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No 38-April 1984 ISSN 0250-3891

Where Is Europe going in the world's third industrial revolution? Investing in Europe's future

"Investing in Europe's future" ... the theme of a two- rayed by the facts. Europe devotes about 18% of its day conference organised by the European Invest­ gross domestic product to investment and siphons ment Bank as a focal point for the formulation of off 82% to consumption. The level of investment has Ideas and policies to relaunch the European been falling off steadily over the past decade. In economy. Over 150 prominent people from the 10 Japan, by contrast, investment corresponds to EEC Countries came to Luxembourg to discuss prior­ almost 30% of GDP. Unemployment is bound up with ity action needed in the rest of the 80s and beyond if the trend: while the American economy has gener­ the Community is to achieve sustained economic ated over 30 million extra jobs in 20 years, the EEC growth through an increase in productive investment. countries have lost 1 million, signally failing to pro­ The need is unanimously acltnowledged, but bet­ vide for an expanding labour force.

Europe takes a high proportion of ings, or indeed amongst the Com­ tivities. There was no question, of the Nobel prizes for scientific dis­ munity institutions themselves. course, of drawing up new terms of covery, and the EEC Member Coun­ For this reason, it decided to bring reference for the EIB, or committing tries together spend more than twice together the principal protagonists the Bank to specific policies, this as much as Japan on research. But in the European economy and so­ being the sole preserve of the ElB's industrial application falls behind. ciety - leaders from management statutory authorities. However, the The EEC's share in world trade of and labour, politics and academics, aim was to go beyond diagnosis of high technology goods diminishes. public and private financial institu­ problems hindering investment and Europeisanet importerof high tech­ tions, multinational companies and stemming from the present inadequ­ nology from Japan and and the USA, small firms' organisations, national acy, to arrive at concrete recommen­ and net exporter in the "brain drain". and Community economic planning dations which could be of signifi­ cance to the Bank and other Com­ A change of direction is required. departments, stock exchanges, re­ search establishments, energy au­ munity institutions in framing their The EIB believes the forum for ex­ future action. pressing consensus views on how to thorities... achieve this needs to extend beyond The conference gave rise to a wide 'What we want to achieve is discus­ the sounding boards which exist at exchange of views, many of which sion not in an ivory tower, but in a national levels, or in sectoral group­ impinge directly on the ElB's ac­ centre of action - a marriage of theory and practice", said EIB Vice- circumstances (published in Engl­ - develop the Community's borrow­ President Arie Pais, who opened ish, French, German and Italian, it is ing and lending activities; and presided over the proceedings. now available through main book­ sellers). - strive for a better understanding "Words spoken here in this confer­ between management and labour on ence will not be gone with the wind Parallel to this, the Bank also com­ the introduction of new technology in a few days. On the contrary, the missioned for its own purposes and its implications; exchange of views may be extremely studies on potential future European helpful and useful in marking the investment strategies. The main el­ - fund the "missing links" in major road ahead, the road along which - ements of one study, "A new lease of European infrastructure; with the assistance of the European economic life for Europe?" carried - expand the opportunities for Investment Bank - Europe's out by the Netherlands Economic small and medium-scale ventures. economy should evolve." Institute (NEI), were published in ElB-lnformation No. 37 (February In particular, the conclusions are 1984). given of three specialised discus­ sion groups at the symposium. The European Investment Bank or­ This special issue now reports on These were set up to formulate pol­ ganised the symposium at the Euro­ the symposium, with extracts from icy blueprints for the key fields of pean Centre in Luxembourg on the main speeches, and a synthesis investment to: November 17 and 18 to mark its 25th of viewpoints which found a wide anniversary as the European Com­ acceptance amongst participants. - develop Europe's backward reg­ munity's main investment financing These concern the needs to: ions (see pages 11-13); body. In this quarter-century it chan­ - improve the climate for business - reduce oil imports and achieve nelled loans worth 22.5 billion ECUs profits and cut the tax burden on greater security of energy supplies into European industrial, energy and enterprise; (pages 14-15); and infrastructure investment. In 1983 alone they totalled 5.5 billion. - increase efficiency in research - improve the competitiveness of and development, and its down­ European industry (pages 16-19). The theme "Investing in Europe's stream introduction into the produc­ future" was drawn from the title of a tion lines; book, sponsored by the EIB, with the European crisis of confidence same broad aim of stimulating pub­ - remove barriers to trade which lic debate on the issues at stake. The diminish the potential of the Euro­ book features contributions from pean "common market"; H. Onno Ruding, Netherlands Fi­ nance Minister and current Chair­ outstanding economists on how the - nurture financial stability, re­ Community should react to the man of the Board of Governors of inforcing the European Monetary the European Investment Bank, changing international economic System; made the keynote speech at the symposium, contrasting the "bold H. Onno Ruding, Netherlands Finance Minister and current Chairman of the stroke of creativity " in setting up the ElB's Board of Governors (left) receives the first copy of the book "Investing European Community with the in Europe's future" from EIB President Yves Le Portz (centre) and Vice- "gloom of the present day ". President Arie Pais (right). "There is a European crisis of confi­ dence", he said. "Many of the unem­ ployed have lost hope of ever finding work. A number of those trying to develop new products are losing confidence to match the progress of the enterprising Americans, Japan­ ese and others. More generally, in­ dustrialists and businessmen have lost confidence that their markets will again expand. Thus they are reluctant to invest; or their invest­ ment decisions are defensive and short-term.

"There seems to be a reduced confi­ dence in the ability to change that was so characteristic in the early days of the European Community. In our various countries some of the institutions, habits of thought and legislation, which were designed to protect us as individuals and to offer security, have become impediments to the type and magnitude of changes which are now required. There exists too much government regulation of private business ac­ tivities. INVESnEREN INVESTING INVESTIR INVESTIRE INDIE IN DANS NEL FUTURO ZUKUNFT LAVENIR DE EUROPAS EUROPES DELL EUROPA FUTURE LEUROPE

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The chapters and authors of "Investing In Arnold Heertje, Professor of Economics at the Europe's future" are as follows: University of Amsterdam, acted as coordinator and editor of the publication, in close coopera­ Preface tion with the EIB Management Committee, in Yves Le Portz, President of the European Invest­ particular Vice-President Arie Pals. ment Bank;

The outlook for Europe's economic develop­ Ttie publishers are: ment Emile van Lennep, Secretary-General of the Basil Blackwell Organisation for Economic Cooperation and 108, Cowley Road Development - OECD, Paris; GB - Oxford OX4 1JF in conjunction with Growth, investment and employment in Europe Economica in the 1980s 49, rue Héricat Michel Albert, President, Assurances Générales F-75017 Paris de France, Paris; "Investir dans l'avenir de l'Europe"; Investment and the international monetary and Springer Verlag GmbH & Co. KG financial environment Tiergartenstraße 17 Alexandre Lamfalussy, Assistant General Mana­ D-6900 Heidelberg ger, Bank for International Settlements, Basle; "Investieren in die Zukunft Europas", and

Investment and government policy Guida Editori Otmar Emminger, Former President of the Via Ventaglieri 83 Deutsche Bundesbank, Frankfurt; 1-80135 Napoli "Investire nel futuro dell'Europa". Investment and technological competitiveness Guido Carli, Former Governor of the Banca d'Italia, Rome; The book is now on sale at or can be ordered through the usual commercial outlets which Investment and energy handle books on economics and financial Ulf Lantzke, Executive Director, International affairs. Energy Agency, Paris; Investment and the development of backward In sponsoring this book, the EIB wanted to give regions the writers - all with internationally acknow­ Jean-Henri Paul Paelinck, Director, Netherlands ledged authority in their fields - the opportunity Economic Institute, Rotterdam; to offer their own views on issues concerning investment in Europe. The opinions they express Financing investment do not, therefore, necessarily reflect official EIB Lord Roll of Ipsden, Chairman, S.G. Warburg & policy, beyond the Bank's wish to stimulate Co., London. wider public debate.

"There are no easy solutions to fort. It is first and foremost the Com­ directions are already being made these problems. If this symposium munity's development bank, and the by a Working Party of its Board: just clarifies the issues, it will have principal mechanism through which been worthwile." the Community as such invests. Its • "it is clear that the investment financial strength is impressive. that Europe now requires is not just Minister Ruding saw the need for an in new roads, sewerage schemes, increased EIB contribution to In­ "I should like to put forward some power stations - in other words: vestment In the Community. suggestions for debate about the infrastructure - and in regional de­ "The EIB forms an integral and im­ Bank and its future role, bearing in velopment projects, important portant part of the Community ef­ mind that useful efforts in these though these things are, but also in 3 new industrial technologies, new al bidding procedures. It may en­ imposed by financial prudence and types of industries and services hance the application of environ­ practice and without distorting open and in the people who will create mental criteria. It should more fre­ competition, them. The Bank itself, as the Com­ quently take the lead in setting up munity's principal investment instru­ cofinancing consortia. • "the development and invest­ ment, should consider participating ment needs of the Third World in investments in all these sectors, • "if there are institutional or legal should continue to be listed among both old and new, as the changing constraints of any sort which limit our countries', our Community's, situation requires. the Bank's ability to borrow and to and the Bank's concerns. There is to invest across the whole spectrum this not only a desire to help those • "the Bank should not minimize of Europe and its needs, then these less well off than ourselves, but also the Independent opportunities it constraints should be reconsidered the fact that renewed growth in the has to influence and change nation­ and where possible renloved. If the Third World will stimulate and sup­ al and Community-wide policies or Bank needs new financial tools to port recovery in Europe itself. the lack of them. It is allowed by its be fully effective, it should be per­ Statute to enforce open internation­ mitted to have them within the limits • "I would like to underline the importance of the EIB maintaining its excellent standing in national "We must resist any temptation to think that Europe's difficulties can be and international capital markets. overcome by isolationism or at the expense of other, less prosperous We should avoid diluting the Com­ nations, " says H. Onno Ruding, Netherlands Finance Minister and current munity's financial strength and Chairman of the ElB's Board of Governors. In his opening speech he points creating confusion by further adding to the fact that the EIB operates in over 70 countries outside the Community to the number of financial instru­ — "mosf of which are in an economic plight far more painful than that of the ments. In my experience it is better Community itself" — and says: "Our policy for cooperation ought to be to use only a few strong instruments mutually beneficial, which will only happen if we keep our doors wide open, than many smaller instruments in a both in trade and in the financial field. " less coordinated way. In the Euro­ pean Community, in other words, there is but one Community Bank."

Investing in durable growth

The ElB's President, Yves Le Portz, set out the framework for the two days of debate, drawing on the main themes outlined already in the book. "It was at the end of 1973, at the time of the first oil shock", said Mr. Le Portz, "that the world economy slip­ ped into recession. What those ten years have shown is that, whether we are speaking of employment, pu­ blic finances and social security, progress in or even maintaining the standard of living, none of the fun­ damental balances that shape the life of our society can be adequately struck unless or until we achieve once more an acceptable, lasting rate of growth.

