06/06/2006 - 22:00

Spectre of slow growth haunts Europe

06/06/2006 - 22:00

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Mad scientists are normally the people associated with bizarre experiments. Over the past few weeks, Briefcase has been taking a close look at one of the world’s most curious business experiments and can report with confidence that it has failed. The experiment in question is called Europe.

For Australian business, the failure to create a single viable political and economic entity out of the 20 member states currently inside the European Union, and the five “candidates” on the outside, is both a positive and a negative.

On the negative side there is lost opportunity. It was just a few years ago that doing business with a unified Europe, and its theoretical market of 300 million consumers, was seen as offering great financial reward.

Sadly, Europe has become a slow-growth zone (verging on no growth) as it battles political, ethnic, social and religious differences. Worse than not growing, it is showing every sign of falling apart, and returning to its individual component countries.

On the positive side, the failure of Europe to unify means that Australia has an opportunity to market itself as a safe stepping stone for European companies keen to expand into a part of the world that is growing – Asia.

And, if being a stepping stone seems too hard, then the advice from Briefcase about Europe is just forget it and focus on trade with Asia and the Americas, because at least there are countries in those parts of the world that know who and what they are.

To understand why Briefcase has formed a ‘forget Europe’ view of the world, a number of factors need to be considered, such as:

• political failure, which came to a head when voters in France and the Netherlands refused to ratify the European Constitution.

• failure of Europe’s social model, with its subsidised industries, to create a business environment able to compete with the free-wheeling (and low-cost) countries of Asia, particularly China.

• failure of northern Europe to un-derstand the pressures being placed on the south by the attempt to create a common currency, the euro.

• failure of ‘old’ Europe, especially France, to embrace a modern approach to business, preferring retention of a socialist ideal in which a truly staggering 80 per cent of French university students regard getting a job in government as the pinnacle of their careers.

Those four factors, important as they are, represent the start of a long list of issues which have no easy solution, including how to handle a rampant Russia, which controls Europe’s primary source of energy, natural gas, and how to live with Islam, and a potential Islamic member state, Turkey.

For Briefcase, a long-term observer of Europe, the list of problems standing in the way of true unification seems to get longer each year. And while Europe remains a fabulous holiday destination, it fulfils that purpose as a sort of trans-national theme park and not a serious entity in its own right.

Having listed some of the big reasons why Europe has become a place too far (and too hard) with which to do business, there is another hidden factor emerging – the European business community is starting to wriggle out of the tangle of red tape created by the authorities.

It is this final example which caused Briefcase to think most deeply about Europe, and why it has such a bleak future, and why it will gradually return to a more normal structure of 20 separate markets, each with its own set of rules, language, currency and history.

Last month, a friend of Briefcase’s won a contract to provide consulting services to a big company operating in most European member states. While all seemed normal, there was surprise requirement in the contract. In each country, the key person in charge had to be a “national” of that country. In other words, a big company was saying ‘forget this European nonsense, we do business in individual countries’.

There are other examples Briefcase could list, such as a specialist Australian financier discovering there are no unified rules when it comes to lending money – it’s on a country-by-country basis.

The only real question left hanging from Briefcase’s European observations is one of time; how long will it take to unravel? The best answer is quite a while, because many Europeans are living out the boiling lobster experience – they are in slowly heating water and not aware that they are in deep trouble.

Looking forward, it seems that the best way to treat Europe is on a country-by-country basis when it comes to doing business, and as a sort of giant Disneyland when it comes to holidays.

•••

While internal divisions, age-old dislikes, and personal hatreds, are the stuff which has Europe simmering today, there is a far bigger issue looming on the horizon – the rise of China, and the impending rise of India.

From an Australian perspective, both of these great countries, with their combined population of 2.5 billion, represent an opportunity for rapid future growth because we sell stuff to them. China and India (plus Japan, South Korea and Taiwan) actually compete for our coal, iron, gas, uranium and food.

From a European perspective, the countries of Asia are a dire threat because they export the very things that Europe produces – and they do it at prices far below what they cost to make in Europe.

Low wages in the emerging economies of Asia, combined with the free-trade principles which Europe says it embraces, are killing European industries.

Part of the problem is linked to old Europe’s desire to retain its socialist model, but whatever the cause, the pain is as real as the long lines of the unemployed in France and Germany – the very places where great political upheaval has been triggered (repeatedly) in centuries past.

The only real question is, why should the 21st century be any different?

•••

 “You can’t say civilisations don’t advance because in every war they kill you in a new way.” Will Rogers

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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