 Ladies and gentlemen, thank you very much for coming today. And thank the members of the panel in advance for what I'm sure will be a riveting conversation. Those of you who've opened your newspapers today. In fact, in the last few days, the question that we're asking this panel is one that has been very high on the minds of business types, economists, politicians, not simply here in Europe, but around the world. Is Europe back? And as an editor of an international magazine, I have to say that I've gotten quite tired after several years of doom and gloom with regards to Europe's economy. It's refreshing at least to have the conversation about the possibility that things are better than they seemed likely to be. I'll do a quick round of introductions of the panel. They scarcely need introduction in front of this audience. And then thereafter, I will invite everybody here to speak to the question at hand for a few minutes, and then we will swing into a conversational mode. 20 minutes from the end, I will take questions from the audience if you will identify yourself. And when the folks with the mics come to you, just say who you are and the organization to which you are affiliated and ask your question. Be as succinct as you can possibly be. My own contribution to keeping this conversation at a high intellectual level will be to speak as little as possible and allow the people with the real intellectual heft to do the speaking. Quick introductions. I'll start from the end there, Sir Martin Sorrell. On the left wing. On the left. Sir Martin Sorrell is chief executive of WPP. Next to him, Ken Rogoff from Harvard University. Giuseppe Recki from NE, Max Weber from UBS. And of course, a peer non-term format Accenture. These are just the very, very simplest introductions I could think of. Each of them has got many, many more arrows in their quiver. They are advisors to other companies. They are mentors to other business leaders. They are advisors to governments. We even have a former central banker amongst us. So this is a group that is uniquely qualified to address the question, is Europe back? So Martin, would you like to start with a couple of minutes? OK, so I become a striker. Not a, not a, OK. I think the answer is yes-ish. Meaning that Europe, I'm just looking here at our budgets for 2014, verse 2013, we see some revenue uplift, some significant profit uplift due to restructuring. Now, you say Europe, there are two Europe's to me. There's a Western Europe, and there's an Eastern Europe. I'm much more bullish about the Eastern Europe. I'm very bullish about, and I would include Germany in the Eastern, I think Europe is moving to the East as well as the rest of the world, as long to the South and South East as well, using New York as the epicenter. But I certainly am very bullish about Germany, Poland, and Russia in the longer term. If I look at Western Europe, the UK has obviously recovered. The IMF forecast in the last day or so gives Chancellor Osborne and David Cameron, I think, even more hope at the election in 2015. And remember, this is the year before the election, which is a critical one from the Conservative Party's point of view and the coalition. The bookends of Western Europe, Germany and the UK are doing well. Germany is certainly stable from our point of view to improving. The northern part of Europe, Scandinavia, has been doing better. But the three, that there are five principal economies all around two, two and a half, $3 trillion. And I've mentioned two, Germany and the UK. The other three, it's much more varied. And if you think about a U-shape, France, to my mind, is still on the downtown. Well, the PM may have a different view. We're talking a little bit of in the green room about what may or may be happening with President Hollande. But I think France still on the downstroke of the U. Italy bumping along, we'll have some more input on Italy, no doubt, bumping along the bottom. Spain on the upturn. But Spain on the upturn with unacceptably high levels of unemployment. You cannot, in the long term, have a situation where 50% of your youth are out of work. It's just untenable politically and socially. And I just leave it with one fact. If somebody is unemployed in the first three, four, five years of their career, their lifetime earnings depreciate or devalue very significantly. So the social implications of high unemployment are extremely critical. The big problem with Western Europe, if you're trying to run a business and we have 47,000 people, it's about $8 billion of our $18 billion of revenue and 47,000 people out of 170,000 here in Europe, Eastern Europe is about 7,000. So the preponderance are in Western Europe. The critical issue is lack of labor market flexibility. We were in Italy with the government a few days ago. We had 80 clients there at a conference with Emma Bernino. Letter came, the prime minister came, and we had six or seven cabinet ministers. When we asked the 80 clients, what is the critical issue that you face in Western Europe in terms of expansion? It was labor market and flexibility. So doing something about that, and President Hollande is obviously trying to do something about that now. Germany adjusted to it pretty much post-Laman. Doing something about that is critically important. Ken? Well, I don't think there's any question that Europe's become much more stable. People aren't talking about the Eurozone falling apart. And in fact, if I had to point at a single thing that underpins more optimistic scenario here and the global recovery, it's taking that out of the equation. It was hurting everyone. And I don't think it's a small political achievement. We've watched it in action, and I think Europe deserves credit for that. On the other hand, picking up something Martin said, the youth situation and the unemployment situation is really horrific. And here you have an aging society. Youth are really the scarce resource in Europe, and you're losing part of a whole generation. And it's particularly when you look at the periphery countries of Europe and how to strike that policy balance. Everyone understands Europe's been through really a very deep recession by the way I would measure it. They're still in the recession. Most European countries, only Germany of the countries that got hit with a systemic banking crisis, have come back to where they started in per capita GDP. I'm not talking about getting back to Trent, but just to where they started. And if you take the IMF forecast, at least from October, be another five years at least for a number of the countries. So yes, Europe is coming back, but you really can't talk about it being all the way back. There are many challenges in Europe. I couldn't even, you know, we could take a long time beyond the things like demographics. The US has an energy advantage. We can go on, the political challenges. I certainly think that debt overhang of public and private