their employees as they choose. These independent agencies operate under strict budgetary limits that ensure the sustained delivery of public services. Around the same time, Canada cut government expenditure by 18.9% without social turmoil – and without greatly reducing health, justice, or housing programmes. They did this while maintaining

SPECIAL REPORT

tax levies, so the result was a reduced public deficit and falling public debt. Spending that could not be clearly justified in terms of the resulting service to the public was pruned. Subsidies for entrepreneurial projects and privatisation facilitated the elimination of one in six positions in the civil service. Indeed the sort of government reorganisation undertaken in Canada could only be dreamed of in France with its often nightmarish collection of laws and fiscal regulations. The Canadians have a single service for the calculation and collection of taxes and a one-stop-shop for government-business relations.

Competition Contrary to common beliefs in France, head-on competition can produce high quality public services. In telecommunications, most countries, including France, have put a universal service obligation fund in place, which is compatible with competition between providers. It protects the smallest firms while ensuring that services are available in all regions of the country or to poor consumers. When it comes to education, several countries (Belgium, the UK, Sweden) have tried voucher systems that give everyone access to education but create competition among schools for students. Such a system must be accompanied by clear and openly available information on schools so parents can make informed choices and “insiderism” can be avoided (something that arose from the competition among the tracks in the French education system). Competition can also be created via standardisation. In the healthcare realm, using more systematic comparisons between hospitals, or between the private and public sectors could help control costs. Sometimes the cost of treatment for a given disease varies by a factor of 2.5 with the variation having nothing to do with patient selection.

Evaluation Every action of the State must be subject to a double independent evaluation. The first should be before the action: Is public intervention necessary? What are the costs and benefits? The second is after. Did *Author is Director of the Toulouse School of Economics and of the Jean-Jacques Laffont Foundation. CEPR Research Fellow. 2014 Nobelist

it work? Was it cost effective? On this point, it would be necessary to require that the audit recommendations (for example, those of the Audit Court) be either followed according to a strict schedule, or rejected with a convincing justification.

Accountability The 2001 Law (LOLF), adopted on the basis of a leftright consensus, is a small revolution in a country accustomed to the logic of budgetary processes. Embracing the logic of effectiveness, the law aims to transform public sector managers into true owners where their obligation to produce results goes hand in hand with the freedom to manage. Putting this principle into practice is certainly difficult. First of all, the objectives need to be clear and easily verifiable. Then, “accountability” must be introduced. For that, the objectives can’t be collective (as the failure of control of health expenses has shown), but must be the subject of rewards or sanctions. Lastly, one should be wary of the pernicious effects of “multi-tasking”. Incentives that are related to an easily measured objective (for example, the cost per student for a university, which can be easily reduced by teaching large numbers of students in large lecture halls) can cause one to ignore equally important objectives that one has neglected to measure (such as the quality of teaching or research). In other words, to construct good incentives, one has to evaluate actions comprehensively. That way, it’s clear that giving regulated enterprises more responsibility should go hand in hand with stricter safety and quality controls. The need for such controls is clear from the experience of British telecoms in 1984 and more recently, of British railways. Finally, it should be possible to have a state that serves the French better at lower cost, allowing more jobs to be created and increasing the productivity of our economy. But the experiences of other countries suggest that lasting reform can only be achieved on the basis of a political and social consensus.

** Originally published in French in L’Expansion

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NEWS & EVENTS

A new “Think-Tank” in the area of Strategic Studies T he Academy for Strategic Analyses (ASA) is an independent non-profit scientific and research institution, based in Athens. It was founded in 2014, by scientists from the Hellenic Armed Forces and Hellenic Security Corps, with the concept that “knowledge is power”, and this power must be dissipated and serve offers. Moreover distinguished personalities from military, diplomatic and academic areas and other high-profile scientists, became members of the Academy. The main task of the ASA is the development of scientific work and activities in the field of Strategic Studies, Defense, Security and Foreign Policy, the elaboration of scientific analyses, research and studies, as well as the provision of specialized advisory and educational services to public bodies, private sector and to individuals in those articles, at national, European and international levels. In this framework, the Academy’s activities are developed within scientific areas, such as: (a) Analysis of strategic environment, (b) Analysis of the Defense and Security Policy, (c) System analysis, technology and economy, (d) Operational research, command and control. The Academy will cooperate with international organizations, academic-scientific institutions and other centers of scientific research with a related object, as well as with authoritative scientists, militaries, diplomats, etc., especially in the Euro-Atlantic and the wider Mediterranean environment.