"We are today beginning to see signs of an economic recovery, but in Europe the upturn seems to be limited, tenuous, of uncertain future. There is a distinct danger of this new trend being confined to just a few countries and failing to provide the Community as a whole with the revi­ talised capacity to invest, upon which any long-term improvement in our economy or steady return to fuller employment vitally depends. "The overall figures are worrying. In ten years, the gross rate of invest­ ment has fallen, in our countries, and the fall in the net rate of invest­ ment that has resulted has been much greater, with many firms now disinvesting, in net terms, which im­ plies that our industrial means of production are dwindling. "In qualitative terms", argued Mr. Le Portz, "the situation is even worse. "New industrial investment is espe­ cially meagre in the leading-edge industries, particularly in the advan­ ced technology field, and the trans­ fer of those technologies to other industries is slow. The conse­ quences of this can already be gau­ ged. During the past ten years, for instance, the Community's share of high-technology exports has fallen considerably; at the same time, the overall productivity of industry has been increasing at only just over two thirds of the rate achieved by Japa­ nese industry." The President urged those present to engage in "free and open de­ bate", asking them each to contri­ bute to "defining the various aspects of the concrete steps that have to be undertaken and the terms on which they could be achieved, so as to facilitate joint action" in the face of the investment crisis. He then enu­ merated the key factors that figure in the crisis, as studied in the book: - How to set about re-establishing the ability of European industry to compete internationally, through its modernisation and continual adap­ tation to structural change, even du­ ces Le Portz, President of the EIB, explains how the symposium came to ring a period of weak demand that be. "The European Investment Bank is celebrating its 25th Anniversary this fails to stimulate the propensity to year The Bank, which was created under the Treaty of Rome to contribute to invest? the balanced development of the Community by the financing of investment, felt it would be in keeping with its appointed task to mark this anniversary - What measures are required to through the pooling of ideas on contemporary investment problems in our improve economic conditions ge­ countries". He urged those present to engage in "free and open debate" nerally, and more specifically re­ designed to culminate in concrete action. kindle productive investment?

- Why is European industry being dards close up on those of the more "In more general terms", he said, "is held back from breakthroughs by developed regions of Europe", said it even possible, for most of our Imperfections in research and de­ the President, "have been jeopar­ countries, to break out of the vicious velopment? Are research resources dised". circle of inadequate growth without being wasted and the efficiency of - Are national investment aid taking Community-wide action and work done being squandered schemes well-founded and effec­ perhaps moving on to even broader through dissipation of effort? tive? Companies are being ham­ forms of cooperation? pered by the dearth or the high cost - What is the danger of a further oil "A number of contributors to the shock, if there is a genuine recovery of borrowed capital. How can a bet­ ter flow of financing be achieved? book emphasised the need for this in economic activity that swells im­ kind of action on a broad front, ports? Does Europe not stand in - How can we get investment fi­ including monetary cooperation. need of appreciably higher invest­ nanced in those countries that are Key factors in such action are inter­ ment in energy to make certain of its running a balance-of-payments de­ vention by the Community's finan­ long-term supplies? ficit without adding an immediate cial instruments and the coordina­ - What should be the guidelines for burden to their external commit­ tion of research and development. attracting productive investment in­ ments that will be too heavy for them How are we to set about such action, to the less-developed regions or to bear? There is a direct link bet­ with all its complexities and difficult those with heavy concentrations of ween this question and the role and ties and involving as it does not only aging Industries? "The hopes that volume of activity of the Community our governments and the Communi­ the foundation of the European financing institutions, and the EIB In ty authorities but also, indeed espe­ Community nurtured in those re­ particular, because of the external cially, both sides of industry and the gions, of seeing their living stan­ capital they bring in. financial institutions?" necessary for unit profits to rise, but Adapting to change expectations in Europe concerning This review of the symposium, total profits must improve. Profits prepared by the Bank's Infor­ mation/Public Relations Divi­ How to improve Europe's response - could be boosted, without endan­ sion, is intended to give an in rapidity and flexibility - to major gering price stability, either by a overview of the many topics structural change, was at the root of significant productivity improve­ discussed, not provide the virtually all discussion at the sym­ ment or by a further deceleration of reader with a verbatim report posium. real wage growth. Neither of these are likely to be achieved very rapidly, of all the proceedings. For this According to Emile van Lennep. however. A related point concerns reason, only extracts from the OECD Secretary-General, Change the scope for fiscal changes to al­ various speeches - and some­ tends to be painful principally to leviate the pressure on profits, re­ times abridged - are given those who do not adapt to it". In the versing the tendency of the last de­ here. The speakers express opening chapter of the book, he cade for the tax burden to shift their own views and interpre­ writes, "Through the 50s and 60s the towards taxes on enterprise. tations. very successes of the industrial world had built up popular resist­ "In the longer run, technological ance against change. There seems innovation and appropriate competi­ major role. At the same time, to have emerged, especially in tion and industrial development policies have to generate higher Europe, a belief that the kinds of policies are additional important as­ rates of public saving, or less public jobs and life-styles established dur­ pects of an overall effort to promote dissaving." ing those decades had been bes­ efficiency", Mr. Costa added. There In the decade ahead, he said, the towed as an immutable right, and are several provisos to this, how­ combining of economic growth with that it was therefore appropriate to ever: socio-economic considera­ the satisfaction of social concerns resist any challenge or modification tions must not inhibit the incorpora­ "is likely to be a major problem for to them." tion of technical advance into actual production methods; international European societies, especially since Some of Mr. van Lennep's ideas obstacles to technology flows must unemployment has turned into a dif­ were presented at the symposium by be removed, and trans-frontier ficult structural problem. The satis­ Antonio Maria Costa, Special Coun­ cooperation encouraged so that the faction of future claims on welfare sellor to the OECD Secretary-Gener­ rising costs of research and de­ without a reduction in economic ef­ al, who centred on three themes : the velopment are shared; industrial ficiency will be difficult in a period stimulation of economic efficiency, policies focussed on expanding re­ when more savings should be allo­ aided by giving business a more search and development, reducing cated to improve industrial struc­ predictable macroeconomic envi­ unemployment, and easing extreme tures. Unfortunately, slow growth ronment; the problem of investing in structural crises must be transpa­ and inflation increase the call as well economic growth while still divert­ rent and non-discriminatory, taking as limit the scope for welfare, just ing sufficient resources to satisfy advantage of the stimuli provided by when concern about the incidence social concerns; the need for an international competition. This will on employers' costs and tax resist­ intergovernmental policy approach, ensure that "help for declining in­ ance are both rising. Existing social in a world of growing interdepend­ dustries leads to positive remedies programmes have to be reviewed ence. and does not merely prop them up". and made more efficient, while prop­ er coordination of social and Sustaining a favourable investment economic policies may require ma­ climate, Mr. Costa said, is "primarily Higher investment for European economies will have to be matched jor changes in the machinery of a matter of increasing confidence, governments. Although some tripar­ strengthening profitability, and en­ by a greater supply of savings, he said. Over the longer term, house­ tite institutional innovations may be suring adequate prospects for busi­ useful in this process, it is only ness growth". The risk-premia re­ hold saving rates will have to rise, "Policies to improve the attractive­ through parliaments that real con­ quired to support new investment sensus can be achieved<". have risen in the past decade as a ness of private saving will have a result of greater instability and un­ certainties in the overall economic environment. From this perspective, a key role for policy in promoting Investment ratios, growth rates, productivity investment is to reverse the deterio­ Investment ratios'" Growth rates" Increase ration of business expectations. This in productivity of suggests the need for pursuing the economy™ stable macroeconomic policies in a medium-term framework, and mak­ EEC USA Japan EEC USA Japan EEC USA Japan ing it clear that major structural imbalances in the current situation 1967-73 22.5 18.3 34.3 5.0 3.6 9.6 4,3 2.5 8.0 will be dealt with. It argues for stable 1973-60 21.1 18.3 32.0 2.3 2.3 3.7 2.0 1.3 2.7 growth of monetary aggregates at 1980 21.2 18.5 32.0 1.4 -0.4 4.8 1,0 0,9 3,6 rates consistent with the gradual 1981 19.8 17.9 31.0 -0.6 1.9 3.8 0.9 0.8 2.1 1982 19.1 14,9 30.9 0.6 -1.7 3.0 1.4 -1,0 1.9 elimination of inflation and inflation­ 1983 18.5 16.9 28.8 0.8 3.4 3.3 0.8 2.3 1.3 ary expectations. I" Gross fixed investment in per cent of gross domestic product (GDP) 'So long as perceptions of risk are I« Annual percentage change in real GDP high and profits low, business in­ »I QDp per person In employment vestment will remain depressed. To (Sources: OECD. Commission of the European Communities, EIB. national statistics) counteract this, not only will it be 6

The European economy, perhaps Europe. This field was dealt with in return to a better balance between more than any other, would also the book by Alexandre Lamfalussy, real interest rates and economic greatly benefit from an increased Assistant General Manager at the growth." inter-governmental approach to Bank for International Settlements European investment is also vulner­ policies, said Mr Costa. "About 30% in Basle, who was represented at the able to shocks from the international of output of the European Commun­ symposium by Warren McCIam, debt crisis. After some "cliff hanging ity goes to export and this share is Manager at the BIS. likely to increase over time. How­ months", said Mr. McCIam, "the out­ ever, in the latter years of the cen­ Discussing real high interest rates, look, at least over the short term, has tury, Europe's share of world output an obvious brake on investment, Mr. become somewhat calmer and more may barely be 15%, compared with McCIam said one factor makes them reassuring. a more severe problem in Europe almost 20% in 1975. Europe could "But from the standpoint of invest­ than in other areas. "This is the hardly prosper in a world which ment decisions, it is the longer-term development in profit shares and the ignored the market efficiency stimu­ outlook that matters, and here un­ profitability of investment. In virtual­ lated by international trade. With the certainties abound. The days of ly all European countries there has increasing sensitivity of national abundant credit to finance rapid been a marked change in the dis­ economies to events abroad, pros­ economic development over wide tribution of income in favour of perity will depend heavily on areas of the non-OECD world would wage-earners. Indeed, it is not un­ Europe's ability to work with other seem to be over. countries, including those of the common to talk about the European Third World which may account for disease, whereby rigid wage be­ "Once burned, twice shy. The bank­ half our export growth in the coming haviour has reduced profit shares ing community, however much it decade". and competitiveness and generally may cooperate in maintaining, and weakened investment incentives. even increasing, its outstanding Recently, we have seen clear signs credits, is likely to remain cautious of wage moderation in a number of in its spontaneous new lending. Monetary and financial environ­ countries. But it is crucially impor­ ment Equally unlikely is any marked revi­ tant that the resulting gains in profit val in direct investment, and it is too shares should be maintained and much to hope that official lending Adverse changes in the international consolidated. In this way an im­ could compensate for more than a monetary and financial environ­ proved relationship between profit­ part of the contraction in net new ment, particularly movements in in­ ability and real interest rates can be capital flows. All this implies a heavy terest and exchange rates, impinge expected to enhance the willingness burden of adjustment on the part of directly on investment decisions in to invest. Otherwise, we will not the indebted countries, not only in