debt in the periphery is something which ought to get dealt with more aggressively through write downs, through other measures that eventually will happen. And I think it's really just political obstacles to that that it hasn't happened sooner. I think that you just can't leave the situation twisting in the wind for five more years. You don't know what'll happen. You know, China could have a slowdown. How would that hit German exports? How would that hit Europe? So I still see it as not fragile in the sense of falling apart, but definitely severely growth challenged. And a region that is really not taking care of its future in the sense of promoting its youth. Giuseppe, is Ken right? Is most of Europe still in recession in your mind? You know, as an infrastructure company, we tend to divide the world rather than develop and developing into three categories about their competitive advantage. The first one is countries that compete because they are human capital rich, so billions of people. Countries who compete because they are commodity or resources rich, so they sell gas, oil, or whatever is the commodity of the day. And countries that compete because they are technology rich. And Europe, of course, belongs to these third categories. So we are natural transformers of resources into technical or quality goods. And Italy is also champion for this. I'm saying this because I think the recovery of Europe is based only on the possibility that really becomes the best attractive place for a company to locate. We will be back if a manufacturer decides that Europe or even the individual nations are the best place to locate. And under this angle, I say that now nations compete as well as companies. There is no status quo in terms of competitive advantage. And the real differential is the governance, is the system of rules, is the easy of doing business. And I'm picking on Martin quotes, is exactly what entrepreneurs tell you about. And now you have, for example, in Italy, developed companies pretty mid to top size that are not really, I mean, outsourcing to cheap labor countries like Romania or China, they're rather outsourcing to Austria, to Switzerland because they're looking for stable environment, rule of law, and certainty of the capacity of assessing a business plan in the long term. So this is today the real differential. And depending how governance will address this will change the face. The second point I made is that in the competitive factors, energy is the determinant. So energy and labor, as I see it. And what happened in the United States because of the shale gas revolution really changed the competitive advantage of Europe compared to US. Now US has a cost of gas which is three times cheaper than Europe, which reflects into cost of energy which is two times cheaper. So the answer there is very tough because despite the debate there is no shale in Europe. And where there is shale, governments don't want to take the opportunity to. It's too much of a political cost except for UK which is actually very pragmatic pursuant. So energy will remain a differential for the long term. So we need to fight with the rest of the governance and it's kind of an open battlefield. Axel you said to me when we first spoke that when a central banker starts becoming optimistic we all need to worry. As a former central banker, how are you feeling? Well I think in characterizing my view and just in one sentence is the European recovery is no reason really to get excited. The optimism abounds, Eurozone is out of the recession, most indicators are improving, everyone expects the Eurozone to grow, so that's good. After several years of crisis it's also quite normal to look on the bright side of things and to get excited about improvements. However it may be a two one-sided view. If you actually look at the recovery it's lackluster, it's uneven across European countries, expected growth is just around 1%, mostly coming from core countries. This is not enough to close output gaps, it's not enough like Martin said to bring down unemployment in Europe which is a big challenge. So I'm really still concerned, the mood in financial markets may have improved but the economic situation in most European countries will not improve in this year. It's true that the tail risks have disappeared and that's I think a value in itself. However even if you take out the extreme negative tails, the distribution of risks in Europe is barely above zero and it's uncomfortably still skewed to the downside in Europe. So politics and monetary policy have in particular provided stabilisation and reduced risk in recent years. However I think there is a risk that there may be some risk again coming back this year. There are two risks in particular that Europe in my view needs to deal with this year. The first one is the European parliamentary election and the second one is the asset quality review by the central bank. The parliamentary election may result in more Eurosceptics gaining ground in European parliament. They might become a sizable force, decision processes in the EU will become more complicated and just think of the Tea Party in the US how that has complicated political decision making. We might see a similar sort of development in Europe, maybe not as strong but definitely a risk. Second, let's concentrate on the asset quality review for the bank. Financial markets are currently disregarding largely the risks lingering in financial markets still in particular in the periphery. But if you actually look what will be done, 130 banks will undergo a review of the assets in their balance sheets and they will be stress tested. The results are to be published in November and I think this may trigger a comeback of some of the concerns about banks and if banks' concerns do reemerge then risks about sovereigns will reemerge because it only can be the sovereigns that will fix the bank. I don't think the markets at this point will provide sufficient capital, at least not for the banks that are in doubt. So I think this is gonna be a key issue this year. It's gonna be an exam. The ECB made that pretty clear. But an exam where everyone passes is usually viewed as not being a credible exam. I can tell you that, I can can tell you that at universities there's a certain amount of students that don't pass in a credible test and I expect some of the banks not to pass this test. Despite the pressure from politics, some will not pass. And I think you really have to ask yourself what will happen there. I'm concerned that as that becomes clear there will be a potential market reaction in financial markets. And actually if you have 130 banks in a November date nothing is easier for financial markets to look at where will those banks stand post-November. And you can do that by basically looking at the stocks of a company. You can sell the losers and you can buy the winners up front. You can look at CDS, credit default