01 Aug 2012
There is a tendency for people outside of Europe to see the continent as a sort of giant museum. For the past three years, stories of the “BRICs’” (Brazil, Russia, India and China) stunningly high growth and the perennial euro crisis have done a good deal of damage to the “Old Continent’s” image. Somehow Europe’s old economic selling points – half-a-billion consumers, home of 150 Fortune 500 companies, a highly-educated and skilled workforce – have lost their potency.
But businesses and investors would be mistaken to overlook Europe. For all the growth in emerging markets, the European Union’s nominal GDP (which is what matters most in terms of international buying power and trade) remains at $17.8 trillion well ahead of the United States’ $15.1 trillion and still over double China’s $7.3 trillion.
Beyond that, Europe’s unique model of growth guarantees that it will remain a fundamental pillar of the world economy.
While hundreds of millions of people have been economically emancipated in the US through immigration and in China by way of migration to the cities, Europe’s unique method of integration, trade, aid and enlargement has lifted entire nations out of poverty with substantially less social upheaval.
As a recent World Bank report highlights, this began first with 100 million or so people in southern Europe and is currently continuing with another 100 million in the EU’s new central and eastern countries. The report notes that no other region of the world has been able to come up with anything quite like it.
This pattern is continuing. Europe’s entire neighbourhood is engaged in the race for growth, much of it with great success. For example Turkey, which is in a customs union with the EU, having no barriers or extra tariffs on many goods moving between it and the EU, is the world’s fifteenth-biggest economy and enjoyed 9% growth in 2010. Russia, another country rapidly converging with Western standards of living, while not wanting to be an EU member, has expressed interest with a vast free trade area “from Lisbon to Vladivostok”.
This kind of integration and free trade initiatives between the EU and its neighbours is inevitable. The bloc is systematically the number one trading partner, often representing almost half of trade, making the guarantee of free movement of goods and capital a top priority. As the countries of the Middle East, North Africa and Eurasia converge with the West, many of them will have as their priority the European market.
It goes without saying that this will be very beneficial to European companies. Firms that can achieve predominance in the European market will not only benefit from its 500 million consumers, but they will be poised to expand to the huge and increasingly wealthy markets on the periphery. They will access not merely a nation but a great, expanding trade area whose commerce dominates the western half of Eurasia. Whatever Europe’s troubles today, and there are many to be resolved, there can still be many sound long-term investment opportunities in its area.
While not wishing to under-estimate the black cloud that is represented by the gravity of the ongoing Euro crisis, it has a silver lining in it because it is forcing disparate and until now irreconcilable economic and financial policy differences to be made compatible with each other. Sometimes, I wonder whether we will not look back at the present period in ten or twenty years as just one of severe growing pains, in which the foundations of a much more effective economic and monetary union were laid.
Vincenzo Morelli, Chair 2012-2013, EVCA
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