"It has often been said that Europe has been letting others make the running in international competition, that she has been living on her stored-up wealth", said Mr François Ceyrac, President of the Economic and Social Committee. "It had to be said, because it was true. But above and beyond that observation, we have reasons for facing the future with confidence. " cutting back on imports but also in environment, he put forward the large, is something distant and not seeking out new export markets. For ESC as a forum for bringing to­ very approachable. We should do these reasons it is difficult to be gether representatives from the our utmost to eliminate bureaucratic optimistic concerning the buoyancy Community's various economic and procedures and formalities, both at of markets in the LDCs, whether oil- social circles. Community level and within the producing or not, or in eastern Member States. Europe." "It in fact offers a way of observing changing moods and attitudes to­ "'The Economic and Social Commit­ Hopefully, commercial banks will wards the major problems with tee has frequently stressed the im­ still differentiate in their lending and which we are having to cope: what portance of the part an agency like avoid tarring all potential borrowers we are witnessing is an increasingly the EIB can play in getting private with the same brush (the régional­ clear perception of the true nature of enterprise to proliferate. The Com­ isation' syndrome). But the outlook those problems and routes to their mittee has decided to continue with is sober. "Ideally, we should still like solution. its efforts to publicise the Bank, to think of a world in which, with the support its operations and, where help of substantial private capital "It is now universally recognised appropriate, offer it constructive cri­ outflows, it is possible to transfer a that during the last ten years we ticism and suggestions based on the continuing net flow of real resources have been sacrificing investment to experience of those professional cir­ to the developing countries. In such consumption, and that that is a cles from which it draws its mem­ a world, domestic investment pat­ dangerous thing. It has jeopardised bers." terns would be affected accordingly. the future of our economies. It is We should not lose sight of this time for a change of course. ideal, but the events of the past "This general acceptance of what Trade Union views: less cuts, more decade may have pushed it beyond now appears to be a self-evident stimulus reach for some time." truth should come progressively to Turning to exchange rates as influence the behaviour of all the The trade unions want a European another determining factor in long- many protagonists in economic and way out of the crisis and are pre­ term investment planning, he said social life on such essential points pared to work for consensus, said that companies have been ingenious as the rejection of protectionism, Jan van Greunsven, International in coping with uncertainties, not openness to new technologies, re­ Secretary of the Netherlands Trade least by international diversification. fusing to keep declining activities Union Confederation — FNV, speak­ "But we have also seen waves of artificially alive and the practice of ing after François Ceyrac. "If, how­ direct investment later reversed in greater mobility. There is a chance ever, unemployment Is not attack­ part by changes in exchange rates for Europe here. ed the weakening credibility of the and relative cost considerations." "The role of an agency like the EIB Community will disappear al­ Disruptive exchange-rate move­ can be essential at a time like this, together", he said. ments lead to caution and risk-aver­ insofar as its effects are transmitted sion in undertaking trade-related in­ 'We need dynamic coordination and and amplified through private initia­ vestments. a policy mix which will lead to a tive, by large, medium and small decrease in the present mass unem­ "Pro*. Lamfalussy expressed doubt companies and, in general, by all ployment, and build up a just and as to whether, in order to achieve those actively engaged in economic balanced socio-economic and in­ greater exchange rate stability, any and social life. What sort of climate dustrial structure in Europe and in­ genuine coordination of policies — does that kind of initiative require? ternationally". especially interest rate and ex­ "First and foremost, what is needed change intervention policies — is He rejected policies relying too is confidence in Europe. The point at attainable with non-Community much on keeping wages down, on issue", he said, "is our capacity for countries. Even more unlikely is any cuts in essential government expen­ living together and creating the grand design for the international diture and basic social security en­ political and economic framework monetary system to take the place of titlements and on the hope that the that best fits the needs of the age. floating. In terms of investment in­ recovery in the United States and centives, therefore, he puts em­ growth in Japan will pull Europe out "Another condition; the creation of of its difficulties. phasis on the need for the continu­ a true single market, through the ation and smooth functioning of the elimination of all those hurdles that "The price of reducing public def­ European Monetary System, hope­ still remain, even after 25 years of icits in this way is far too high. And fully with a greater convergence of the common market. Widening and what is worse, the medicine will not national policies." opening up the markets, however, is work. It will ask for more cuts in the not enough : what we have also to do future, because economic activities is to organise them and launch the fail to increase. Confidence in our future right sort of ventures." "We urgently need a coordinated In this connection, a welcome de­ package of measures to fight unem­ Pessimism? Realism? "There are velopment for Mr. Ceyrac had been ployment positively. We cannot only reasons too for us to have confi­ the widening of the field of financ­ rely on the upturn in world trade." dence in our future". Optimism? It ing served by the European Invest­ was the turn of François Ceyrac, ment Bank. The European trade union move­ President of the EEC's Economic ment wants an investment stimulus: and Social Committee, to speak. "We must now publicise that wider an effort in the order of 1 % of each scope : all too many firms, especially country's GNP, if coordinated, Taking his cue from what had been small and medium-sized ones, feel would have an overall effect on pro­ said on the economic and monetary that the EIB, like the Community at duction and employment much

9 larger than if countries took action overall strategy to fight unemploy­ important to continue to pursue the individually. ment". real integration of the financial mar­ kets in Europe, "A mutual implementation of the trade union movement's program­ The EMS: an act of faith Mr, Godeaux added his word of mes, in all OECD countries together, warning to those already sounded would after 2-3 years raise overall about the consequences of any The survival and smooth running of economic activity by more than 4%, basic change of mood among the the European Monetary System are create more than 8 million jobs, commercial banks as regards their fundamental to the recovery of in­ reduce public budget deficits by willingness to help fund current- vestment, in the view of Jean more than 2% and it would not account imbalances within the Godeaux, Governor of the National affect the balance of payments". developing countries. Bank of Belgium. "It behoves us all to remain very Mr. Van Greunsven put in a plea for The EMS is an ""act of faith" for him. much alive to the importance of that redistribution of work. The introduc­ "I should like, as Governor of the role and the risks inherent in any tion of labour-saving technology central bank of a country participat­ departure from the current prac­ meant that economic growth alone ing in the European Monetary Sys­ tice." He agreed completely with would not restore full employment. tem, to say that, even though from Prof. Lamfalussy who wrote that any time time we may find it hard to basic change of course in the com­ "Unemployment will continue to abide by the rules, we believe mercial banks' lending policy that rise until the late eighties, if redis­ wholeheartedly in the importance of proved permanent could work in tribution of work is not rapidly in­ developing the EMS and widening various ways to the detriment of itiated. I believe that also in this field its scope. We are alas aware that this investment in Europe. we should coordinate in order to is not the time for nurturing hopes of avoid distortion of competition. The seeing the EMS move on to an in­ He went on to explore the dangers of European Trade Union Confeder­ stitutional basis." But great strides a change in the mood of bankers, "a ation and its affiliates insist that a can nevertheless be made, he said, playing-safe attitude which, taken to significant reduction of working especially in developing the private extremes, could have a highly in­ time must be an essential part of an use of the ECU; it is also vitally hibiting effect on entrepreneurial ac­ tivity. "/ am not unmoved by the words of those American business leaders who claim that, in the case of the United States, the high level of real interest "Bankers", he suggested, "have a rates has not detracted from the strength of the recovery", said Mr. Jean long memory, and an especially Godeaux, Governor of the National Bank of Belgium, "but I still think that the long memory for things turned sour. level of real interest rates poses a serious risk of a slow-down in growth. " It was quite clear, when I was start­ ing out in a commercial bank, that the tune was being called by those older colleagues who had lived through the great depression and who found it very difficult to shed those reflexes that they had as­ sumed during the depression".

Five key themes

In a preliminary summing up of the first morning's session, EIB Vice- President Arie Pais said that five key themes "of great importance" were crystallising from the discussion: — higher levels of investment: "I think everybody who has written in the book, and everybody who has spoken here, is in agreement with the necessity to attain higher net levels of investment in Europe, so as to keep up with the United States and East Asia, and ultimately to re­ duce unemployment in our coun­ tries. The role of the EIB as a catal­ yst, mentioned for instance by Mr Ceyrac, is clear: there can indeed be a multiplier effect from the actions of the European Investment Bank. Mr van Lennep and Mr Costa have underlined this, and Mr van Greuns­ ven has drawn our attention espe­ cially to the social climate in which everything has to take place."

10 — an improvement in the monetary Finding the threshold between decline and growth... and fiscal climate: "The importance to investment has been stressed by Mr Lamfalussy and Mr McCIam, and Regional development: notably how the reduction of fluctu­ policy recommendations ations in interest and exchange rates could be extremely helpful. The springboard for the regional discussion group was Professor Here the EIB can play only a sup­ Paelinck's chapter on "Investment and the development of backward porting role, but not without import­ regions", which raises basic questions of defining the "optimum alloca­ ance as the Governor of the Belgian tion of aid" to regions. Rather than sweeping measures, he suggests central bank, Mr Godeaux, pointed relating regional action much more precisely to the widely differing and out in speaking of the European specific characteristics of each area and the nature of its development Monetary System and the role of the problems. This would signify the adoption in each region of a tailored ECU. In both fields the EIB can and "ideal mix" of possible incentives to encourage establishment or expan­ does play a supporting role, al­ sion of productive activities, action to promote investment in Infrastruc­ though it is clear, of course, that the main responsibility here lies with the ture, train manpower and foster research and development. With different national authorities." means and intensity, the "mix" would aim to modify the profile of each deprived region and lift it above a "critical threshold" from which growth — a fresh commitment to working would be self-sustaining. The study suggests how to define each region's together: "There needs to be a re­ needs. birth of the spirit of cooperation, which stood as the credo of the The working party — under the chairmanship of EIB Vice-President Noel European Community - a spirit of Whelan — embarked on a critical examination of the complex issues cooperation with its concomitance involved. of the necessity to break down bar­ riers and avoid protectionism. In this Discussion centred on three kinds of to improve general competitiveness area, the EIB, together with the regional problems: of the region and attract new ac­ Commission of the European Com­ tivities. munities, certainly may have a role; — backward agricultural areas, the Chairman of our Board of Gover­ mainly on the periphery of Europe, nors, Minister Ruding, and Mr Cey­ Full interventionism, said Vice-Presi­ which have not undergone the trans­ rac, have spoken very interesting dent Whelan, "would be costly and ition from old to modern farming words about this aspect, and also Mr difficult to sustain in the face of methods, and have missed out on van Greunsven in emphasising the budgetary problems and complaints need for a spirit of solidarity and industrial development. Their living from the developed regions. Also, good social environment in our standards are below the EEC aver­ there is a high risk that much of the Member Countries." age and their underdevelopment is industry induced to locate because easily recognisable. of incentives offered would not be — identifying investment priori­ competitive in the long term. If an ties: "This theme concerns the sec­ — declining industrial areas, for­ excessive price has to be paid to tors where new investment is most merly dynamic and prosperous but firms to outweigh regional disadvan­ needed, the scope for the Bank's now suffering from serious structur­ tages, the cost in terms of resources financing, and its eligibility criteria, al problems. Regional difficulties of per new job becomes too high and with respect to both traditional and this nature are growing due to tech­ the industry's possibility of existing innovative investments." nological change and increased without a continuing subsidy would competition from outside the Com­ probably be small". — relations with the developing munity. They manifest a dramatic countries: "One of the major points rise in unemployment. General consensus was to go for an brought out already is the vital inter­ intermediate approach, trying to re­ est that Europe has in relations bet­ — urban decay and declining inner move major distortions in the ween this part of the world and the city areas. The working party was economy and ensure flexibility in the so-called Third World." not unanimous that these should be labour markets, but with some reg­ formally considered as "regional" Mr Pais underlined the specific sug­ ional intervention still necessary in problems; urban decay cuts across gestions relating to the future de­ order to stimulate sound public and traditional regional conceptions and velopment of the ElB's role which private productive investment with emerges even within relatively pros­ were made by Minister Ruding. "His genuine long-term potential. perous zones. invigorating speech contained numerous points that may become The working group specified types of great interest to the activities of Perhaps the most important conclu­ of investment needing support: the Bank in the years ahead." sion was to reject either of two extreme policy approaches: all-out • infrastructure and communi­ interventionism making use of a cations: in some cases this would wide range of subsidies, fiscal in­ help to reduce disadvantages of centives and public expenditure in peripherality; order to force the pace of regional At this point the symposium split development, or a complete market • energy: to make sure regions into the three specialised discussion approach which would seek only to were not disadvantaged on this groups — on regional development, remove or reduce distortions in the score, with the additional Commun­ energy and industrial investment. economy, leaving lower labour costs ity-wide benefit — where possible — 11 ing attention will need to be paid to regional development;

— the Treaty of Rome and the Sta­ tute of the EIB attach considerable importance to regional development in the context of Europe's overall development; the vision of the Com­ munity's founders in this area has not yet been realised and shows no signs of being achieved despite the valuable groundwork undertaken over the past decades;

— for these broad reasons and others, such as possible enlarge­ ment of the European Community, regional development is an issue of undoubted economic, social and political weight in every Member Country at present, an issue which will underpin the future cohesion and competitiveness of the EEC as a whole".