swaps and you can actually look at sub-ordinated bonds which I think is one big issue that will come up. The Europeans have made it very clear whilst capital from taxpayers may not be the avenue chosen, bailing in bondholders in case you do need to work out a bank becomes an option. And if you're a bondholder with an increasing likelihood and a more transparent disclosure in November about you being bailed in I think we may see speculators not wait till November but start weeks earlier to actually bet on the winners and to sell the losers. And that will, in my view, put governments back in the game. It will increase the need for sovereigns to strengthen the balance sheets of their banks and therefore my conclusion on your question is things feel better in Europe. They feel better than they are. Europe is not yet back. Policy makers should not become complacent at this point in time. They should continue in their effort at structural reforms and fiscal consolidation. And they should really do the right things to lift growth in the long term. If you really look at an economy and let me finish on that, once you take away the short term stimulus from fiscal and monetary policy what will ultimately drive growth in Europe is technology, innovation and trade. Now on all of these fronts you really need to work in Europe because Europe is losing global market share. The emergence of China is putting Europe under threat and therefore Europe needs to do its homework to be a big player in the future unless it does that there is a risk that people are too complacent about the future. And that actually sets it up perfectly. You, Pierre, come from a country where the President is very much in the news for announcing, I should hasten to add, for announcing a very bold new initiative in reforms. Does that change your view of France's prospects and Europe's prospects in the year ahead? Yes, I mean to be clear I'm a French CEO of a non-French company. I'm delighted, proud to be French. I love my country, but I'm gonna try to be extremely cold blood on this and I have no information, extra information on our French President. Now being, I mean serious again and getting to your point, I mean violent agreement with my colleagues and peers here, I would more qualify the situation of Europe in recovery mode. I guess, I mean two years ago it was all around Europe gonna disappear, Eurozone gonna disappear and it's gonna be very bad. I think that was exaggerated at the time. We have debate on this. Europe is back, is exaggerated on the other front. I think we still, if you will, in the recovery and that's gonna be heavy lifting to get Europe back. And I mean Europe will be back when Europe will have the level of competitiveness required to compete in the new world. And we're not yet there. The level of competitiveness, probably outside Germany of course, and I would put Germany aside and maybe few other countries, but from the big economy aside, the other countries, they all have heavy lifting to do. Some are doing better, I'm thinking about the UK, I'm thinking about Spain, but they're doing better, but still, I mean strong fundamentals if you look at that, if you look at public deficit, if you look at the level of tax from the business or from a more individual standpoint, are still very high in all these countries. So everybody's working hard. The level of competitiveness of Europe is far too low to be a credible player in the new world as this world is shaping. Now of course situations are slightly different. I think definitely Germany is standing out. We know that and been standing out for years. Indeed, you can see good recovery and better situation in the UK, in Spain. Now the situation is still very difficult in Spain and you can see even Italy turning the corner. If you look and I welcome to France because I know it's, you know, everybody would like to hear about what's happening in France, but if you're looking from an accenture standpoint and we are working with many government and organization to help them transforming, things are getting better. So if we are a nearly indicator of how things are progressing, our business is Europe is better than last year at the same time. We have 60,000 people working in Europe in 22 countries, 12 billion. So it's 40% of accenture and UK is doing better, Italy is doing better, Belgium doing better, the Netherlands doing better, Germany doing well, France is back. So enough signal and from employee statement, we are planning to recruit an excess of 8,000 people in Europe compared to 6,000 at the same period last time, excluding the UK. I'm talking about continental Europe. So all of this is trending in the right direction. Now, everything is to be done and I would put France in the same category of recovery moving in the right direction clearly making some radical turn, if you will, from a policy standpoint. Now the question of France gonna be at what pace, speed and scale and impact of the reforms that will really bring back France in the right direction. So things are moving in the right direction. Now I'm questioning for Europe the pace of recovery and really the impact of the structural reforms that are required to improve the competitiveness of that part of the world, which is still far again except few countries including Germany far too low to compete on the global stage. Thank you. A great deal to chew on there from all of you and I'll, if I can come back to you some more. You made, I'm based in the US, so much of the conversation in the US over the last year as the economy has begun to turn there for the better has been about there being a jobless recovery that there would be economic growth again, but the jobs that went away would never come back and the statistics that you quoted, not just for Spain, but for Europe. It's one thing for the US with single digits unemployment to think in terms of a jobless recovery, but for Europe with double digits unemployment, 50% in countries like Spain, can Europe afford a jobless recovery? Well, just a couple of observations are picking up just what the questions you asked and also what my colleagues said on the panel. I mean, two things, one is that tail risks have not disappeared. I think the danger of Davos and Davos's forecasting record is not great. I mean, 2008, we were all sitting here saying everything in the garden is rosy, despite the fact we had the subprime and insurance monoline crisis, which already had erupted. And there are other good examples that the media are very quick to light on. So, tail risks are not, and Axel has pointed that out in relation to the asset evaluations. The second thing is, I think it's a G2 world and just coming out to Pierre's observations, if you think about capital allocation or resource allocation, you're trying to run a global company, where do you make the investments? So, let's say we have US as an opportunity, Western Europe, Eastern Europe, Asia, Latin America, Africa, Middle East. Now, I can say from WPP's point of view, and you've seen from our acquisition activity, that it is really in two areas. Firstly, fast growth markets, which are a third of our business, so the bricks and next 11, which is truly a next 11, because we have Iran here at Davos, thankfully, after many years of absence, bricks and next 11 and digital. Now, digital helps Europe, but the US is really interesting, because the US has two, as Ken knows full well, has two spectacular advantages. One is energy self-sufficiency, and the second thing is, technological developments in manufacturing, which will make America a much more competitive manufacturing economy. Now, for example, 3D printing. I went and bought in an Italian optometrist a pair of spectacle frames, designed by an Israeli architect called Ronorad. 