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The first event organized by the ASA was a conference taken place on Monday 24th of November 2014, in Athens, under the auspices of the Hellenic National Defence General Staff. The general theme was: “National Strategy’s Challenges in 21st century”. Several members of the Academy, militaries with PhDs in various scientific fields, university professors and other experts presented opinions and proposals on specific issues. In his speech, the President of the ASA, Dr Ioannis Parisis, Major General (ret), presented the objectives of the new think-tank and explained the reasons for which they founded this scientific forum. “In the area of the Hellenic Armed Forces and Security Corps there is a significant number of officers – in active or retired – with high level of scientific knowledge and titles, very rich experiences as well as with academic and research work in a wide range of sciences in deferent fields”, Dr Parisis said. “They can provide the Defence and Security as well as the Foreign Affairs sectors with useful support”, he added.

Academy for Strategic Analyses (ASA) www.acastran.org, info@acastran.org

MANAGEMENT

Geolocation is changing the Retail Business Model again by Serguei Netessine, Karan Girotra and Christophe Pennetier*

In category after category, Amazon has steadily eroded the market share of traditional bricks-and-mortar retail chains, which seem to be in a state of irreversible decline.

uch of the online giant’s competitive advantage is based on its access to and mastery of rich customer data. Traditional retailers know relatively little about their customers, unless they have a loyalty card and actually buy something – and even this knowledge comes late, after a purchase is made. They

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have no way to cross sell, recommend new products, or target advertising. Unlike Amazon, they can’t tell if a potential customer visits the store or passes by it without buying anything. But all that is about to change because traditional retail is starting to wake up to the potential of geolocation, which is giving the new wave of data analytics companies ways to help bricks-and-mortar retailers make up for the data deficit. Take San Francisco based BaySensors.com. This company has a product that picks up signals sent by mobile phones, allowing a store to track customers’ movements around and within a store. The

MANAGEMENT

store can identify repeat visitors and keep a record of their in-store behaviour-like a physical cookie. Then there’s Apple’s iBeacon technology, launched last December, which can send consumers geo-located messages about special offers, unique offers, or discounts at shops close-by. Like BaySensors, iBeacon offers bricks-and-mortar retailers a way to replicate digital functionality. But perhaps the most interesting development in this trend is Flayr, which has launched a test in Paris that could become the next big hit in retail. The Flayr model draws on online recommendations of people in a consumer’s social media network, combining it with online personal information about the consumer, to draw a potential customer’s attention to particular products and where they can be purchased. In effect, Flayr uses data analytics to bring the customers to the product. What is new with the geolocation feature is that you know exactly when and where the potential customer is ready to shop. Experiments such as those we’ve described suggest that there are two distinct approaches. Virtual browsing. When you walk close to a certain store, the brand pushes special offers and discounts to your smartphone in a tailored display, a virtual shop window but one that’s fully aligned with your tastes. Why is it so important? You may not have the time to stop and shop at that specific moment. You may not be in the mood. But later and in a quiet cafe, you can review the offers, select what you like, and go buy them. Context-driven marketing. The retailer can make its product relevant and essential for the users by push*Serguei Netessine is Professor of Technology and Operations Management at INSEAD.

ing the offers in moments and places they need them. A retailer group could, for example, tell whether a customer was in Tenerife or Verbier during the Spring break and then push beachwear or skiing products that were available nearby. At present, push marketing that comes in by the phone is not at all smart and surveys show that many consumers find them irrelevant and even annoying. Geolocation technologies like Flayr’s can change this. These new companies are changing the retail paradigm yet again. Geolocation can tell a retailer precisely when and where which customers might be persuaded to buy which products. Bundling this capability together with information from those customers’ social media networks, the new business model of Flayr offers an alternative to the online catalogue model provided by the likes of Amazon. The barriers to entry that Amazon.com has raised are difficult and expensive to overcome only if you accept that Amazon’s model is dominant. But these new technologies offer bricks-and-mortar stores a way to compete using their existing assets, if they’re smart enough to seize the opportunity. The window may not be open that long, however. Amazon.com has just announced the opening of its own first bricks-and-mortar store in New York City.

Karan Girotra is an Associate Professor of Technology and Operations Management at INSEAD

and Christophe Pennetier, is a PhD Student at INSEAD.