There was general agreement at the working group on the diagnostic efficacy of the three key notions forming the theoretical base of the model in Professor Paelinck's study:

— regional growth threshold — a combination of the elements condu­ cive to economic growth, at a level which enables this growth to be self- sustaining;

If technology-oriented firms are to be attracted to development regions, they — regional location profile — the will need medium and highly-skilled personnel. "This constitutes an argu­ set of locational factors existing in a ment for greater emphasis on investment in human capital and on improving region, which encourages new in­ cultural amenities and the environment", says EIB Vice-President Noel dustry to start up or existing indus­ Whelan, summing up the deliberations of the regional development working tries to expand; group. — Interdependence in space — the of developing resources which will "Regional development is and will impact of economic activity in one help Europe cut down on energy continue to be an important element region having an effect on the de­ imports; in Europe's future development" velopment of the regions around it. said Vice-President Whelan. "It is • technological development: in­ and must continue to be one of the vestment here would foster the The emphasis placed on policy main components of a policy for spread and take-up of strong mar­ analysis in Professor Paelinck's investing in Europe's future. This is ket-oriented technology in the reg­ model was also generally accepted so for a number of reasons: ions. Small and medium-scale ven­ as valid; various policy means, par­ tures were considered particularly ticularly infrastructure and spatial important in this respect; — population, unemployment and planning, can play an important role GNP statistics for the designated or in changing regional profiles of deprived areas of the European • human capital: application of backward areas beyond the critical Community are of important mag­ new technology will require more threshold level and so secure the nitude. We cannot walk away from medium and high-skilled personnel self-sustaining growth process. these magnitudes — not if we see in regions not able to offer them at the Europe of the future as a ba­ present. There is an argument, The important question, however, lanced and reasonably integrated therefore, for greater emphasis on was to what extent such a model is entity; investment in human capital; operational. The statistical base for examining regional phenomena is • environment: areas wanting to — to the extent that considerations often unsatisfactory and out of date. host new technology development of efficiency and productivity — and The attempt to extrapolate from past may need to improve their cultural in some people's view also those of data a regional development amenities and the environment to equity and welfare — will require strategy valid for the future gave rise attract the right kind of investment. continuing attention, then continu­ to wide-ranging debate. 12 George Chiotis, Professor, Athens planning involves the use of scarce The importance of agriculture in School of Economics and Business resources and it is vital to consider some countries (Ireland and Greece Science, and Bendt Hansen, Man­ their real cost. and also Spain and Portugal) and aging Director of Kjobenhavns the role of the European Investment Handelsbank, both noted that much The Director General of the Regional Bank were two of the points raised of the model was based on informa­ Policy Directorate of the European by Michael Culligan, Chief Execu­ tion concerning the period 1950- Commission, Pierre Mathijsen, tive of the Agricultural Credit Corpo­ 1970, before considerable change in came into the debate from another ration (ACC), Ireland. He paid a tri­ Europe's economic conditions. angle, by clarifying the distinction bute to EIB global loans, saying that between convergence of economic they had been significant in Irish Professor Chiotis raised three fur­ policies, (possible to attain) and the agricultural development, welcom­ ther questions relating to the policy Issue of disparities between regions ing at the same time help to finance implications of the model: (to some degree inevitable). He also high-technology industries, espec­ questioned the balance of objectives ially in underdeveloped areas. — how easy is it to determine, espe­ in regional development, between cially in dynamic terms, the critical increased employment, and in­ growth thresholds for stagnant reg­ creased GNP; and whether working Paul Turpin, Secretary General of ions and the related cost of policies for productive investment would, in the National Economic and Social for surpassing them? turn, necessarily reduce unemploy­ Council, Ireland, said that with tech­ ment. Investment, in any case, was nology becoming ever more impor­ — how can the model take account not the only issue. Mr Mathijsen tant, investment was required not of the institutional and politico-ad­ emphasised that the political el­ just in new industry, but also in ministrative factors that influence ement - which is missing from the developing human capital - aspects business and public behaviour and Paelinck model - is a decisive one, which were taken further by Con­ thus investment in less-developed as macroeconomic policy has a ma­ stantine Makropoulos, Governor of Mediterranean regions? jor effect on regional development. the Greek Telecommunications Or­ ganisation ; he pointed out that while — can the model be adapted to Michael Killeen, Chairman of the less developed regions had been incorporate technological progress, Industrial Development Authority under discussion, one could equally a crucial factor for structural change (IDA), Ireland, agreed that policy speak of whole countries, such as and development opportunities in questions were important, but had Greece and Ireland: "... for develop­ the next decade? no doubts as to the value of sus­ ment to take place, financing is re­ tained investment for regional de­ quired for the transfer of technolo­ velopment. A concentration on gy, for the tertiary sector and for Brendan Cardiff, economist at the 'growth' centres, however, was not training to activate the enormous European Commission, Directorate an effective method of promoting scientific potential that is currently for Economic and Financial Affairs, regional development: there has to lying idle...". took up this last point, stressing that be a real transfer of resources. one of the major factors determining regional imbalance is the relative Training and improving the urban Salvatore Cafiero, Direttore rate of diffusion of technological environment were two of the points Generale of SVIMEZ, returned to the innovation between the regions and which Professor Paelinck empha­ point of urban difficulties. While the that differences in the quality of sised. investment in human resources southern question of Italy thirty played a key role in this respect. years ago was concerned with ag­ riculture, urban problems are now to "If we make a comparison with what "The vast range of new products and the European Investment Bank has processes which the third major in­ the fore: "technology and improved communications mean that loca­ been doing over the past twenty-five dustrial revolution will spawn offers years, it emerges that, measured unrivalled opportunities for dy­ tional factors change and develop­ ment of industry depends on the against an ideal programme, the namic, innovative regional develop­ Bank has perhaps not always had its ment. But Europe must first shake development of the tertiary sectors i.e. on what urban services are avail­ attention drawn sufficiently to urban off Its present inertia and indecisive- development projects. Whatever di­ ness...". able. This is becoming the most important part and most vital el­ rection future progress lies in, how­ ement in industrial expansion...". ever (the high technology bias, for Gavin Dick, Under-Secretary, De­ example), the element of support for partment of Trade and Industry (UK), The role of the tertiary sector was regional development represented brought out another aspect of the also underlined by Nico Novacco, by an adequate urban structure will regional development problem: that Director, Istituto per l'Assistenza allo continue to be a constant in the large urban agglomerations, instead Sviluppo del Mezzogiorno, who ad­ range of attractive features the reg­ of being regarded as essentially ded that a regional approach is ions will have to offer. We are in positive variables in a region's de­ necessary for the Community and particular convinced that support velopment, may actually be nega­ that this requires consensus. Its ob­ for activities closely linked with up­ tive, as more deprived' people live jectives cannot simply be to reduce grading the abilities of the work­ in decaying city zones than in rural unemployment, partly because a re­ force, research and development underdeveloped areas. The problem volution in technology tends to de­ and the geographical conditions for here was not lack of infrastructure, crease the numbers employed. To the exercise of future activities will but that it was worn out. Mr Dick avoid waste, regional policies for continue to be one of the most also made a point that was to be transfer of resources must reinforce effective spurs to the advancement taken up by other speakers: regional productive investment. of backward regions."

13 Half-way In restructuring Europe's supply situation? far-reaching extent, will depend on how to cope with them. Even if no Investment in the energy sector new tensions affect the world energy markets, above all the oil market, The present easing of price and supply pressures in the world oil market during the second half of this dec­ has tended to divert international attention from energy to other more ade, investment decisions in the pressing issues. Discussion in the energy working group - presided over energy sector must take heed of the by Frau Hanna Walz, Chairman of the European Parliament's Committee long-term outlook for energy supply on Energy, Research and Technology - revolved around the extent to and demand." which this could be leading Europe into a "false sense of security", and what priority new energy investment should receive. Europe must ensure greater diver­ sification as regards both types of There was unanimous agreement on • joint development of energy re­ energy and the countries from which several policy lines and concrete sources outside the Community it imports, she said, and push ahead measures: should be vigorously pursued, with in developing its own competitive both prices and quantities being rec­ sources of energy. This does not • the European Community and ognised as variables forming part of exclude research into forms of national governments should hence­ a Community energy policy; energy which are not currently forth define their long-term plans cost-effective but serve national in­ and goals in more clear-cut terms • pricing policies and tariff struc­ terests. Arguments supporting such and lay down minimum require­ tures should reflect the actual long- a policy include: security of sup­ ments in areas where market forces term costs, so as to allow invest­ plies, effects on employment and do not necessarily provide pointers, ment in alternative forms of energy regional considerations. Nonethe­ for example with regard to security and cover the related research and less, energy prices must not be be­ of supplies and environmental pro­ development costs; yond consumers' pockets. tection; • the final consumer should also "To achieve these goals", she said, • an active information policy, en­ contribute towards more efficient "'certain basic conditions must be couraging in particular small pilot use of energy. Incentives to this established: and prototype projects (e.g. in the effect could be provided by means field of coal gasification), is of con­ of an appropriate price policy and "'- to the extent that market forces tinuing importance; the active removal of constraints. and the price mechanisms are not Insulation of houses - offering op­ allowed the free play necessary to • there should be more effective portunities for small and medium- point up trends in energy supply, coordination between the Euro­ sized undertakings - is one area for national governments must provide pean countries, to help achieve a action clear guidelines to highlight their satisfactory mix of reliable and policies; cheap energy supplies; Summing up the group's conclu­ sions, Hanna Walz said: '- the public must be satisfied that • neighbouring countries should acceptable solutions have been "Europe's energy problems have not promote exchanges of electricity found to the problems of waste across national boundaries; yet been solved and the future, to a disposal and environmental protec­ tion posed by nuclear and coal-fired "Europe should not wait for another oil price shock — with the well known power stations, so that both these repercussion for our economic growth — fo be forced to strengthen the sources of energy can be used to structure of its energy supplies ", says Hanna Walz, winding up the energy best effect and so that, with the use working group discussions. of electricity in particular, structural improvements can be attained;

