 Your Excellency, ladies and gentlemen, welcome to Osh University, School of Business and Social Sciences. My name is Pierre Belso Orgo, I am the Vice Dean of Research and Talent, the latter meaning mainly PhD education. It's a great pleasure to be here and also sort of looking to the back rows and noticing that they are also filled. So we have a grant theme, therefore a grant occasion, and this is, and I should notice, this is organized by the student organization FACA here predominantly, maybe with a bit of help from the department in terms of financial support, I take it. It is indeed a great pleasure to welcome you all on behalf of the Vice Chancellor of Osh University and the Dean of the School of Social Sciences. Today we're going to talk about Europe's growth challenges, in a bit FACA will introduce the speakers of this afternoon. Of course, well Europe's growth challenge is indeed a major one and I guess probably the largest challenge bar none to people out of economics and business, etc. Others might say that there are other challenges as grand, but let's just assume this is the grandest challenge we have in front of us. So I'm hoping to sort of have someone answer questions like, is Europe really doomed for slow decline, similar to that of the West Roman Empire some 17, 18, 100 years ago, or might there be a way out or forward and what made that way if there is indeed one involved. So I'm certainly hoping to hear presenters and the panel touch upon things like presumably migration, aging, is that a problem or is it something we can use meaningfully? Can we be proactive in terms of migration rather than sort of defensive and wall building? Now, technological developments I've heard, well I am an econ person but I don't follow sort of the most recent news, but one of the things I noticed was that Denmark in particular seems to have been performing really poorly since sort of the financial crisis or the economic crisis if you want. So is there something here for us to learn from listening to speakers from other places who have chosen to share their ideas on growth in Europe? So that's one thing. I presumably also one would expect to hear something about digitalization, the import of IT into sort of all the grains of the economy. What might that entail? Is this going to be jobless growth and therefore maybe more inequality or is it going to be joblet growth or things like that? So I'm truly looking forward to hearing, well I'm sure I'm not going to hear the answers but ideas on how to think about these things in order to arrive at answers sometime. Eventually and hopefully in not too distant future. So with those few words since we have an exciting set of speakers and a panelist in front of us I'll leave the floor to Boris Georgiev who is by the way a Bulgarian native and I think have been instrumental in making sure that we can actually present our main speaker of this afternoon which Boris will do in a bit alongside the panel. And Boris is here also representing FACA who are the organizers. So take it away, guys. So ladies and gentlemen, welcome on behalf of the Finance and Consulting Club in Orhus. Welcome to Europe's Growth Challenge 2016. On behalf of FACA I would like to welcome you to this event which we believe comes at a very unique time, not only for Europe, not only for Denmark but actually for the entire world. This is why we think it's very important in our club at least to engage all fellow students, the community, the business society as well in those very pressing challenges because they not only affect how we live today but also affect how we live tomorrow in 5 and 10 years. This is why we've taken on the mission in FACA to try and engage with the world's perhaps most prominent, most influential experts both in the business world as well in the academic world and also in the policy making. This is why it's great pleasure to have the opportunity to introduce you to the programme for today. First of all, we're going to hear a public lecture on Europe's Growth Challenge delivered by Professor Simeon Dyankov. Furthermore, we're going to pause for a 15 minute break where you can enjoy in the upper S building drinks as well as some chocolate and other confectionery. Afterwards, we're going to transition with a panel debate which is going to feature three other prominent business and economic experts. So in our line up, we have Professor Philipp Schöder from Orchus BSS. As well, we have Klimis Jara, who is a senior partner and director at McKinsey & Company Denmark and as well, Beau Sandermann Rasmussen, who is a professor at Orchus BSS as well. Without further ado, let me introduce the main public lecture today. So Professor Simeon Dyankov, Bulgarian native, has been a former vice prime minister and minister of finance of the Republic of Bulgaria in the period 2009-2013. Prior to that, he spent more than 14 years at the World Bank starting as a consultant and at the end reaching the level of a vice president and as well chief economist of the World Bank. Before several years, he also used to be a rector of the new economic school in Moscow, Russia. Currently, he's a professor at the London School of Economics and Political Science. He not only has been very involved in policy making and the most pressing public debates worldwide, but also during his tenure at the World Bank, he has conducted numerous projects for governments in transition in North Africa as well in the Caucasian region and has advised numerous governments on their most important problems that they have faced. Furthermore, he has been extremely active in the academic field. During his career, he has managed to publish more than 70 scholarly articles in among what you may call some of the most influential economic journals and I believe his expertise and mix between expertise from government, politics as well as economics makes him a unique guest and a person who definitely we can learn a lot from from his public lecture. Without further ado, let me introduce Simon