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TRENDS

Why your brain loves good storytelling

by Paul J. Zak*

It is quiet and dark. The theater is hushed. James Bond skirts along the edge of a building as his enemy takes aim. Here in the audience, heart rates increase and palms sweat. I know this to be true because instead of enjoying the movie myself, I am measuring the brain activity of a dozen viewers. For me, excitement has a different source: I am watching an amazing neural ballet in which a story line changes the activity of people’s brains.

any business people have already discovered the power of storytelling in a practical sense – they have observed how compelling a well-constructed narrative can be. But recent scientific work is putting a much finer point on just how stories change our attitudes, beliefs, and behaviors. As social creatures, we depend on others for our survival and happiness. A decade ago, my lab dis-

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covered that a neurochemical called oxytocin is a key “it’s safe to approach others” signal in the brain. Oxytocin is produced when we are trusted or shown a kindness, and it motivates cooperation with others. It does this by enhancing the sense of empathy, our ability to experience others’ emotions. Empathy is important for social creatures because it allows us to understand how others are likely to react to a

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situation, including those with whom we work. More recently my lab wondered if we could “hack” the oxytocin system to motivate people to engage in cooperative behaviors. To do this, we tested if narratives shot on video, rather than face-to-face interactions, would cause the brain to make oxytocin. By taking blood draws before and after the narrative, we found that character-driven stories do consistently cause oxytocin synthesis. Further, the amount of oxytocin released by the brain predicted how much people were willing to help others; for example, donating money to a charity associated with the narrative. In subsequent studies we have been able to deepen our understanding of why stories motivate voluntary cooperation. (This research was given a boost when, with funding from the U.S. Department of Defense, we developed ways to measure oxytocin release noninvasively at up to one thousand times per second.) We discovered that, in order to motivate a desire to help others, a story must first sustain attention – a scarce resource in the brain – by developing tension during the narrative. If the story is able to create that tension then it is likely that attentive viewers/listeners will come to share the emotions of the characters in it, and after it ends, likely to continue mimicking the feelings and behaviors of those characters. This explains the feeling of dominance you have after James Bond saves the world, and your motivation to work out after watching the Spartans fight in 300. These findings on the neurobiology of storytelling are relevant to business settings. For example, my experiments show that character-driven stories with emotional content result in a better understanding of the key points a speaker wishes to make and enable better recall of these points weeks later. In terms of making impact, this blows the standard PowerPoint presentation to bits. I advise business people to begin every presentation with a compelling, human-scale story. Why should customers or a person on the street care about the project you are proposing? How does it change the world or improve lives? How will people feel when it is complete? These are the components that make information persuasive and memorable. My research has also shown that stories are useful inside organizations. We know that people are substantially more motivated by their organization’s transcendent purpose (how it improves lives) than by its transactional purpose (how it sells goods and services). Transcendent purpose is effectively commu-

nicated through stories – for example, by describing the pitiable situations of actual, named customers and how their problems were solved by your efforts. Make your people empathize with the pain the customer experienced and they will also feel the pleasure of its resolution – all the more if some heroics went in to reducing suffering or struggle, or producing joy. Many of us know from Joseph Campbell’s work that enduring stories tend to share a dramatic arc in which a character struggles and eventually finds heretofore unknown abilities and uses these to triumph over adversity; my work shows that the brain is highly attracted to this story style. Finally, don’t forget that your organization has its own story – its founding myth. An effective way to communicate transcendent purpose is by sharing that tale. What passion led the founder(s) to risk health and wealth to start the enterprise? Why was it so important, and what barriers had to be overcome? These are the stories that, repeated over and over, stay core to the organization’s DNA. They provide guidance for daily decision-making as well as the motivation that comes with the conviction that the organization’s work must go on, and needs everyone’s full engagement to make a difference in people’s lives. When you want to motivate, persuade, or be remembered, start with a story of human struggle and eventual triumph. It will capture people’s hearts – by first attracting their brains.

*Paul J. Zak is a professor at Claremont Graduate University and President of Ofactor, Inc.