"- the lengthy lead times of energy- sector investment, which imply long- term and variable risks, must be viewed as an important factor in the decision-znaking process. Signals should give investors an awareness of more than just potential risks (fluctuations in price or demand) when taking decisions. These sig­ nals can be provided through tax­ ation policy, environmental protec­ tion regulations, codes of procedure and standards or measures regard­ ing public safety; "- the creation of new market out­ lets would stimulate the use of cer­ tain energy resources, such as coal, and increase the Community's inde­ pendence; "- the need to step up international cooperation was also discussed briefly, with particular emphasis on 14 developing links with Japan and prevent energy supplies offered to "In other words, the construction of North America". the consumer becoming too dear new plants, especially where these and too unreliable." are to replace old or obsolete oil- The starting point for discussion at fired power stations, is the swiftest the working group was Ulf Lantze's and most effective way of reducing contribution to the book as Execu­ Thomas Kronberg, Division Head, the figure for the sum total of sul­ tive Director of the International Danish Energy Agency, suggested phur emissions from all power sta­ Energy Agency. He expressed con­ collaboration between neighbour- tions, the key consideration when it cern that the current slowdown in countries should be increased, comes to the problem of acid rain. energy investment could leave where it will benefit all parties. As an Europe in difficulties, if the economy example, increased exchange of "Various solutions, of the type re­ picks up substantially with a firm electricity between hydropower- cently adopted in one Community increase in energy demand. countries and those depending country and which there is a move­ largely on thermal units would be of ment to extend to all the others, i.e. "The only energy source which can immense value, economically and to impose expensive, complex solu­ be readily turned to is oil", he wrote. with regard to supply security. Gov­ tions on new power stations in the "Therefore, there is a real risk that ernment grants and adequate form of desulphuring installations, economic revival will give rise to financing facilities are crucial to en­ strike me as the wrong way of set­ increasing demand for oil from the couraging more efficient use of ting about an ecological problem OPEC countries. This will already energy and energy savings. Alterna­ that can be much better solved mitigate some of the reasons for the tive energy has a huge potential but otherwise. What they do is reduce or recent fall in oil prices. Later on, needs standardisation and commit­ in some cases completely negate around the 1990s, oil demand may ted official support, beyond the any return on new generating again become uncomfortably close necessary technical expertise in de­ facilities, largely through consider­ to the level of production which the velopment. able wastage of energy, which pre­ OPEC countries are able and willing cisely runs counter to one of the to maintain. This would obviously priority aims of the Community's increase Europe's vulnerability to James Smith, Finance Director of energy policy, which is to save supply disruptions and sudden oil the United Kingdom's Central Elec­ energy. price rises, as we have experienced tricity Generating Board, followed before." up on a statement from Ulf Lantzke "I believe that the alternative we are that electricity is expected to be a putting forward merits considera­ The recent downward revision of major medium for structural im­ tion by the Community authorities: energy investment plans could be provement over the 1980s, and stres­ this would be to require any party attributed, in part at least, to a heal­ sed the opportunity which electricity wishing to build a new power station thy ability of economies to respond provides for optimising the use of to reduce over time, by an agreed to changing market signals, perhaps alternative primary energy sources amount, the total volume of pollut­ avoiding wasteful use of resources as price relativities change. He ant emissions from a//their generat­ on sub-optimal investment. "On the asked whether it is reasonable to ing plants, the new one included." other hand, there remains a danger expect market forces on their own to that an overreaction could set in. adjust the energy mix quickly and Aldo Romoli, Chairman of the Ener­ This could lead to economically jus­ correctly, or whether pricing gy and Nuclear Affairs Section of the tifiable energy investments being mechanisms or taxation should be Economic and Social Committee, delayed or cancelled. Given the long used to reinforce trends. Prices took up the theme of Europe invest­ lead times of energy supply projects which recognise the prospective de­ ing in energy supply sources out­ and the relatively short time in which pletion of non-renewable energy re­ side, as well as inside, its own fron­ the energy market can change, it sources could provide the funds for tiers. The EEC should take a more must be questioned whether such development of alternative sources coherent view of its foreign policy. responses are helping to set the of energy. At the moment energy plays a low foundation for a more secure and role in relationships with Third stable energy future." The public must have satisfactory World countries, he said. Foreign assurances on the question of cooperation agreements could well Hubert Grünewald, Member of the wastes from nuclear and coal-fired include an energy aspect. European Management Board of Ruhrkohle generation if full advantage is to be investment and an active Communi­ AG, came in on the particular uncer­ taken of these two options, he said. ty policy towards third countries tainties surrounding energy invest­ could have an important role in di­ ment. "Because of the long periods Francesco Corbellini, President of versifying energy imports and in eas­ for which capital is tied up and the ENEL-Ente Nazionale per l'Energia ing the trade imbalance of many large fluctuations in prices and sales Elettrica, also raised the environ­ developing countries. involved, investment in energy sys­ ment question, but from another Greater concentration on new tems carries great and variable angle: are controls sometimes too sources of energy should be aimed risks", he said. "The danger is that rigid? ENEL is currently engaged in for. There has been a call for more both in scale and structure, invest­ a major construction programme to energy-saving demonstration pro­ ments will lack the stability neces­ build 28 000 MW of new power sta­ jects, currently hampered by limited sary to improve and modernise the tions (mainly coal-fired and nuclear, available finance. The Community energy sector. To achieve the level but also hydro and geothermal) to could be mobilized further for such of investment necessary to cover replace older, oil-fired equipment. projects which could in time provide essential demand for energy, there This should cut sulphur emissions favourable results, and the Com­ must above all be collaboration bet­ from 600 000 tonnes per year to munity should carry on with the ween enterprises and the public au­ 350 000, while raising production incentives it provides to encourage thorities. This is necessary also to capacity by 80 billion Kwh. more rational use of energy.

15 Taking the pulse of European industry... technology designed to put firms back on a competitive footing inter­ Investment and competitiveness nationally or to increase their exist­ ing international thrust; "My distinguished fellow speakers were unanimous in sounding a note of despondency about the dwindling level of investment in industry since the • an intensive and comprehensive early 70s and Europe's loss of competitiveness on world markets. educational programme, monitor­ ing, if not anticipating, the develop­ "Two points which kept coming to the fore were Europe's declining market ment of new technology; share of high technology products and the falling-off in the number of patent applications lodged in almost every country in Europe." • concertation and coordination in research and development program­ There is nothing fatalistic in this National and Community mes at a European level; decline, however, said EIB Vice- policy-making: priorities President Lucio Izzo, summing up • progress in harmonising Com­ • the stimulation of a real aware­ the discussions at the industry work­ munity standards; ing group. Trends can be reversed, ness of the need for a strategy at Community level; but only if first the issues are well • a broader opening-up of public understood, and second if there is • concerted macroeconomic po­ procurement; sufficient breadth of vision to re­ licies aimed at alleviating corporate spond to the magnitude of the prob­ • tax incentives for innovative pro­ uncertainty and helping to create a lems. jects; climate more conducive to invest­ ment; Remedial policy changes should • flexibility in Community compe­ embrace redefined priorities in nat­ • a ""positive adjustment" ap­ tition rules to assist cooperation in ional and Community policy-mak­ proach to spur on activity in the research and to open the door to ing, changes in corporate attitudes, "sunrise" industries; national aid measures for innovative and a more effective catalyst pro­ schemes; vided by the financial institutions, he • no assistance for "lame duck' said. The working group came up enterprises in crisis sectors, but sup­ • adoption of a charter for a "Euro­ with the following lines for action: port for viable introduction of high pean Company".

The ground lost by Europe in the high-technology products market was attributable, at least in part, to the non- completion of the common market. This point was raised by Lucio Izzo, Vice-President of the EIB, summing up the work of the discussion group on industrial investment. "A considered view, much-voiced at this symposium", he said, "is that the lack of harmonisation at European level has militated most severely against innovation, at a time when this is becoming a dominant factor in our economies. It is in fact impossible for the innovator to count only on a large home market, at the very time when new technologies are making it necessary to switch from historical depreciation to geographical depreciation. "