3D printed one piece. Okay, one piece, not these glasses, but one piece. This is a forerunner. I mean, even in the car industry, I think we'll see very significant developments. Now, what does this mean? This means lack of labor input, because it reduces the labor input, increases the capital input, so the jobless recovery that we've already had gets exacerbated by this technological change, which is going to drive the US and China. And I do see it as being a G2 world, and picking up on what Axel and Pierre said, what's going to happen is that I think those will become the two dominant economies, unless Western Europe changes. And Axel said about technology and innovation and trade. Clearly, we have to be more aggressive if we want to see Western Europe. And picking up on Giuseppe said, UK is doing well, partly because it's an ideal location for companies. Time zone-wise, legal system, resources, education, all that sort of stuff plays very well. But is that sufficient? No, in my view. What it has to be, it has to have a more stronger technology base, innovation base, trade base for it not to become another Singapore in the sense of a location where people feel comfortable. So the US thing is really interesting, but the downside, and the thing, in addition to youth unemployment, we have to get our minds around, is the fact that technology is militating against greater labor inputs. And so trying to get that balance right, I think that's the critical issue. And that exacerbates the inequality issue. So two issues here at Davos, inequality, unemployment, they're linked. And they're going to get worse, rather than better. And the post-Layman-cheap money era have benefited the rich. If you look at, sorry to mention Forbes, on a time CNN program, but Forbes billionaire list, greater concentration, far greater than we've seen in 2008. So I think it's an opportunity, but also throws out big challenges for Western Europe. So if I can ask you, where do the unemployed young Italian women and men find jobs in the scenario that some aren't just painted for us? I think in Italy, like in every country, a strange situation where there is an imbalance between the jobs that are looked for, I mean, the offer and the man. So you basically have universities are producing about 46,000 students, graduate students for types of professionalism and knowledge which is not required by the market. And the market requires for about 42,000, so three, 4,000 less, of jobs which they can find, like engineers or manufacturers, experts of this stuff. So there is the unemployment that is growing while companies can find the people they want. And this is coming because probably our society got spoiled. My generation got spoiled thinking that when we were joining university, we could pick whatever we like because with the capacity of choosing the job we like the most. And so this is not there anymore and needs to be addressed. So the point is that everybody is speaking about reforms in every state. There is no investors' paradise, I think, every nation and its pros and cons. But they never happen. There is a general consensus to do reforms but the parliamentary forces don't really reform themselves. So now in Italy we have this particular situation where we have this very energetic new politician who is called Renzi who is really changing the scene, is moving very strongly and fast the status quo and is probably driving, so I want to watch what's happening there because it's probably driving a new momentum of a new age. And as soon as that happens, the effect is huge because then you get back entrepreneurs to believe to their success story and they can do. If you don't do that, the risk is that this unemployment, the people that just get out of university, they can't find a job for the first three, four, five years. They'll last forever because then when they're grown up to 28, 30, 32, they're too old for a company like us to be hired in their training time. So usually you hire a guy knowing he's not prepared and you're ready to pay for three, four, five years of internal training. It's tough to hire a 30 years old guy who didn't have a job experience before. So the next generation will take their seat and these guys will grow up without being ready for taking an opportunity. So it's a very crucial moment and I think Italy can be really a benchmark if things happens, are there promising to happen in the next months? Yeah, you wanted to say something. Yes, I mean, let me share with you quite openly what I'm scared about, what might happen in Europe because it happened in other parts of the world and I'm thinking about maybe the Japanese scenario. Let's call it that way. I mean, likelihood scenario in Europe might be economy growth around 1%. Structural unemployment, I single digit, 9 to 11 because at 1% economy growth, so below 1%, you're not creating jobs, I mean, that's what that is. So you will keep a structural unemployment at 11 but worse, youth unemployment staying around 25% because at 10% unemployment, youth unemployment would be in the range of 20 to 25. I'm not mentioning the 50% in Spain. Sovereign debt in the range of 100% GDP which means that the reimbursement of the debt will be, I mean, the first and the largest spending of each and every government, more than education and technology is gonna be around paying the interest of the debt which is happening in many countries currently. So when you're investing in your first budget in a government is reimbursing the interest of the debt and not investing in technology, in education and ERND then suddenly you have a kind of slow growth and that might be, I'm not sure that the worst case. I guess that might be the likelihood scenario if something is not happening to break that curse of low growth, high structural unemployment, lack of investment in the new, massive money to reimburse the debt and you're keeping the public deficit. If you have public deficit, you're raising the tax. If you're raising the tax, you're penalizing the growth. If you're penalizing the growth and you