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TRENDS

Developing a global digital strategy by Gail Horwood*

joined J&J Consumer Companies about four years ago to start its Digital Center of Excellence. Our role initially was to build capabilities and develop strategy that served multiple brands in multiple regions, so I did a landscape overview to help develop the approach. What I saw was that we had hundreds of different websites and digital platforms that we were operating upon globally. If you want to get a message across globally on your owned assets, you need to do that in the same way across the world. So we made a strategic decision to agree to build certain types of things, with a website on a shared platform at the center. We work both internally and with external vendors globally to build that and we love the open-source model. As we develop modules that suit our businesses, they can be shared, and it’s very exciting for our internal developers because it’s a new way of working. In the past, the model might have been that our biggest brands had the most budget and developed the most robust platforms. And smaller brands had less robust digital footprints because

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they had to build that on their own power. Yet when you share a platform, any brand small or large can benefit from improvements. What this has enabled us to do is to bring the same power that one of our biggest, most iconic brands has to one small brand in a very particular region or market. And that, of course, enables us to innovate very quickly and iterate. J&J has historically been very decentralized. One of the things I was able to do in the consumer sector was bring all that work together. The more we bring our cross-functional partners and projects together, the more we’ll make true impact for the business. It’s great to execute on a regional and local basis—and it’s really at the heart of our business strategy—but I believe digital brings opportunities to streamline and leverage certain capabilities that are really common across the businesses.

Real-time marketing Social media is an example of something that truly requires a global and local strategy, because social makes any communication global. Setting

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a global communication strategy requires some pretty foundational things: content management, digital asset management, new production models that help us create and then leverage and syndicate content globally. For example, we recently participated in a real-time social-media campaign for the 2014 FIFA World Cup for our Listerine consumer brand. For the first time ever, J&J built two newsrooms, and we responded to action in the matches in real-time with brand messaging. We had to set up the appropriate processes, governance, a risk matrix, channels, and work very closely with our cross-functional team, as well as with regulatory compliance, legal, and marketing. And you see the results of your work immediately and how consumers respond to it. We’ve had some great success with that. But the real lesson is that real-time marketing is as much about the preplanning and the preparation as it is about enabling people to act in real time. In big companies like ours, creating a TV spot or a few pieces of copy a year would be quite typical. When you’re developing real-time social-media campaigns, you might have 200 pieces of copy in a month. Taking advantage of that required a new business model, a new way of thinking about it. It also required thinking about tolerance and risk. Tolerance is about asking, “What is a reasonable threshold for when we need to take action?” when something unexpected happens. It gave us the confidence to say, “You know what? We knew something like that could happen. It did, and we’ve already decided how we’re going to manage against that.” I think it’s very important that social media be managed, at least in part, internally in an organization. As strong as our agency partners are, and they’ve been terrific creative partners, nobody knows our business and our business requirements as well as we do.

technical specifications. They maintain the responsibility for not just building and overseeing the build of digital products, but also ensuring that they’re measured and optimized. We treat them as platforms rather than projects. A big shift in our organization has been to manage those over time and to iterate and build upon them as opposed to consider them a discrete project that had a beginning, a middle, and an end. When you put an app into the app store, you’re potentially finished with it, but the consumer is expecting updates, improvements, messaging. And that’s something that we’ve built into our organization that didn’t necessarily exist in our former model. The other thing we’ve done is develop benchmarks. The number one question I’m asked by our business leaders is, “What is the ROI of digital?” If you’re developing across multiple platforms and multiple regions, the way you’re looking at the world and consumer behavior is very different. So what digital analytics and a standardized approach - rather than a custom and bespoke approach market by market - has brought us is true consumer insights. And we’re able to watch trends develop in consumer behaviors, see them change and develop. We started very much as a strategy organization and we built common platforms that serve multiple brands in multiple regions. That didn’t mean anyone used them. So a lot of what we’ve been doing is around training, talent development, identifying talent that can staff these organizations, so we can really take what we’ve built and truly embed it in the business and in business practice. We’re trying to teach our businesses to leverage these new insights in ways that they hadn’t thought of.

Serving consumers better Evolving our model has been a learning journey. The challenge for us is not that the model is wrong; it’s that the landscape has changed. The model doesn’t fit the new landscape, so we’ve had a lot of success through these active learning projects. Understanding the consumer journey and what we’re building for whom and when is very important. So I’ve set up a group that has product-development expertise. They translate business requirements into

*Gail Horwood has been the vice president of worldwide digital strategy at Johnson & Johnson since September 2010. This essay is an edited transcript of an interview conducted by McKinsey Publishing’s Simon London.