16 Changes In corporate attitudes dustrial revolution leaves no sector velopment is concerned, it is striking untouched or free from upheaval." to see the extent to which state • firms should become more support is concentrated on a small amenable to innovation and willing Moreover, he said, industry needs to number of sectors. In some Com­ to accept the associated risks; work from the European dimension munity countries four branches of upwards. "The advancing tide of in­ • they should also be encouraged industry - electrical engineering, novation is sweeping forward over aerospace, computers and telecom­ to cast a more favourable eye on an ever wider front in both the indus­ cooperating with other European munications - absorb 90% of total trialised and the developing nations. state aid for R & D. It is now being companies and on opening up mar­ This is a sea change which makes kets; realised that this over-concentration for more truly international, less has not only hampered innovation in • a further imperative: readiness to centralised markets enabling firms sectors not favoured in this way, but adopt less formal organisational to take greater advantage of a com­ has also made a large proportion of structures in order to adapt more plex of factors shaping their per­ these sectors incapable of rapidly swiftly to the changing environment; formance within the world arena." assimilating the technological adv­ ances developed in the top-flight It is useless, he said, for firms • an effort is necessary by both sectors receiving state support." sides of industry to come to a grea­ pioneering industrial technology ter understanding. simply to rely on their domestic mar­ kets at a time when the rapid adv­ He discusses the need for industry ance of new technology dictates the to generate more cross-frontier cooperation to tackle world markets. The catalyst provided by the need to think laterally, in terms of "One of the lessons of the last few financial institutions moving from the idea of amortizing costs in time to amortizing them years is that purely national • innovative firms must have ac­ over a vast international market. strategies calculated to enable cess to appropriate sources of fi­ countries to hold on to an adequate nance. Venture capital companies share of the world markets for adv­ should be fostered more energeti­ anced technology do not constitute cally, but they should exist not just Much of the groundwork for the a sufficiently effective approach. In to provide capital, but also to give industry working group discussion several sectors of European industry business the benefit of their exper­ was prepared in the chapter of the it has come to be recognized that tise, organisational ability and acu­ book written by Guido Carli, former more intensive cross-border cooper­ men in making the most of human Governor of the Banca d'Italia. He ation between enterprises must be resources; calls for better deployment of intel­ initiated as a matter of urgency in lectual resources - research and order to back up stimulatory action development of new products and taken by the public authorities." • the Community's financial agen­ manufacturing techniques - if the cies should furnish their assistance Community is to derive full benefit in line with their statutory or other One of the key points to the Carli from technological advance and im­ rules and regulations, while abiding paper is that the poor performance prove its competitive position. by the objectives advocated by the (relative to the United States and Community, e.g. the need to work Japan) of the scientific and tech­ "It is generally acknowledged", he nological system in Europe is not towards a more open market and to writes, "that until the European gov­ respect the environment. due to a fundamental lack of human ernments improve their methods of or financial resources. At the world Vice-President Izzo voiced a general encouraging R&D nationally and level, Europe accounts for 20% of concern that one of Europe's main their arrangements for cooperation total research and development ef­ weaknesses compared with its ma­ at Community level with regard to fort. jor competitors lies in the fact that the planning, execution and maxim­ the common market is still in the ization of certain types of R & D "It would therefore seem", he says making. "The economies in the dif­ effort, the Community will continue "that the problem is a lack of effec­ ferent Member Countries rarely keep to be unable to improve its pos­ tiveness in applying the resources at on sufficiently convergent courses, ition." the Community's disposal. Hence, and industrial policies, devised any thoughts on ways of improving There is also too narrow a spread in Europe's technological competitive­ strictly with national goals in mind, much of the research and develop­ tend far too frequently to follow very ness must be preceded by an ex^im- ment in Europe. "As far as state ination of the effectiveness of the different paths. There is a crying action to stimulate industrial de- need for a common strategy. constituent parts of the European R & D system (university laboratories, "In a nutshell, when it comes to public research programmes and in­ industry, Europe is still a patchwork Index of technological stitutes, company laboratories) and of economies, very open to the out­ specialisation: 1963-1982 the quality of the links between the side world but not an integrated different elements." structure. All of which brings added 1963 1970 1980 1982 cause for uncertainty on the part of Europe's businessmen. EEC 1.02 0.94 0.88 0.87 Michel Carpentier, Director General USA 1.29 1.27 1.20 1.20 of the Task Force for Information "This lack of a unified approach at Japan 0.56 0.87 1.41 1.33 Technologies and Telecommunica­ European level has had an especial­ tions and Director General DG XVII ly adverse effect on innovation at the (Source: B. Cardiff, "Technological Inno­ at the Commission of the European very moment when it is assuming vation In European Industry", Commission Communities, took the same line. of the European Communities, January overriding importance for our 1982, updated February 1984) "Europe's research potential is in­ economies and when the third in­ deed satisfactory in relation to that 17 of the United States and Japan", he ence researchers' motivation. More ing to technological development, said "but it is on the performance emphasis should be given to EEC advancing up to 50% of project side that we fall well behind. This cross-frontier technology program­ costs, repayable only if the invest­ gives all the more cause for concern mes (transport, energy, telecom­ ment proves successful. The now that innovation has become a munications, armaments) in terms of scheme works through regional de­ strategic necessity and such a very joint direct public expenditure, and legations, making for ease of con­ fast process. The countries of the improvements to the general market tact and swift decision-making pro­ Community must therefore draw on environment (widening the home cedures. Between 1980 and 1982, the advantage of a large market market, standardising policies on 80% of 3 700 projects supported open to competition; in the process competition). He also raised the were put forward by SMEs. they must develop a logic of con­ question of the costs to industry in certed action and cooperation in meeting more stringent environmen­ Bruno Lamborghini, Head of pre-competitive R&D and its financ­ tal standards. "Ecology should not Economic Research at Olivetti, and ing, bearing in mind also that the be given priority over economy: we hence confronted with the technol­ costs-including human resources- should talk in terms of ecology and ogy/competitiveness problems of can exceed national capacities". economy." major industry, spoke of Europe suf­ One obstacle he underlined was fering a net brain-drain, while im­ Europeans' reluctance to grasp the Nicolò Luxardo de Franchi, Chair­ porting of high-technology products opportunities of information tech­ man, Committee of Small and and know-how. nologies early on, retarding the Medium-sized Enterprises, Union of European market as well as imped­ Industries of the European Com­ It is not so much a question of ing the development of leading in­ munity, Brussels, said SMEs should stepping up the research effort over­ dustries, and restricting skill de­ have wider access to Community aid all, as of rationalising, steering and velopment amongst engineers and for promoting research. Community coordinating research activity more technicians. financial instruments should be av­ efficiently. It should be oriented ailable to all potential beneficiaries- more towards joint European pro­ Karl Heinrich Oppenländer, Presi­ small just as well as large - by jects that have industrial outlets, fos­ dent, Ifo-lnstitut für Wirtschaftsfor­ decentralising appraisal and deci­ tering technical worker mobility, de­ schung, Munich, said his own or­ sion-making procedures, with grea­ veloping European standards and ganisation's studies tended to bear ter standardisation. Thought could continental-scale markets, and dis­ out Carli's diagnosis. No leeway had be given to improving access to seminating technology among been made up vis-à-vis the USA in research aid through Community of­ SMEs. To brace itself against the the realm of high technology, while fices at national level. technological competition of the 80s Japan had overtaken Europe in and 90s, European industry is also going to have to look beyond purely terms of technology-intensive ex­ François Gerard, Délégué aux rela­ national (or even continental) at­ ports. Basic research at universities tions internationales. Agence titudes of mind and build up interde­ and higher education establish­ Nationale de Valorisation de la Re­ pendent relations and technological ments should continue to attract cherche, France, pointed to his own ties with industry in the United support and not be curtailed, he organisation's support for tech­ States and Japan. said. Budgetary measures taken by nological development among smal­ the authorities to cut public expen­ ler undertakings. ANVAR shares diture should not negatively influ­ with firms the financial risk attach- Frans Andriessen, Member of the Commission of the European Com­ munities responsible for competi­ Trade balances for high-technology goods : 1970 and 1982 tion policy, frankly admitted that a (billion $) lack of political will amongst Member State governments had hin­ EEC USA Japan dered the opening up of a full Com­ munity market for European indus­ 1970 1982 1970 1982 1970 1982 try. "The completion of the common market is a basic condition for prog­ EEC Imports from -2.4 -13.9 -0.4 - 8.2 ress", he said, "but I sometimes have Exports to +2.2 +10.5 +0.3 + 1.7 the impression that we are more imaginative in finding obstacles Balance -0.2 - 3.4 -0.1 -6.5 than we are successful in harmonis­ ing norms." USA Imports from -2.2 -10.5 -1.9 -20.8 On public funding of industrial de­ Exports to +2.4 + 13.9 +0.9 + 4.9 velopment, he voiced the conviction that, as a rule, there should be only Balance +0.2 +3.4 -1.0 -15.9 limited cofinancing by the national authorities to ensure that the private Japan sector too judges the investments in Imports from -0.3 -1.7 -0.9 - 4.9 question as sound, and to prevent Exports to +0.4 +8.2 + 1.9 +20.8 distortion of competition. "The fact that industry seeks financial assi- Balance +0.1 + 1.0 +6.5 + 15.9 tance from the authorities itself de­ (Source: B. Cardiff. Commission of the Eijropea n Communities. Februar1 y 1984 monstrates that something is fun­ figures based on import data cif). damentally wrong with our eco­ nomy", he said. He warned against 18 national aids to artificially prop up "In the area of finance, probably ments to capital flows, and within declining industries. "Assistance for more than in any other, Europe can­ the Community freedom of capital lame ducks should only be given in not really think of itself in isolation. movements is virtually assured. It is conjunction with restructuring prog­ Money has very little national or certainly something which needs to rammes for restoring firms to pro­ indeed regional appeal and does not be safeguarded, and what can be fitability." know frontiers. In financial markets, right within the Community, can cer­ whether it be individual govern­ tainly not be wrong in a wider con­ The discussion had throughout a ments, European governments, text. Therefore I am sure that the strongly practical character. Dr Op­ whether it be individual industries Community will never wish to try to penländer perhaps provided the key­ and companies which, after all, are create some sort of discrimination in note (cheered) when he said, "Analy­ the basic sources of industrial de­ international as well as in national sis is behind us: we should now velopment, innovation and invest­ financial markets, and the criteria of move to therapy and action." ment, or whether it be through the success in raising external finance institutions of the Community in must continue to remain security matters of finance, whether again it and adequacy of return, whoever the Financing investment be in national markets or interna­ borrower may be. tional markets, the Community and the European countries generally "Much has been said here about the Identification of investment pri­ are up against competition from all inadequacy of investment in Europe, orities is one problem, financing over the world. This is one area and I am certainly the last person not them another. European needs for where we simply cannot adopt any to agree with that wholeheartedly. investment finance have to be seen kind of isolationist attitude. Nevertheless, though investment increasingly in a world context and may be inadequate for our needs, there is "severe, sometimes very se­ particularly looking ahead to innova­ vere competition" on the capital "The Community itself, true to its tion and improvement of productiv­ markets, said Lord Roll, opening the basic principles, has been foremost ity and competitiveness vis-à-vis our second day of the full symposium. in urging the abolition of impedi- friends and competitors outside the Community, the work of the Com­ Lord Roll also raises the Europe/Third World interdependence theme. "We munity institutions, and particularly have been used in the past to speak of Germany and Japan and the United of the European Investment Bank, in States as 'locomotives', but the Third World countries could also be a very raising adequate external finance important locomotive for industrial development in the industrialised coun­ has been outstandingly successful. tries of the world; but they cannot do that unless they can raise new money. " "I might perhaps in this connection refer to the remarks made by Minis­ ter Ruding, that it would be a great pity if the excellent standing now enjoyed by the European Investment Bank, and by Community institu­ tions generally, were to be diluted in markets through the multiplicity of new instruments of borrowing. I think Mr. Ruding undoubtedly has a point, and I am sure that this will be borne in mind by the Community institutions."

Lord Roll struck a cautious note as to developments in borrowing techniques. "Markets are changing, new instruments are being devised every day, some simply gimmicks designed to catch the customer, some as genuine improvements and innovations in the way of types of paper that are made available to investors and that borrowers are en­ couraged to use. New structures are in fact developing everywhere." Some may result in a widening of markets to the benefit of both bor­ rowers and lenders, he said. "Where I fear that gimmicks can sometimes do harm, is if they result in short- term successes in placing a piece of paper quickly and getting the bor­ rower the money he wants, but even­ tually do harm to the readiness of lenders, long-term investors, the ul­ timate investors, to hold long-term obligations. This is particularly im-

19 portant where it is a question of "The Community and Europe, as a nancial institutions replied to points raising money for long-term produc­ whole, should remain conscious of raised by Lord Roll: tive investment purposes. the importance to itself and to the rest of the world of the Third World. "I am sure that I do not need to Ernst-Günther Broder, Senior This problem of debt servicing, and stress this particular point any furth­ Member of the Management Board, of whatever final arrangement may er, except to say that, while the Kreditanstalt für Wiederaufbau, saw be made about the existing over­ development in the last 10 years of that at present and in the foresee­ hang and of the provision of con­ the bank credit markets was not only able future the national and supra­ tinued development capital to the highly desirable but indeed inevit­ national development banks in the Third World, is very much in the able because the sort of funds that developed countries should increas­ interest of Europe." were needed in international trans­ ingly direct their finance towards an actions could not have been raised active structural policy so as to any other way, it is terribly important Finally, Lord Roll came out with firm speed up adjustment to rapidly that the capital markets should also support for the United Kingdom's changing worldwide economic con­ develop because that is where the full participation in the European ditions. And here he added the ques­ ultimate investor is to be found, that Monetary System. tion of action on urgent environmen­ is were you will find the safe holders tal issues with economic consequ­ of obligations for longer terms. " "The European Monetary System is ences. something which exists, which is Europe's influence in the capital working, which has, despite some He also emphasised the growing markets must embrace a concern for hiccups, developed extremely well. economic interdependence of de­ developing countries, said Lord The next step must clearly be UK veloped and developing countries. Roll. Apart from questions of basic membership, and that is a concrete "Our responsibility for the peoples solidarity, the Third World's difficul­ step forward which could not only in of the poorest countries requires us ties in servicing existing debt, let itself be beneficial to the Commun­ to press ahead more urgently with alone raising new money, comprom­ ity, but could open up, I believe, the our own development. In practical ise its potential as an important path to further development." terms this means: firstly, we must locomotive for economic growth in assure efficient industries in the the industrialised countries. Two other speakers from major fi- Third World of better access to our markets; secondly, we must main­ tain and expand the scope of what Europe's responsibility towards the poorest countries was a theme raised by we can offer the developing coun­ Ernst-Günther Broder, Senior Member of the Management Board, Kreditan­ tries." stalt für Wiederaufbau. "We must maintain and expand the scope of what we can offer the developing countries". Luigi Arcuti, President of Istituto Mobiliare Italiano, expanded on the functions of the Community's financing institutions, in particular the European Investment Bank. Their intervention over the years had been particularly advantageous, he said, to those Member Countries which, due to fundamental imba­ lances in external payments, to a strong rate of inflation or to the insufficient articulation of the domestic capital markets, have not been or are not able to mobilise sufficient resources for investment, or do not have direct recourse to foreign markets.

"The EIB and the Community's other financing institutions thus represent an important and comforting step in the building of Europe", he said. "They are a sure point of reference for those Member Countries which are striving to modernise their in­ dustries, their services, their infras­ tructure so as to meet the challenge of the dominant industrial powers." It is particularly important to streng­ then the flow of funds to "speed up the growth of small and medium- scale companies beyond national boundaries." The challenge faced by SMEs is moving increasingly from the regional and national, to the international market.

20 burdens resting on enterprise, and in particular a measure of tax relief for profits ploughed back. "There can be no doubt that in several countries the structure of the tax system has come to be a definite brake on investment and that the tax burden on industry is in most of the countries of Europe heavier than in either the USA or Japan. "Improvement of the general condi­ tions in which investments are made calls for a reduction both of the over-large share of the State in the national income and of the budget deficits", he writes. "This could ease the strain on the capital market and bring a larger part of the wealth created in the economy back to in­ dustry.

"The exaggerations found in the European fiscal and social system are a major problem for public pol­ icy; if the problem is not solved, Europe's economy will sink still more deeply into mediocrity." Much of this is common ground for Michel Albert, Président, Assur­ ances Générales de France, who in his own chapter writes of the "'re­ lentless path" of the increasing cost of social provision. Are Europeans paying for the Welfare State at a huge cost to investment and their future? "The Welfare State could continue to be financed", he writes, "as long as it remained possible to pay the cost of the crisis with credit, through an increase in debts; during this "To transform savings into investments is not only a financial decision : it is a transitory period, which ended at the philosophy for new development", says Luigi Arcuti. President of IMI-lstituto beginning of the 1980s, the prefer­ Mobiliare Italiano. "The entry of newcomers into the Community, newcom­ ence given to consumption as op­ ers with notable regional development problems and relatively weak posed to investment, and the prefer­ currencies, requires a greater effort of solidarity and of financial mediation ence given to the present as op­ between the international capital markets and investment demand. " posed to the future, appeared to be a

Improving the chances for Gross domestic product of the EEC countries — profitability components and determinants (variation of shares in GDP, in percentage points and cumulated over the periods) Investment, above all in the produc­ tive sector, is being cramped by 1960-1973 1973-1980 1980-1982 heavy Government budget deficits, pressure of taxes and social Public expenditure + 7.7 +7.3 +3.7 charges, with a concomitant decline Taxes +6.4 +4.5 +2.2 Real wage gap (excess in firms' profitability. over warranted level)'" -0.2 +3.3 -0.2 These views - echoed by many Consumption -1.8 +3.5 +2.6 speakers at the symposium - are Investment +2.2 -1.6 -2.3 central to the chapter written by Real GDP (volume Otmar Emminger, former President growth, annual average) +4.6 +2.2 -0.1 of the Deutsche Bundesbank. ""A clear political decision in favour of I" "Warranted level" = a development in real wages tfiat would leave the profit share of the improving the chances of profitabili­ enterprise sector unchanged. ty" is needed, he writes, and "a (Source: Commission of the European Communities) reduction in the fiscal and social

21 away towards more sustained rates of growth. "It is not always easy for us to take in the realities of the crisis", he added. "We in Europe have now reached the point where we can no longer continue to fund our social security systems, if we fail to do what is needed for restoring us to faster growth. We alone in the world enjoy the privilege of being able, when we are sick and regardless of class, to claim free treatment in a hospital that is clean and well equipped. This epitomises the Welfare State and the social progress being achieved on the social security front, which again we alone possess.

