Indeed, UNICE was reducing forecasts for economic growth in the European Union (EU) -- even as the document went to press. Representing more than 16 million small, medium-sized and large European companies that employ over 106 million people, UNICE's members are 35 central industrial and employer federations from 28 countries.

 

When the data was accumulated for this quarterly survey in February, European business expected growth for 2003 to be a mere 1.2 percent in the Eurozone (1.4 percent for the EU-15 countries), rising to 2.2 percent for 2004. This is down from the forecast just six months earlier, which predicted 2.1 percent growth for 2003.

 

"I wish I could say that our view of the economy was positive," said Jean-Paul Betbéze, chairman of UNICE's Economic and Financial Affairs Committee, in a press release. "But, the overall picture is one of stagnation, with GDP growth forecasts revised downwards in every country of the Union," added Betbéze, who is Group Chief Economist for the Credit Lyonnais Group. (Read the interview in the sidebar, page 51.)

 

The UNICE business climate index is unremittingly grim as European business -- still confronted with an uncertain economic future -- is forcing companies to further postpone investments. Also, businesses in most member states are trying to cut costs as they struggle with volatile oil prices and high labor costs. Access to finance is becoming increasingly difficult, and export-driven sectors must adapt to a weaker U.S. dollar. Short-term uncertainty has been heightened by the geopolitical environment, as well as growing concern about global economic fragility.

 

And, while many woes are global in nature, the report indicates many "home-grown" issues that require effective action in EU member states. Despite the short-term challenges, UNICE does not see the longer-term situation as hopeless. To turn it around, however, it states: "There is an urgent need for EU governments to demonstrate political will and carry through reforms to tackle underlying economic weaknesses."

 

The real problems of the European economic environment, the report continues, "lie deeper, as unemployment, reform inertia and fiscal uncertainties play a more important part in keeping European domestic demand paralyzed than geopolitical uncertainties." Indeed, the countries are reminded that growth does not depend on external factors, and that Europe must finally tackle its own underlying weaknesses, which, in recent years, have translated into low productivity growth and high unemployment rates.

 

Adjustments Urged
The report urges labor, government and policy-makers to make adjustments: "If labor markets are not freed from their historical burdens, they will not be able to adapt to the fast-changing economic environment of today. If governments do not create certainty about the future of public finances, people will continue to expect tax rises and take them into account in their present hesitant spending decisions. If policy-makers do not finally pave the way for more open, innovative and technology-oriented markets, the EU will permanently lose its place among the top-performing economies of the world."

 

UNICE President Georges Jacobs said that in order to restore Europe's competitiveness, member states need to "renew the political commitments made in Lisbon and finally come to grips with market rigidities and structural imbalances."

 

Finally, Europe is urged to fix its structural problems and "regain a vision of growth." The complete UNICE Economic Outlook Spring 2003 is available at www.unice.be.

 

"Gray, and more gray than before," is the way Jean-Paul Betbéze, chairman of UNICE Economic and Financial Affairs Committee, describes the current state of the European economy.

 

"We did not have the [Internet] bubble effect, Sept. 11 and the Enron effect, but, as a whole, our economy is suffering more than the American economy." While Betbéze, who is Group Chief Economist for the Credit Lyonnais Group, acknowledges the European Union's 15-member countries' difficulties, he firmly argues that it doesn't have to remain that way -- as long as they understand the current situation, follow the rules, do their jobs and have patience.

 

Broadly speaking, he says two parallel strategies are needed: one for labor and a second for companies. Both, he says, need to become more reactive and more efficient. He believes the current problems are due to a lack of central reforms and the "lack of global will to use the Lisbon process." ("Lisbon" refers to the series of ideas agreed upon and signed off on by the 15 European heads of states at the Lisbon Summit, held in 2000 to construct central and social reforms to ensure an efficient and competitive European economy.)

 

Without central reforms, Betbéze argues, there will be difficulties on the budgetary side and the monetary side -- a big cause of the current stymied growth. And, it won't be a short-term solution or a quick fix, he warns.

 

The Lisbon process is a vision of growth, says Betbéze, the goal of which was to turn Europe into "the most competitive, dynamic knowledge-based economy in the world by the year 2010." It was launched as a 10-year program to spark more competition, based on extensive use of the knowledge economy.

 

The ideas were designed globally, by leveraging the New Economy for a variety of structural changes, such as privatizing gas and electricity to make energy cheaper and enabling extensive use of the Internet. There were both "global" ideas, common to all member states, and "specific" tasks for individual members.

 

Then, at interim meeting times, each country is to report to the group on its specific achievements and difficulties. Each would discuss where they were making progress and where they were lagging.

Now, however, Betbéze laments, "We are all lagging. And, we are lacking the impetus and political will necessary to achieve the medium- to longer-term objectives." The U.S. has suffered too, he says, but its system revolves around a reactive, resilient economy that can overcome significant blows. So, although the U.S. had the bubble, Sept. 11 and Enron, it ended last year with 2.4 percent growth and 6 percent unemployment. "We did not have those three things -- and we had 0.8 percent growth, plus a budget deficit," Betbéze says. He expects real progress from the Lisbon process to extend well past the planned 10 years to, perhaps, an additional 10 years.

 

Does Europe view the U.S. as a role model for economic growth? Betbéze responds with a resounding, "No." The U.S., from the European perspective, is a different model," he says. "The U.S. system is very clear. The idea is growth, and the markets are more efficient, quicker, more reactive -- it's an entity that has been working for years and years. People speak the same language and [follow] basically the same rules. It's an economy."

 

Europe's Challenge
Today's Europe, Betbéze explains, is still a fragmented economy that just began about 15 years ago with the Common Market, and its currency, the euro -- launched on Jan. 1, 1999 -- is now only four years old. Europe has many languages, values and resistances to a common level playing field. "Of course, we want to speed up the process and have a unified process -- but we have to do it with our own history, and our own rules." Indeed, he says it's a rules-based system consisting of "pillars," as successively defined in the Treaty on European Union of both Maastricht and Amsterdam. UNICE advocates an economic policy based on four pillars: 1) encouraging entrepreneurship; 2) creating space for business; 3) improving labor market flexibility; and 4) promoting a balanced sustainable development policy.

 

Amidst Europe's "gray" outlook, does he glean anything that is, say, rosy? "It's not so bad to realize you have to do your job," Betbéze says. Indeed, he's not expecting outside help to simplify Europe's job. "If there is some recovery in the U.S., it will help, but the job has to be done here," he asserts.

 

On the plus side, he says, "What is nice in Europe is that we have two things: human capital and savings. What would be nicer would be to invest a bit of our savings to increase our human capital."

In this respect, he describes the U.S. trait -- as spenders/investors -- as something perhaps Europe could learn from. "We are big savers, and maybe too much," he opines, suggesting that perhaps his peers could learn to spend a bit more -- to "invest and dare a bit more" at home, rather than sending it to the U.S.

 

Getting the economy growing again, Betbéze says, is not theoretically impossible. "It is growing," he adds, but at a slow pace. "So, it's not that gray; it's called maturity. What we're saying in any country is, 'Please do your job -- and the sooner the better.'"

 

ELLEN M. HEFFES is the editorial director of Financial Executive.

 

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