see. Cycle, yes. And you're in that, and today, this is where you up is. So your question is you're back, US is back. Exactly, with what you said, cheap energy, massive investment in innovation, higher productivity and suddenly you see gross. And labor market flexibility. Labor market flexibility, higher growth, labor unemployment, this is the kind of thing what's happening, Germany as well as demonstrating this cycle. There's a lot at stake and if clearly in the coming 12 to 24 months, there is not any radical step taken at the European and at the country level to break that circle, we might have not five years, not 10 years, but 20 years of kind of mediocre, sloggy situation, Europe will not disappear. With that, Europe will never die, but you will not be competing at the level you might be. Now, what's saving Europe? It's 25% of the global economy. So when you represent 25% of the global economy, you can still maintain your standard of living, not at the level where the standard of living is, but it's gonna be a kind of sloggy, slow kind of mediocre positioning where the potential of hundreds of million of people, still high education, good investment, many G2000 companies are in Europe. So the point is how you unleash that potential to that this potential is refrained with all sort of policies we can talk about, which frankly some decision has not been taken regarding policies on finance and capital, labor flexibility and labor costs, which is a massive issue in Europe compared to the rest of the world, maybe the number one issue and education, which starting to be an issue because you have a massive mismatch between jobs required in the business. In France, structurally, you have 300,000 jobs open that can be filled. Because the skill set does not exist. Because of skills? Nowhere in Europe. So the skill set does not just doesn't exist in France, but doesn't exist elsewhere in Europe? They might exist, but again, I mean Europe, which is another complexity compared to the US is not an integrated, I mean we're talking about a single market. It might be a single market on a highly fragmented, I mean you have 28 countries, 28 different policies on labor, on pension, on everything. So when you're a company like many of us, operating in 22 countries, we have 22 Accenture. We have one Accenture in the US, we have 22 or 28 Accenture in Europe, and the cost is enormous to run this. So there is some work that should be done at the European level to move to on 28 to something more looking like one, I don't know whether the UK will be part of it or not, my friend. Hopefully we will remain so in 2017. Well, it's important, I think what you just said, to take the US as a benchmark, because I think we probably all agree that the US is back. And if you take that, I usually look at five things and I ask myself, if you look at actually the crisis we're coming out of, our jobs back to where they were before the crisis is gross back to where it was before the crisis, is the level of GDP back to where it was, our market valuation stock markets back to where they were. And if you look on that on each of these fronts, the US scores 100%. If you look at Europe, the only country where stock market valuations are above pre-crisis peaks, the only one where GDP levels are above pre-crisis peaks, the only area where unemployment has fallen relative to pre-crisis levels is Germany. All other countries don't score on one, two, and some of them even on all of these indicators. So really the recovery in Europe has a lot of challenges still. Gross is too weak to generate the kind of jobs, so I wouldn't necessarily call it a jobless recovery. I would say it's a recovery that's too weak to generate the types of growth in jobs that we need to get out of this crisis. And whilst it might look great that Europe has taken the biggest swing of roughly 1.5% of GDP in terms of output last year versus this year probably, the levels at which Europe grows, it still feels like in a crisis because we're below peak before the crisis. And that's why many of the people in Europe will feel whilst things are improving, they're not actually better than I've seen in my past. And so that is not a driver of consumption, that's not a driver of growth. And Europe needs to work at that particular question, I think there's a lot of work to do, needs to be done by fiscal policy, needs to be done by policy makers in general, but the real issue really is it's not about the delta, it's not whether things are improving, it's the absolute level of where we stand now and we're way worse off than in the crisis, which I think drives the sentiment around Europe, and that's something to be overcome. I want to bring Ken on one question, to step aside from macroeconomics from just a second to talk about politics. I know we've spoken about this, you feel that Europe needs closer political integration and that some of these major questions, these major challenges that these gentlemen have laid out can only be addressed really if there is greater political unity. And yet, as Axel pointed out, the trend is towards greater Euroscepticism and we're seeing across the continent political movements that are gaining steam, rejecting so much of what Europe stands for. Will you talk us through a little bit of what you mean when you say you want to see more political unity within the realms of what is actually practically possible given the political realities of Europe? Well, if you hadn't added that last part, I'd have an easy time, but I think once they had taken this step to adopt the Euro, which I think is just a giant historic mistake, it was done too soon, I think a lot of things have to follow. We have a banking union coming in Europe, it's gonna have a common supervisor, it's not clear that it will have a common resolution mechanism, it's not clear at all that it'll ever have a common deposit guarantee. And I think even if you get there, which many Europeans I talked to think we could stop if we got there, we don't need to do anything more. I beg to disagree, I think that there's much more integration needed. I think that you do need some measure of fiscal union and even with just the banking union a greater measure of political legitimacy. If I could step back, I find myself in an awkward position, I'm an American on a panel with Europeans and over the past years, I'm always way more negative. They say, just listen, it's gonna be okay, we're not gonna fall apart and I agree with the very cogent remarks made here, but let me take the other side of this and point at some latent advantages Europe has. And I underscore the word latent because they are going to take policies to bring forth. One is obviously technology, I think is explosive and driving changes. Europe has a lot of advantages and aside from its high education levels, creativity, it has a rule of law and institutions that most of the emerging markets are many, many