Diankov, London School of Economics and Political Science. Thank you very much. Frankly, I'm quite surprised to see such a large interest in this topic. I've presented on similar issues in a number of other European countries and interest has been there, but nowhere such a large interest. I really look forward to today's presentations. We've organized them in a way that I would first be an economist to show you some economic facts, economic and social facts about Europe, just to lay the foundation for what then I hope would be a discussion for not only what are the problems, but also what are some of the solutions to these problems at least that we can discuss. And I'll start first with this very basic figure. I should mention that you don't have to be an economist. Hopefully, you don't have to be an economist to follow the discussion and participate in the discussion today. As long as you understand this particular figure, which is essentially looking at the last roughly 65 years of Europe's economic development very soon after World War II, this is the average of all of Europe as we know today, the European Union as we know today. And noticing that every decade also growth goes down and down and down to the point where the official statistics of the European Union, the so-called Eurostat, the European Statistical Office, basically predicts that if things go the way that they're going now, the decade of the 2020s, or just in five years' time, basically would be a no growth decade, or between zero and 1% growth on average for the European Union. In other words, stagnation, so by the time that many of you joined the job market or start looking for careers in business or in government or in other walks of life, the opportunities would be not as good as they were in previous decades. On this chart, incidentally, you also see how painful the recent Eurozone crisis was, or the financial crisis in Europe, this very big spike downwards 2009-2010. Europe then recovered somewhat, but you see that rather than continuing to go up after 2010-2011, growth actually has again been essentially around zero to 1%. So what we'll be talking today both in my presentation and in the discussion is what are some of the reasons for this low growth, how it compares to the main competitors of Europe, that is the United States, or America more generally, and rising Asia, and then what can we do about it. And I'll have the luxury of suggesting some solutions, but leaving it for the rest of the panelists to provide the main solutions. In most of what I'll do, I'll compare where data exists between Europe and the United States, and you would see towards the end, hopefully, was the rationale of this partly its data. Asia, which is also a main competitor of Europe, doesn't have as long of time series, but where it does, we'll be showing that as well. But again, if you now go about 45-50 years history and look at the until recently original EU-15 and the United States, you'd notice that until about the Eurozone crisis, so until 506 years ago, Europe on average was actually producing together the EU-15, producing more than the United States economy. This fact is often because the US economy, and especially in the new technology sector, has been so dominant in recent years. People forget that if you look at long-term statistics, Europe actually has been bigger than the US economy for most of our modern history. But just around 2011-2012, that ceases to be the case, and now the American economy, largely on the expansion of new industries, has overtaken the European economy in terms of overall production. And then what we are going to do in a series of charts, so I'll show you a lot of data and then we'll have more of a discussion. I'll show you a dozen or so charts to basically start asking the question, well, where is Europe lagging? So what's happening? Can we find this from looking at different markets? So one market, if you want to produce, if you want to have economic growth, well, it's useful to have people who actually produce, people who are gainfully employed in the economy. So one thing that we will be comparing is the employment rate. This is not the same as an employment or employment. Basically the employment rate says of the people who are of working age. So if you exclude kids and if you exclude people who are already retired, so you just leave people who can work, what is the percentage on average in countries that are actually employed? So the opposite of that would be people who have decided not to work for one reason or another or have reasons not to work. The higher this percentage is, obviously it means that the more of the active population is involved in economic activity and that's better for the economy. So first, just looking at the last two, and notice that here the statistic includes all European Union 28, including Croatia, so we are completely up to date in this analysis. We already noticed that there is really a 5 percentage points difference between how many Americans work and how many Europeans work. So already we see that a sizable part of the people who may work in Europe have decided not to, more so than in the United States. And then it's very interesting to look across countries. Incidentally, one topic that for me has been very interesting coming out of Eastern Europe is to compare Eastern Europe to Western Europe, but also Southern Europe to the rest of Europe. The first country perhaps is not surprising, but it's just striking how different it is. So basically in Greece, more than half of the active working age population does not work. It's quite a striking statistic to ponder. So these are not students, these are not people who have not grown to be in the market and these are not retired people. These are the people between the ages of 18 and 64 that in principle should be involved in economic activity. So in Greece about 48% of the working age population is involved in such activity. So more than half actually not. The rest of the population