"There is one type of suffering that really hits the man in the street: it is when the hospital that was free starts charging fees, the hospital that was spotless begins to let its standards drop, the hospital that was well equipped lacks the cash to obtain the latest hardware.

'"That I think is what is threatening us: the only way to avoid it is to face the suffering that lurks ahead full on, because, quite simply, we are going to have to dismantle our social sec­ urity systems if we do not grasp the "In the United States, 20 years ago, there were 73 million people in nettle". employment. This year, the figure is 105 million. The United States have manufactured 32 million jobs. . . and do you know how many jobs we in The same blindness seems to exist Europe have manufactured, in that time?" asks Michel Albert, in a speech over the problem of profit/wage straight from the shoulder "Very well. .. in 1963 we were at 105 million jobs, ratios in industry. There is, Mr. Al­ and this year we are at 104 million. We have manufactured minus one million bert went on to point out, a stark jobs. Europe has for 20 years been a Sahara for jobs, and America is now a contrast between the Japanese and California for jobs!" the European models. Europe has "sacrificed" company profits by try­ temporary solution. It has now be­ an invisible but relentless path and ing to preserve employees' purchas­ come a problem, as shown by the results not only in an increasing ing power at all costs. In the major level of public and private debt, and burden of taxes on those in work corporations at least, the Japanese one which will have to be resolved (with, incidentally, the risk of dis­ have tried to defend both jobs and urgently since it is automatically couraging them) but also contri­ profits. "And how was the adjust­ self-intensifying. butes to the mechanical and ment made? Through wages, psychological strangling of its very through earnings and, especially, "This is the case as far as taxes and foundations - the productive force through reducing or even eliminat­ compulsory contributions are con­ itself." ing the bonus. This model goes a cerned, which continue to increase long way towards explaining why, in as if according to some sort of gen­ Nor, according to Mr. Albert, are the the face of the crisis, Japanese com­ etic code in the demography of problems going to be magically sol­ panies were able to sharpen their Europe, an ageing society in which, ved by Europe benefitting from a competitive edge on the basis of as a result, the cost of unemploy­ rekindling of the US economy. As he social consensus, with job security ment, health and retirement as well remarked at the symposium: "it is a never far out of the picture. as social consumption tend to in­ mistake to say that the crisis is over; crease at a particularly rapid rate. that the American economy has "And, after that, what of the Ameri­ been picking up for a year, that can model? To state the extreme "Over the last ten years or so taxes Europe always lags a little behind case, I would say that the chief and social security contributions America; that recovery in Europe is feature of the American model is have increased seven times faster therefore on the way, and that the defence of corporate profits and the in terms of relative value in the EEC crisis is at an end. Our memories manipulation of employment to that than in the USA. often have such an in-built reflex, end. There is massive job instability but they are wrong. I believe that, for in the United States, quite clearly, "Under these conditions European the first time since the second world but there are also certain wage ad­ countries can, today, no longer con­ war, we in Europe are set firmly on a justments going on that have served tinue to finance, at the same rate as low line of growth .. . even if, as we productivity in better stead than in in the past, a system which follows should hope, America is moving Europe".

22 Downward spiral to poverty

Cut wage costs, review social securi­ ty benefits . . . and at the same time try to achieve a social climate more conducive to dealing flexibly with industrial change? "What we shall eventually arrive at, if we generally go along with the proposals for the 'future' that are set out in the various reports", said Georges Debunne, Chairman of the European Trade Union Confedera­ tion, "is Korean' wage levels and old wives' remedies to save us from our ills.

"I do not think this was the slant that Mr. Albert wanted to put on it, but we must be careful. If we want to create a social climate in which investment can flourish, it is dangerous to talk in the terms we have just been hearing.

"Investing in Europe's future means something more than simply ploughing capital into private or even public undertakings. Europe first: at ETUC, we see the need quite clearly, and have gone so far as to say so to all governments. We can neither get out of the crisis nor retrieve the situation in this part of the world until, acting as one, we get on with the real business of building Europe.

"But Europe's future is also about all those 200 million or more men and' Cut working hours? This, according to Georges Debunne, Chairman of the women who need a decent income, European Trade Union Confederation, is one of the key solutions to that is a job, and social security unemployment. "It is not only a way of sharing the work between everyone ", arrangements to get on with living. I he said. "A sizeable reduction in working hours can change attitudes of believe, if we want to strike a spark mind, change society by bringing it closer to happiness and the quality of of enthusiasm, to stir hope in the life". hearts of our youth, that it is vital for us to get our act together. Private initiative and private investment will be placed in competent hands. So­ Economic Recovery, stressed that not in themselves provide all we cial realities must also come into the Europe needed to mobilise public need to meet the basic requirements reckoning, and what we are looking opinion. "Returning to an invest­ of the people. for is genuine dialogue and discus­ ment policy that works for the Com­ sion on the introduction of technolo­ munity also calls for the existence of "Like it or not, restrictive policies gy, precisely to pave the way for consensus ", he maintained. "We are lead us to the edge of the abyss. It is future progress". well aware that any fresh lease of the downward spiral to poverty, economic life in our countries will which is about as far removed from be achieved through measures of a climate of investment as you can European Parliament views various kinds - legislative, financial, get. I am sorry to say this, but the monetary and budgetary - but also more you chip away at wage costs, through the actual mobilisation of Georges Debunne evoked several the more you unabashedly whittle the people through clearly-stated times in his speech the question of down social security benefits, the objectives. In that respect, the Parli­ democratic influence in choice of greater the risk you run of vitiating ament obviously has a vital part to economic policies. The next two the social climate we are all trying to play." speakers were both from the Euro­ achieve. pean Parliament. One area where the Parliament is "The unions", continued Mr. Debun­ convinced progress should be made ne, "are not in the least, as some Jacques Moreau, Chairman of the is in the strengthening of the Euro­ parties claim, opposed to the princi­ Committee on Economic and pean Monetary System. "Such has ple of introducing technology, but Monetary Affairs and Chairman of been the frequency of monetary we do say that the technology must the Special Committee on European readjustments in the last two years

23 that we have come to fear the degen­ acknowledgement of the much- mount need for investment. What eration of the European Monetary widened public and private role of the Member States have therefore to System into little more than an office the ECU and its status as both do is keep recourse to safeguard for recording monetary fluctuations specie and reserve currency." clauses and exchange controls to an rather than see its emergence as absolute minimum and try to that instrument for stability and that Mr. Moreau argued for closer integ­ achieve progress towards devising a focal point for a monetary identity ration of the European financial net­ system for interconnecting the exist­ that we are all seeking. work. "We shall not manage to re­ ing stock exchanges". kindle investment in the Community "This is why we are all hammering until we achieve a far greater degree home the message that consolida­ of financial integration. At the pre­ Lady Elles, Vice-President of the tion of the European Monetary Sys­ sent time, the Member States are European Parliament, deputising for tem should be achieved quickly and conducting two thirds of their finan­ Piet Dankert, President, said that that we move into the so-called non- cial operations externally, outside stepping up investment was not suf­ institutional phase of consolidation the Community's own financial sys­ ficient as an objective. "Investment which, without embarking on the tem, chiefly on the Eurocredit mar­ on its own can be like planting a creation of a European Monetary ket. There are too many spurious rose in the desert. If investment is to Fund with all manner of functions obstacles to the free circulation of bring the prosperity we desire for ascribed to it, would at least offer capital, notwithstanding the para- our people we must create a new climate, remove the rigidities which are strangling the efficiency of our "We are not only concerned with highly expensive programmes. " says Lady economic efforts, above all create a Elles, Vice-President of the European Parliament. "Parliament declared 1983 climate of confidence and security the year of Small and Medium Business Enterprises-businesses in which so in which people will be willing to risk many of the population are involved. And we have welcomed the EIB s policy their capital, their efforts." of global loans for the financing of small businesses through national clearing banks. " A prime example of suffocating rigidities lies in non-tariff barriers, she said. "What has happened to the Common Market to which we are all said to belong? As the years go by, the non-tariff barriers do not disap­ ^Êmf.*'^'^:y. pear. They increase, for instance by varying national standards every time some new product or tech­ nological advance is made. We need a firm decision from the Court of Justice to be formally implemented by the Commission. It is estimated that European companies, to send their products across the internal borders of the Community, spend an annual 12 billion ECUs, covering administrative costs, customs, lor­ ries' waiting time (this alone is ab­ out 1 billion ECUs)."

Small firms wanting to link up with similar businesses in another Member State need a positive framework in which to operate. "The restrictions placed on businesses, on services, on credit institutions, on the professions are all by their rigidity impeding the natural de­ velopment of the European economy - and if States refuse to open their doors then other means must be found, such as a European Company Statute to step over these thresholds." While supporting stronger emphasis on research and development, mass public investment in this field and removal of duplication would not on their own close the Europe-Japan gap. "Some duplication is no bad thing, in any case, as it creates competi­ tion, and it is essential for private 24 investment to be involved; for the route to the restoration of growth, talking abstract economic theory. selection of the area of research, genuine growth creating real jobs". Once a deficit has plunged beyond a there is nothing to replace individual certain level, it is control of the judgement when there is risk of loss. One change of fundamental import­ budget, pure and simple, that be­ A further essential element I believe ance is the taming of the budget, the comes the issue", said Mr. Ortoli. for a successful research and de­ weighting of which, social security This is turn raises a question of velopment programme is to have an payments included, has risen from credibility. objective other than 'catching up' on 30-33% to 50-51% in 20 years, and '"If, in a world where attitudes and the Japanese. Among the reasons by 15% in the last 10 years alone. for the success of American com­ behaviour play such a role, you fail panies has been the procurement to put across the message that you policy for NASA and the Pentagon, "The scope for surmounting our dif­ buck trends where they look too so creating the competitive stimulus ficulties, that is to do business and dangerous, you are depriving your­ to creative and innovative effort. create wealth, which is the crux of self of a valuable weapon. Then Parliament has only recently the problem, has been squeezed by again there is the question of com­ adopted a resolution for a Commun­ the swelling mass of non-productive petition on the financial markets bet­ ity arms procurement policy - to public expenditure". ween the needs of the authorities implement such a policy would cre­ and those of entrepreneurs, and the ate some of the necessary stimulus." Such are the budget deficits in some effects this has in pushing up inter­ countries that, "we are no longer est rates".