decades away from and anyone who runs a technology company knows that maintaining property rights is sort of absolutely a central issue. Another thing I would point to is that it's absolutely true that this, as Sir Martin said, that this technology changes are driving part of the inequality. There's no doubt about that. Labor share has been falling all over the world the last 25 years. It's remarkable, we have not seen that before and technology is a big driver of that and one of the ways, you know, the push backs that I think is going to have to be more progressive taxation, somehow we can debate the exact details. I mean, I think the European political system is light years ahead of where the United States is and trying to deal with these issues that I think everybody has to deal with. So, you know, I think there are, this is one of these things, I wasn't here maybe when the debate was at its height of Germany as the sick man of Europe and you sort of forget when you step back and look, yeah, well, you know, maybe things weren't so bad and maybe I think we have to have some balance here that Europe really has tremendous advantages that aren't going to go away overnight. That said, if these latent advantages are not realized like Rip Van Winkle, Europe could wake from the long Japan malaise slumber and find that it's become a lot smaller relative to the rest of the world, a lot less important and I think there are a lot of bad ramifications for Europe and for the whole world if that happens. I've had my signal to stop being so greedy and allowing other people to ask some questions. Can we start here, please? Kaspar Roster from German based Henkel. I have a question for Axel Weber on the politics. It seems like the French are learning from the Germans but it also seems like the Germans are learning from the French following the last election. How concerned are you with the initial decisions from the German government, redistribution of 23 billion, no investments in infrastructure, no investments in education, you know, pinching commitments about to 160 billion. How much burden can the German economy actually bear before it goes from 1.5% growth to zero? I wouldn't want to call it convergence because that would be a dangerous one. I think if you have convergence where everyone in Europe converges onto a middle ground, that's not a comfortable place to be in. Convergence should be to actually converge to the best performers. And as Ken reminded us, Germany wasn't always the best performer. We've been lagging at the start of this century. The first couple of years, Germany has been the sick man of Europe and it was only after the Schroeder reform of labor markets and product markets where Germany actually came back and we had a much more flexible labor market of course some of that I'm seeing now undone by the current coalition discussions and I'm quite concerned about it. Realigning the pension system sort of with the aging of European societies was an important step. Some of that gets undone. At least there is the shred of that. So I'm somewhat concerned and I'm based in Switzerland so I'm watching it across the border with some concern. But the real issue in Europe is Europe shouldn't be too preoccupied with itself because that leads to a benchmarking of European performers against others, Germany against France. That's not where the music played. It already came up. It again plays in the US and it increasingly plays in China and emerging markets. And if Europeans want to benchmark their performance to a world performance, they have to be competitive with the Vietnam's and with all of these new countries that have emerged over the time with China and bench their global production towards the target markets where they want to be present. So I'm concerned about the intra-European debate which will quickly become a redistribution debate which might be needed, a intra-European debate, but don't let us forget Europe is not an island. There's a world out there. There's a world that's a lot more dynamic than Europe is. And if we just look at Europe in isolation, we're kind of missing the big point here. And therefore I'm somewhat concerned that there is some feel in Germany that we have room to maneuver because other countries like France and others are not doing quite as well. That's a dangerous illusion and we should really get rid of that as quick as possible. Any questions here and here? And back there. You start here? David Serra from Algebra's Investment. Listening to the panel, if I didn't know the exchange rate of currency, I would have said that the Euro would have been very, very low compared to the US dollar of a British pound. The thesis is Europe is below, American England have done better in Swiss China. Then suddenly I check my phone and the Euro is 15% above where it was created in 1995, 1996. So can you explain me, is that in Europe we're protecting the rights of the rich and the old to preserve value stability, partly in Germany, at the expense of the youth? And is this penalizing the changes? Because without getting some oxygen it's very hard to be able to train. If the heart is always in the risk of heart attack you're not gonna train. Should this be done in couple with all the structural reform? Yeah, you want to? I mean, yes, I'm not a specialist but I'm watching that extremely carefully because when you're running a global company of course the currency effect is extremely important. Now, as we are reporting in dollars, when the Euro is high it's not that bad. But anyway, when you're looking at this... Who are the first French person that I hear say that? Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah. That's why I'm a little bit schizophrenic with my nationality and my job. But to come back to your question, I think it's putting the question of the role of the central bank here. And clearly if you look at Europe and the US the ECB main purpose is to deal with inflation and to keep the inflation as low as possible and we know where it's coming from. I mean, we have a history around inflation in many countries, including Germany which has creating this idea that inflation is not bad. Inflation is unacceptable. High inflation is unacceptable. Now, if you look at the Fed, it's interesting that it's a different philosophy if you will because the Fed has been very clear they will keep their interest rate as low as possible as long as unemployment would not be below, I think, 8%. So Europe, it's all about inflation with the 2% and it's interesting that US, it's all about employment at 8%. You can see that two different philosophies are driving very different results and the interest rates in Europe are probably, I don't know whether they are too high, but certainly we can make the case that either in the US they are too low or in Europe they are too high but there is something here which is not balanced. Just add on this, speaking