in other words has to produce for them as well. If you look at this graph you quickly say, well it's no surprise that Greece has lots of economic and financial problems. But I've put a number of countries first to say that Denmark does very well on this chart and that in particular it's one of the few countries that outperformed the United States. There are six or seven European countries that outperformed the United States in terms of employment rate. Notice that they are primarily in the northern part of Europe, exception is Austria, which is in central Europe. But Sweden, Netherlands, Denmark, the UK, Estonia are countries where more than 70% of the population, working age population, works. And basically the more you go from north to south of Europe to southern Europe, population decides that maybe working is not such a good idea. There are other things that are more exciting to do than work. We'll find later on what this results in. Then we look at another statistic, which is of the people who work, how much do they actually work? So how many hours do they actually work? And here I compare again the United States to France, a country that typically is not thought as the most hardworking European country. But I purposefully picked France just to point out that if you go back 50 or so years, the average French worker was actually working about 15% longer than the average American worker. This is annual data, how many hours a year you work. So France is in the red, about 2,200 hours on average a year. The average French worker about 1,950 hours in the US. But you go over time and somewhere in the early 80s that changes, and it changes then dramatically and continues to change over time, where basically Europeans work less and less. Americans basically have kept up pace. So they've reduced a bit the working load, but not too much. So it's a very stable line. Now if you look at some of the Asian countries on this line, for example Korea, you would see much higher average working hours and basically a straight line. So they work and they work consistently year after year. So there's no trade-off between working hours and having fun. But in Europe we like to have fun and we have more and more fun over time. So few people work and these who work don't work as much. We learn from these two pictures. Now we go to a different topic and say, well, so we don't work as much. Those who work also take more time, but maybe we're much smarter. And as a result we don't have to work as hard because we're better educated. So this panel basically looks first at high school education, secondary education, and then I'll go to university education that may be more interesting for you. This also is quite a striking chart. To me at least one of the most striking charts in this analysis. So the question is very simple. Not how good a student you are, but how many students who start high school graduate. And I should say that there are wide differences within the United States across states. So the further south you go, fewer students graduate. But on average in the United States nearly 90%, 9 out of 10 students graduate, 88.3%. In Europe it's 10 percentage points lower, so 78% of students in high school graduate. But again notice who are the outliers, so to speak, the countries in red. So these are essentially, actually not essentially, but completely southern European countries without exception. And because these numbers may be hard to believe, at least to some of us I hope they're hard to believe, let's just read one or two countries. So what this number means that in Portugal let's say, that of the class that enters high school at age 10, 11, 12, only 40% graduate. So the rest of the high schoolers basically leave school before actually they have a high school diploma. And start either working or not working as we've seen before. So in other words attrition is huge. And again notice the pattern of southern European countries being particularly pronounced in having very little comparative education and completion rate. The more you go towards Eastern Europe and Northern Europe you see high and high completion rates. You see here some of the East European countries that do quite well. Basically because high school education was mandatory under socialism so you had to graduate. So if you go 10, 15 years back in time it would be 100% for countries like Lithuania, the Czech Republic, Poland and so on, even Bulgaria. It's starting to fall down. But critically you see southern Europe where if you continue to follow this logic, not many people work. Those who work don't work much. But those who work not as much actually not that well educated. Many of the people who drop out joined the labor force early. And then we go to universities. I was recent just in discussion with some of your faculty and we discussed some of the university reforms that have gone on over the last decade also here in Denmark in trying to agglomerate universities and to bring higher quality as a result. Incidentally the Bulgarians in the audience may know that I tried when I was deputy prime minister to do the same reform in Bulgaria and miserably failed. Did not work at all. I had all of these esteemed professors coming and saying, what do you know about education? I said, well I'm reasonably educated. I've taught in a number of universities. No, you don't know anything about education. So didn't work out. But let's compare these two there I think by now four different international indicators, rankings on university quality. You can argue that some of them are biased. So for example the financial times ranking, even though it claims it's unbiased, has many British university and given that the financial times is British, it looks a bit suspicious. The Shanghai index, which you can imagine is somewhat related to Shanghai and Asia, has more Asian universities among the top. But that's why we take several. So I show you the two main ones. And it just asks the question all together, all universities