European inertia on the investment front? Mr. François-Xavier Ortoli, Vice- Roll back the limits to growth President of the Commission of the European Communities, took the floor "Europe has perhaps advanced less, reacted less, because she has been Twenty-five main speakers. Dozens more divided: I myself am firmly convinced of that. But I am sure also it has of other participants. An 80 000- been because she has been more immobile, because the system is ossified, word book on investment as the and because also she is dependent on a factor that none of us could forget: basis for discussion... François- nobody in any of our countries could allow themselves the luxury of the Xavier Ortoli, Vice-President of the balance of payments deficit that the United States is currently running. We Commission of the European Com­ would be obliged to change our policy. This is something that underlines the munities and Member responsible fact that all in this world are not subject to the same constraints: it depends for Economic and Financial Affairs, whether you have a world currency or if you are in a dependent position in and Credit and Investments, was monetary matters, as is still the case with us. " asked to draw together the contribu­ tions into an overview of the whole symposium.

"We have a structural transforma­ tion to carry out", he said, "and we have to finance it; we have to put money into boosting our ability to compete with our partners on equal terms; we have to finance our economic environment, by which I mean all those commodities that industry requires; we have, quite simply, to roll back the limits to growth in our countries". To do this, continued Mr. Ortoli, requires motivation springing from a sense of the urgency of achieving consensus on the need to invest. "One of the things that a symposium like this can help to highlight is this collective need. What we fail to underscore sufficiently is that with­ out the sort of changes we have to pursue, through restructuring and the pursuit of sharper competitive­ ness and modernisation, there can be no solution to the problems of employment. "When we call for all manner of sacrifices and when we expound our austerity measures with all the changes they involve, including changes of attitude, the most po­ tent argument we can produce in our favour is that this is our only

25 At the same time, observed Mr. Or­ Reiterating a point made by several tionism within our market: all this toli, the structure of budgets has to of the symposium speakers, Mr. Or­ we owe to our imperfect European be changed. "That change must in toli stressed that one of the major Monetary System, even though, to particular make for a return to de­ ways open to Europe for moving my way of thinking, it has too many velopmental investment, i.e. the sort towards durable recovery is to foster parity adjustments. I would therefore of investment that accords with a the achievement of a zone of greater say that we should not underrate policy of creating wealth. These in­ stability as a means of pursuing the what the System has achieved or the vestments do not, in some cases, convergence of economies in the importance of strengthening it, not strictly merit being so described, in EEC. least through the accession of the the legal sense of the word. They United Kingdom." involve the channelling of funds into "In that connection, we should have Another European avenue: bringing an improved fiscal framework, mak­ it clear in our minds that the Euro­ the common market into full being. ing for an improved economy as pean Monetary System has been "This is to exploit our continental such. Also, there is development- far more of a success than we dimension. It is basically a question linked investment, much of which is might imagine, because of the sheer of providing ourselves with an in­ aimed at easing the lot of industry weight it has put behind converg­ strument for industry that best fits and services. This is something that ence at policy level. In our countries, the purpose, the better to compete needs to be expanded, yet in fact it with varying degrees of success, we and so to win. That is what comple­ has been declining at the very time have now developed something of a tion of the market means. It is not a when, in both absolute and relative common framework, the same ap­ matter of rules and regulations, or terms, the proportional role of proach to interpretation and diag­ some sort of economic magic: it is budgets has been increasing." nosis and we have contained protec- a hard fact, to be taken into account in both the management of com­ Pierre Werner, Luxembourg's Prime Minister and Governor of the EIB for a panies and their development. It is total 22 years, was a guest of honour, whose depth of experience and economies of scale, with all that they authority on European financial affairs has been of great benefit to the EIB. entail, and it is a matter of getting Winding up the symposium, he spoke of the need for stronger European the authorities in Europe, in their cooperation and the need to "invest politically" in the Community, as well as handling of the domestic market, to financially. work as European authorities, and not as national ones. We tend, when talking of the market, to slip all-too- easily into forgetting that a whole chunk of the organisational side is left basically in the hands of States as administrators or as clients. To transpose our regulations, stan­ dards, clientèle, new technology, promotional activity, research and training to the European level, to such an extent as might be neces­ sary, is to give ourselves an extra something. To put it another way, there is more to Europe than its stern face and all those virtuous qualities from which wider develop­ ment should spring: what there is also is that element of physical stimulus that will work through what is being proposed, viz. the comple­ tion ofihe market".

Mr. Ortoli made much in his speech of the Community's borrowing poli­ cy, that is the raising of resources on the market in the name of the EIB, the EEC, the ECSC and Euratom, as a means of sustaining investment. This policy, he said, had been de­ veloped rapidly, "but we did not want to move too quickly, because our signature is worth a great deal and must continue that way". As regards the wisdom of going to the market under a number of ban­ ners, he was circumspect: "I believe we should not go any further al­ though diversification has been use­ ful, because it has enabled Europe as a financial entity, to cover a wider field. 26 "We have, strictly and systematical­ ly, organised cooperation between "We should avoid blaming those outside the Community for our the Bank, the strongest agency, difficulties. Rather we should look to ourselves for solutions. If the whose role in this area is central, world has become more interdependent, if other nations have become and the Community in the broader more competitive, that should be welcomed, for it is part of progress. sense, as regards both borrowing The European nations have a history of being more internationalist in (coordination of timing and policies) outlook than any other part of the world. Building on our traditions, we and lending, where most operations ought to be able to take advantage of the opportunities that national are managed by the Bank. We have and international economic change provides." thus avoided the folly of setting up a H. Onno Ruding second bank. The way to future de­ velopment lies open, and the pattern "Investing in Europe's future is precisely the opposite to what the looks like being threefold: - Community has been doing for the past ten years. Instead of investing in Europe's future, we have largely been squandering her birth­ "The first bias should be more and right.We have been throwing away company profits, digging into more towards development, adapt­ capital funds. In the face of the crisis, Europe has been behaving like ing our instruments more and more an old lady who has been used to living well and who suddenly finds towards the needs of economic re­ herself in distress, hard up, and has to sell her jewels. Why have we newal we are hoping to stimulate. done it? To keep what we have, to maintain the purchasing power of The entire object of the exercise is to those who are in', those who have their place in the system, those make what gains we can on the side who have a job, and leave those who do not have a job on the outside." of competitiveness and modernisa­ Michel Albert tion. This must be a Community priority. "The Treaty of Rome was drafted in a different period and was aimed at promoting competition within Europe, whereas now we need to "Secondly, we must cater for de­ promote our competitiveness oufs/de Europe." mand that is not wholly satisfied. Guido Carli Needs in many quarters are met: the money is there, and the companies "We cannot and we will not live with the cancer of unemployment have no need of us. But this is not because, in the end, it kills what we hold dearest: democracy". the story everywhere: small and Georges Debunne medium-sized enterprises are often the last in line and find themselves "We are faced with what I believe to be psychological defects, due hard put to raise financing. Hence possibly to the failure of politicians and other leaders of our Commun­ the importance that attaches to de­ ity to give encouragement rather than sympathy, to give stimulus veloping the global loans that the rather than repression." Bank and we ourselves have insti­ Lady Elles tuted and the very important - and "Europe could miss out on the third industrial revolution, even though increasing - part that this sort of the first two came into being on our soil." financing operation is playing. Then Jacques Moreau again, we have the question of grea­ ter-risk areas, especially innova­ "It is difficult to escape the conclusion that the path of future world tion, and all the problems attaching economic growth has been fundamentally altered. One must ask to them, where again a response whether Europe will any longer be able - at least to the same extent as from us would be appropriate. earlier - to look to foreign markets and exports as the mainspring of expansion and investment. Whether by force or by design, it may be "Lastly, we must complete Europe's necessary to change tack somewhat, so that European markets major infrastructure. In our coun­ themselves come to provide for a larger proportion of growth and tries, when we speak of infrastruc­ employment." ture, we look at our own territory. Warren McCIam This is an area in which we have yet to learn to look at the map of Europe "If Europe entered the Seventies as the world's second industrial - Europe, indeed, in the world con­ power, she came out of them in third position. The challenge of the text. I am quite sure that we have in coming decade is to keep up with the leaders." reserve economic development pro­ Luigi Arcuti jects that have yet to be im­ plemented : projects that will cement "The completion of the "common market' is a basic consideration for Europe's unity and create more progress. But I sometimes have the impression that we are more work, the benefits of which will be imaginative in finding obstacles than we are successful in harmonis­ felt both by companies and in ing "norms'." economic life generally. I am quite Frans Andriessen sure that what we have to have is an agreed programme for European in­ "Change is not just technological; it is legislative, financial; it resides frastructure of common interest. in behaviour and attitudes. There is no longer any secrecy about The case for including any one pro­ policy. Europe knows what it must do, and the greatest thing it has ject for economic reasons will of going for it is perhaps this awareness. It is a question of getting off the course always be open to debate - mark and striking the right pace. We must achieve sufficient change, the Channel Tunnel springs to mind achieve it everywhere, and achieve it swiftly. That is the root problem, no longer diagnosis." - but what I think we have here is a François-Xavier Ortoli whole field of action we have neg­ lected". 27 the first ten or fifteen years of the most institutions on the world Invest politically in Europe Community, how all industrialists scene. We salute the Bank for its would plan with an eye to that ex­ impressive performance over the tended market, assuming it to be as last 25 years. The closing words to the symposium good as achieved, with all subsisting were spoken by Pierre Werner, barriers between our economies re­ ""A jubilee is a time for looking back, Prime Minister of Luxembourg, Gov­ moved. but not only that: the Bank con­ ernor of the EIB for a total 22 years, tinues as well to look ahead". who was on the Board in 1958, at the "Alas, since the economic crisis set beginning of the European Econo­ in, we have to admit that this, what I mic Community and the Bank. call sense of the European dimen­ sion, has been lost by our industrial­ He contrasted the hopes of the Com­ ists, economists and agriculturalists. munity's "founding fathers" with the EIB-INFORMATION Is published pe­ What we are seeing more and more "anxiety for Europe's present posi­ riodically by the European Invest­ is a kind of recompartmentalisation ment Bank In seven different tion in the world" and "the serious of markets and production. languages (Danish, Dutch, English, worries for the Community's future". French, German, Greek and Italian). "Set against these unfulfilled hopes, Material which appears in EIB- It was a question, he said, of Govern­ INFORMATION may be freely repro­ this symposium is a promising step, ments mustering political will to duced; an acknowledgement would both as an act of faith in the future be appreciated and also a clipping of overcome difficulties, of "investing and in terms of the way it originated. any article published. politically" in Europe, not just finan­ 100, bd Konrad Adenauer cially, and of facing up to realities. L-2950 Luxembourg "It originated in the commemoration tel. 4379-1 - telex 3530 bnkeu lu "This facing up to the realities of of the 25th Anniversary of the Euro­ telecopier 43 77 04 investment in Europe is a broad pean Investment Bank, and I should Department for Italy: enough concept to take in a whole just like here to acknowledge the Via Sardegna. 38 - 1-00187 Rome spectrum of things. It does not only prescience of of the Community's tel. 49 79 41 - telex 611130 bankeu i telecopier 474 58 77 mean capital equipment for industry founding fathers who, at the very and agriculture, the development of outset, instituted the European In­ Representative Office in Brussels: vestment Bank and set its aims. Rue de la Loi 227 modern processes and innovation. B-1040 Brussels Investing in Europe also means in­ These we can still stress, still see to tel. 230 98 90 - telex 21721 bankeu b vesting intellectually in Europe. be valid, still accept as a programme telecopier: 230 58 27 for the future. Liaison Office "What we must realise is that, for for the United Kingdom: some years past - as much, I would 23, Oueen Anne's Gate, Westminster "Over the years, this institution has London SWIH 9BU say, as a decade - this intellectual developed admirably and is now in a tel. 222 2933 investment in Europe has been on position to do great things, not only telex 919159 bankeu g the wane. Not the least part of facing extending and strengthening the Telecopier 222 2936 facts is taking stock of the oppor­ alignment of policies within the tunities that may be offered by a Community but also taking its action market opened out to its ten/twelve beyond the Community, having now Printed in Luxembourg by éditpress countries. I well remember, during earned its place as one of the fore­ luxembourg, 44, r. du canal, Esch/Alzette

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