about philosophy, it's not just the philosophy of picking the right KPI, I mean the metric. I think it's a philosophy of what do you think about labor, so in the US, they understand that labor is created by companies and the currency policies is a way to improve competitiveness of manufacturers, those who create. In Europe there is a feeling that labor grows on trees somehow because then you protect inflation meaning you protect the savings. So you make sure that the whole lady who is living under savings doesn't have an increase in the cost of the milk. Okay, it's fine. But I mean, if labor is not created sooner or later you have a huge amount of people which cannot buy that milk and so that's the difference. So Mark. Yeah, I take Pierre's point a little bit more broadly. I mean, when I left university in 68, there was a thing in economics called the Phillips Curve. It's a professor at London School of Economics and that was what's the level of inflation we're prepared to tolerate at full employment. This was post beverage and post World War II and we were seeking, governments were seeking to fully employ people. Now the policy is focused not on the exchange rate, it's focused on minimizing inflation and so what is the unemployment level we're prepared to accept at zero inflation. And I think that's the fundamental shift in policy whether it be central bank policy, whether it be the Fed, six and a half percent I think is the level of unemployment. They'll, once it falls below that they'll start to taper more aggressively. So I think that's the fundamental difference and that's the problem that Davos I think has to focus on. The initiative that Mutar Kent is taking with the IBC to try and stimulate employment at the city level. Remember that 50% of the world's population lives in cities. It will be 70% within a very short period of time. So using state governors or city mayors as a vehicle with private enterprise in a joint public-private partnership to stimulate youth employment is absolutely critical. It's one of the practical things that I think we on our side can do. Ken, if you can take the question of should the dollar be stronger than the euro given the economic? I've studied exchange rates my whole life and I consider myself an expert, which means I have no idea what it should be. I will say the ECB carries a huge burden of being the strongest institution. It's doing many things. I don't, you know, attribute that the ECB has difficult choices. But let's face it, the whole tone of this conversation would be completely different if the euro was one-ten against the dollar, you know, instead of one-thirty-five or whatever it is. And we're not even talking about the yen, which has depreciated mightily. Ken made an important point. If you don't look at the current exchange rate, but look at them two, three years out like Ken, I know it's very difficult to talk about that, but very clearly the U.S. is starting in a tapering bias is withdrawing some of the stimulus they have and they might move from a tapering bias to a tightening bias. Some years out. So the course of policy is less expansionary going forward, where Europe still has an easing bias and Japan is easing massively. So fast forward another year or two. It's very likely that that different course of monetary policy between the three major currency blocks is going to be reflected in the exchange rate then more than it is now. And I think Europe coming out of the crisis, and I guess we all agreed to that, will have a potential for actually coming back. But if that's not realized, and if the easing bias continues, there's clearly a dollar strength relative anyway against the yen, which is obvious already now, but increasingly against the Euro, which we haven't seen so far, but it might emerge just as the core, the course of relative monetary policy becomes more obvious to everyone. There's a question over here. Thank you very much. P.J. Pudassami from Etihad Airways. Would it be fair to say that the people in Europe are less likely to oppose the regulatory reform, which we know are necessary to enhance Europe's competitiveness if there was kind of up-front commitments on how inclusive that growth would be? It's a philosophical question. But it's a big one. And for you, I mean, the most important one, and thanks for asking this question, what I'm, I mean, I'm going to be more personal here about extremely concerned and scared about is the rise of the extreme in Europe. When you mention Euro skepticism, but it's not only Euro skepticism, because you can be Euro skeptic, and then we get the extreme. When you look across Europe, and in my country, it's not something I'm extremely proud of, is the rise of the extreme, and they are surfing under this lack of inclusion situation in Europe, and of course based on the rise of poverty, or, I mean, this divide and inequality and unemployment. So you're absolutely right at the center. I mean, the number one challenge in Europe when you're talking to real people in real street is unemployment. It's not going to be gross, it's not going to be sovereign debt, public deficit or that kind of thing. It's going to be fixed, the unemployment, because the structural unemployment at 12% in Europe is creating exactly the risk you're mentioning, and it's happening now. And indeed, I'm extremely concerned with the result of the European election, and we need to watch that carefully, because it's going to be a massive signal sent to European leaders and the business, because we have as well our responsibility on this, that if we are not creating an environment which is going to be more inclusive, and people are going to feel what's the purpose of Europe, what it is we want to do collectively, because so far, frankly, as we know, all the discussion around Europe being extraordinary technical, impossible to understand for the man and the woman in the street, and not only in the street, sometimes in the business, and was really techy, bureaucratic, and so the simple question, I mean, what it is we want to do with Europe to reduce inequality and create an environment of inclusion and diversity that's going to create the kind of prosperity and environment we all aspire to. It's totally absent, totally absent of the European discussion. It's all about a banking union, what is the role of the ECB? I mean, who cares except the elite understanding the consequences? The man in the street, they don't care. They want a job, they want inclusion, and diversity being developed in Europe. So Martin, I mean, the rise of parties like UK, is it because people who gather at meetings like this I think don't do a good job of communicating. The UK election in 2015 is going to be a very interesting bellwether, because you have Ed Miliband taking the Labour Party to the left and being very aggressive, particularly in recent weeks, not just about banks and bank bonuses or energy companies, but