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Think Young and Huawei launched Entrepeneurship Summer School in Hong Kong by Criseida Martinez Marco*

Last August, more than 50 young students, spent one week gaining experience, knowledge and confidence in their own abilities as future entrepreneurs.

hinkYoung, the University of Hong Kong and Huawei launched its 2nd edition of the Entrepreneurship Summer School in Hong Kong. The programme hosted many entrepreneurs coming from all over the world, providing a great cultural mix. At the end of the programme, the participants gained a boost in self-confidence

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and in their ability to dispose of merely having ideas by translating a new business. Through the Entrepreneurship School, we allow young entrepreneurs to unlock their true potential, which is done by helping them to build up their confidence and expand their skills to develop their entrepreneurial ideas. Christian, a French student from the Winter School in Hong Kong 2014, experienced this: â&#x20AC;&#x153;Overall, the visit here really changed my mind about shaping a companyâ&#x20AC;?. Entrepreneurship School initiatives were possible

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because of our team of mentors who supervised and supported the implementation of students’ projects. Eight successful entrepreneurs, who wanted to help young people with creative start up ideas but without knowledge on how to set up a business, formed the team of speakers. These speakers consisted of successful entrepreneurs from different countries such as Netherlands, USA and Italy. They shared their experiences about entrepreneurship between different cultures, and worked with the students to inspire them about the world of business, and more specifically the world of entrepreneurship. Our list of speakers was filled with successful entrepreneurs such as Jennifer Chan (Founder of Delta Think), Kay Ross (Founder of Kay Ross Marketing) and Robert van Hunsel (Founder of Media Group Asia ltd), who managed to convey their entrepreneurial spirit. They brought their experiences to the table in order to inspire the participants, all in a very didactic way. Away from the typical lecture approach, our Entrepreneurship Schools worked with a unique methodology. They are not professors or boring lecturers, only exciting pioneers who can offer knowledge by sharing their experiences and giving the participants advices, which they cannot find in books. By the end of the week, the participants had not only engaged with eight different entrepreneurs, but had also visited the headquarters of Huawei in Shenzhen, one of the biggest and most innovative technology firms in the world, founded in 1987 by Ren Zhengfei. The multinational has expanded from reselling PBX productsto becoming a leading global ICT solutions provider. “The presentation of the company gave me the feeling that Huawei is like a big family”, mentioned by Dimitra, a Greek student who really enjoyed the School and company visit. The visit in Shenzhen enabled the students to catch a glimpse of Huawei’s work and experience first-hand how the company innovates. Huawei has initiated a number of activities to boost ICT skills and entrepreneurship among young people, using its strategic position as a global ICT leader to reach out to students and connect them with opportunities. Its Telecom Seeds for the Future programme for instance is an umbrella initiative launched to bridge

the gap between what is learned and what is needed in the industry. During the school, the students also had the chance to meet the senior Vice President to have a discussion on this exceptional entrepreneurial achievement. Participants also have access to incentives such as alumni events and workshops, which enable ThinkYoung to keep in touch with previous school attendees and provide them with further guidance and assistance needed to achieve their goal of creating a start-up. All in all, successful entrepreneurs provided experience in their respective fields and practical examples in overcoming failure and adversities. This was invaluable in making this year’s edition a success. In addition, there was an interactive environment between students and speakers. What is more, “the employees are vey happy to work here, they are very proud of it”, said Dimitru, a Romanian boy who also attended to the Winter School in Hong Kong. Indeed, one of the greatest successes of the School was the beginning of Entrepreneurship Junior School. This was undoubtedly a success. The students were highly motivated by the talks. They had between fourteen and fifteen years and they were really engaged, asking questions and sharing their ideas. They were deeply involved as future entrepreneurs. This 2nd edition of the Entrepreneurship School in Hong Kong is a clear example of the experience gained by ThinkYoung over time. ThinkYoung’s Entrepreneurship Schools were first introduced during the summer of 2010 in Brussels with the intend to help young Europeans who had creative start up ideas but did not know how to set up a business. However, up to date, the School has grown tremendously. They aim to empower the students to become more competitive in their professional life in order to achieve their dreams of becoming in real entrepreneurs.

Criseida Martinez Marco is Think Young communication officer

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BOOKS

Empathy

Is The New Noir by Panos Economides

More than a decade after his stunning debut, Gianni Skaragas turns the techniques of Î?oir fiction to a compassionate, unique mosaic of human frailty and moral insight.