more forthright, but interestingly, he would not have a referendum. He is committed to Europe. On the other hand, Prime Minister Cameron, leading coalition, a Lib Dem coalition with the Conservatives, has to take account of the rise of Nigel Farage and the extremist and Axel's point about the European elections will be critical, because I think most polls believe that the UKIP will be an extreme party will make ground in that election and that has forced the Prime Minister to try and move the Conservative Party to the right. So we've got some very interesting dynamics taking place, which are going to affect the sort of thinking in other countries, and politicians are in business to get re-elected, not necessarily to do the right long-term thing. And the short-term appeal of protectionists, anti-immigration, anti-Europe policies are quite strong. But actually, interestingly, in the UK, it's sort of different, because where Miliband is taking the Labour Party. Time for one more question. There was a gentleman in the back, I'm sorry, but he's been waiting for a little while. Alex Edmonds, Professor of Finance at London Business School and the Wharton School. So in the light of the financial crisis, we've seen some regulations in Europe, such as the caps on banker bonuses, and there's concerns that these are politically rather than economically motivated. So what's your view as to whether these will support the recovery from the crisis or be negative slash irrelevant? And if the latter, what regulations of any would you like to see to help this growth that you're talking about? Shall we start with the former central banker? I wouldn't take a narrow look at regulation just to talk about bonuses. I think the broader look is, we're coming out of the deepest financial crisis in post-war history. A lot of things had to be fixed. Capital levels had to be fixed, quality of capital, liquidity issues, many areas where bank regulation has moved a lot. We're moving trades to central counterparties too. We're moving to resolvability of institutions. So a lot is in the pipeline, and a lot of that is good and needed to be done. And even as somebody who is running and helping run a bank, I can tell you it needed to be done. There are some issues now where if you go too far or too extreme into one corner, for example, on the leverage ratio, a one-sided measure of capital in the banks, you're actually risking on doing some of the advantages. So I'm somewhat concerned about that. But I think by and large, the big picture is banks just have to accept that it'd be more regulation put in place, and it's the right thing to do because taxpayers have felt uncomfortable with the level of regulation in capital there. But if I might just sort of add one dimension where I'm concerned and it comes into what we just discussed before, the redistribution or the inclusion issue. There's a lot of issues on redistribution in Europe. It's core versus periphery, it's rich versus poor, it's young versus old, it's skilled versus non-skilled. You can make many of those dimensions. And there are clear losers of this crisis. The biggest losers, and that's the ones that I'm very concerned about, is the young. If you continue to have fiscal balances expand the way they have against an aging society, you're depriving the young of our societies not just of the jobs, which they don't get. Look at the Spanish difference, 50% unemployment of the use, 25 on average in the economy. You're actually protecting insider against outsider. And if Europe deprives itself of the one source it has for the future, and that is its well-trained young labor force, I see Europe much more challenged on the way forward than if we have to find a way to really get the young back into the labor market and get those talents to work. We have to start wrapping up quickly, but Pierre, you had a point and then some more. Yeah, just making a point and making this regulation topic a little bit broader with a very specific illustration. And we talked about finance, and I'm talking a lot with the European commissioners. We had the Solvency II, we had the Basel III, all the spirit of doing the right thing, which is to prevent more risk, but by preventing risk, you're preventing the business as well to grow. We all probably believe here that technology and innovation and digital will be key for growth. We talked about, and it's relevant for all of us. Technology will change our business. I'm participating to the European Union Cloud Steering Committee, chaired with Commissioner Nelly Cruz, which is doing a great job with us, and it's all about striking the right balance in the case of cloud around data protection and data privacy, and we all know what we are talking about. But at the end of the day, if we believe as well, the digital will unleash more growth. It's all about data. So sometimes you have funny discussions around let's go digital, but let's make sure we're not touching the data. Data and digital are the same things. So we need really Europe to move with what I would call, I mean, the smart regulation, smart, not good, smart regulation, a regulation that's not going to be overprotective, so you're not taking any risk, and so you can unleash. So after finance, I think the big one is around digital and data, and we're still working on this on how you want to unleash all the power of digital in health if you can't have electronic medical records. Yeah, just an answer to the professor's question about what can be done, or the second part of the question, I would say labor market flexibility, labor market flexibility, labor market flexibility. That is the key to unlocking it because when you look at CEO's behaviors in Western Europe, I don't think they're really about process improvement and real productivity gates. They're just about reducing headcount. It's just a very crude analysis and the severance costs and restructural costs even when legislation changes. For example, in Spain, we took advantage of, that's the right word, we're putting it over a hoist reforms. The employees involved took us to court and one in court. So it is a very difficult situation and I think that's the fundamental problem in policy, let's call it anti-regulatory rather than or sort of smart regulation as Pierre mentioned. I am going to have to round up but the great thing about being at the World Economic Forum is of course that even if you didn't get a chance to ask these questions here, you have an opportunity to buttonhole any one of them and all of them if you like and ask your questions directly. The audience on cnn.com and time.com don't have that opportunity. I think I'll sum up by saying what you said right at the beginning, Sir Martin, that the answer to the question is Europe-back is yes-ish, which seems to be the dominating mood of this panel and it remains for me to thank you all very much for coming. Ladies and gentlemen, your panel.