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BOOKS

e looks like a jazzy, clean-cut fraternity brother. Gianni Skaragas, a law school dropout, moved to Athens, at age 22, with no plan other than to become a writer. His first novel, Epiphania, propelled him from a life spent performing stand-up comedy and pursuing a career in acting into the Greek literary scene. His meteoric rise came in 2001 after the small-screen adaptation of his novel. One of the most diversified writers of his generation, he has written novels, scripts and stage plays. Over the course of the last five years, his short fiction has appeared in American literary journals such as The Midnight Circus and World Literature Today. When it comes to his fourth novel, his gifts are everywhere on display, revealing a love of language and richly human characters. Skaragas crafts a complex story of loss and forgiveness, a sophisticated narrative puzzle with immaculate plotting. The novel is based on his off-Broadway stage play, Prime Numbers, which premiered in New York in 2009. Narrated in two voices, the novel begins as the story of Julietta, a young woman who has lost her husband-to-be and who suffers her grief confined in an isolated Mexican motel. But it quickly shifts the point of view and centers on a writer who finds himself somehow mysteriously transported to Tijuana, where a storm traps him with a group of people who seem eerily similar to the characters he is writing. The metafictional Mobius strip of the story - an author (or is he?) without a memory, whose identity is reconstructed by his characters - is intriguing and captivating, and throughout the prose is crisp, precise and artfully crafted. Skaragas deftly navigates through psychological corridors with a fluidity seen out of some of the best thriller writers, and yet his stylistic freedom elevates the work above genre. “His mother was the body and his father was the mind, the hairdresser and the coach. Oedipus might have been the soul of their marriage. But when three white doves were set free at his father’s funeral, and one of them landed back frightened - almost incapable of flying—Oedipus wondered about the depths of his soul. Was he brave enough to fulfill his destiny?” In moments like these, Skaragas conveys the internal worlds of his characters succinctly and lyrically. The main thing that prevents the novel from cranking up the tired literary Νoir machine is the fluency of tone

in a heartfelt portrayal of lives undone and forged anew. In several instances the over-kneading of his characters distanced me from the plot line, but there is great energy on the page and especially in the palpable tension he captures through Julietta’s cunning, calculating manipulation and the male protagonist’s amnesia. “Humans are like rainworms, they pull themselves together even after they have been cut in half. Survival is such a base accomplishment. There is nothing wondrous, nothing hard about surviving on what is left, a half of what one was. People think that a math genius deals with his mind. It takes a degree of profaneness to predict numbers--the same degree needed to discern the countless opportunities one will have failed to seize.” Gianni Skaragas demonstrates a rare combination of ethical generosity and psychological insight, an ability to understand humanity without being partial. It’s the new Noir.. Gianni Skaragas’s new novel is published by Kritiki Publishing S.A. (Greece).

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LAST PAGE

Are STEM graduates equipped with the right skills to match employer’s needs? by Think Young*

he European Commission reportedly highlights the increasing number of youth unemployment, but why is it so difficult for young people to find a job? ThinkYoung along with Intel and Schoolnet decided to analyze the gap between the qualifications young people graduate with compared to the skills in demand on the job front. Out of the 2341 young people and 12 experts in the field of recruitment and STEM analyzed, around half of interviewed employers agree on the value of soft skills in STEM graduates, however, they were not too sure on what these consisted of. Employers also agreed that the importance of languages, cultural skills and communication and innovation skills were very important for STEM graduates to have.

According to Andrea Gerosa, the founder of ThinkYoung: “The Skills Mismatch research is becoming a flagship project of ThinkYoung. Since 2012 we constantly analyse why young people skills do not match employers’ demands, both in different industries and in different job position. We are very happy that Intel and Schoolnet joined us in this 2014 edition, whose focus is STEM. Back in the centuries, Europe has a long and successful history of scientists, mathematicians, and engineers. It is time policy makers put STEM at the center of their agenda in order to put Europe back on track.”

nological skills, but also the ability to learn, to be creative and an active citizen, are a major factor in economic and social wellbeing. Competence in STEM subjects (science, technology, engineering and mathematics) is increasingly seen as a fundamental policy objective. STEM competence is a fundamental aspect of education, and involves equipping young Europeans with the knowledge, skills and understanding to participate fully in society, influence and shape the future, and participate in economic activities that increasingly depend on STEM skills. Europe needs pupils, citizens and a workforce – both inside and outside education – engaged with STEM subjects, capable of making informed scientific and technological choices and interested in careers in science and ICT.” Youth unemployment is a growing concern within this generation. As 22.8% of young people are unemployed within Europe, ThinkYoung, Intel and European Schoolnet searched to find the source of this problem. In 2012, ThinkYoung created a pan-European study on Skills MisMatch, which emphasized that there was a strong divide between young Europeans and employers when focusing on skills needed.

Marc Durando, European Schoolnet Executive Director also says, “Quality education systems that enable young people to develop key competences, such as linguistic, mathematical, scientific and tech-

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* ThinkYoung is the first think tank that focuses on young people.