in the world, let's rank them on quality of education and see where they are. Not surprisingly, the vast majority are in the United, well not the majority quite. Actually yes, the majority above half of them are in the United States and in the case of the Shanghai index over 65% actually in the United States. The UK has some, the Oxford, the Cambridge, I think the London School of Economics also makes it. But then you look at continental Europe. So continental Europe is all of the European Union except for the UK and basically you notice that on one index there are only two and on the other index there are six European universities all together that are in this index. Two to three percent of the top universities or 10% of the top universities in the world. Given that university education, as we know it started in Europe centuries ago, this is not great. This means that we are lagging very significantly behind the US, the UK and increasingly Asia. The others are basically Asia. I'll come to this point in a bit more detail later. I'm at the end of this random, what may seem to be to your random pictures. I'll come to a point very soon. But let me show you two more graphs. One other topic that is very discussed not just in Europe but across the world on how do you grow basically by bringing more educated people, more creativity, more innovation is asking this question of if you take the 100 largest European companies or US companies, basically rather than saying they're in these sectors and they are subjectively this creative or that creative, let's basically assume that the newer the company is, the more innovative it is. It's not always the case, but let's assume to a first approximation that companies that were established more recently, perhaps because they have better technologies or because they're in new sectors have more innovation. And then you just look among the 100 companies in Europe and the US how many I established before 1950 and how many I established more recently. Basically the answer from this graph is that Europe has longstanding companies that haven't really changed much in terms of the mixture of top companies in Europe while in the United States nearly half of the companies are relatively new. So this would be the Microsofts and Googles and Facebooks and so on but not just high tech companies. There are many other sectors for example energy where in the United States there are a number of new companies that have been created just in the last decade or so. What this shows in other words, maybe it doesn't show it but it's a manifestation of the ability to innovate and to grow very fast given that you start from scratch, that you're essentially a startup. That is what we'll talk in a minute, depends on a number of things. For example, do you get access to capital? So we'll talk about capital very soon. How large is your market? Do you have 350 million Americans as the US market is? Do you have a market of less than 10 million like Bulgaria or Denmark? Or do you have the 500 million European market that we think we have but actually in most sectors we don't? So I'll discuss this in a moment. I'll quickly go from my favorite topic which is however not the main topic of this presentation to note that so if you don't have much, many people producing as a result you don't have much production, much ability to tax essentially. So the state has to do more or at least many states, many governments things that then this is a natural cure for them to come in and do a lot. So what this shows is that this basically says how much the government spends out of the overall expenditure in any one year, this is 2014, per country. So how large is the government in providing services? This is health, education, security, infrastructure, all kinds of services. Here, unlike many of the pictures that I showed you, it's not necessarily that low means good or high means good, this is just to understand how European economies or actually societies, not just European economies, operate. This number I've not put it on, this picture for the United States is around 35%, 34.6%. So it's about 10 percentage points less than the average for the EU. So on average the US government, not just the central US government but also the regional governments, collectively are responsible for about a third of total expenditure in the United States. In the European Union you can see that there are several countries including Denmark that basically more than half of overall expenditures are basically done I guess on behalf of the citizens by the government. And later on, and I'm certain in the discussion we'll get to this point, is this a good thing if the government is more than half basically of all expenditure? Is it not such a good thing? I'll just in passing mention that Eastern Europe on this chart is where public expenditure is lower partly because coming out of communist years basically there was a natural tendency to have more so to speak right-wing policies to reduce the role of the government. So you see countries like Romania, Latvia, my own country, Bulgaria that are below 40% public expenditure to GDP. I should also note in passing that if you go even 25 years back in Europe's history you would see that everybody is actually spending a lot less. Public expenditure was significantly lower 25-30 years ago and then gradually crept up year after year it crept up. Why is this important? Because this is linked in many countries probably also in Denmark but it's certainly part of the current Brexit debate in the UK that one of the reasons why we don't want to be part of Europe or the European Union is because Brussels imposes a lot of regulations on us that cost a lot of money and therefore we end up spending a lot of money public money to basically deal with regulations from Europe. This is actually not quite true. In fact it's very little true. While it's true that Brussels imposes many silly regulations historically if you see when European government started spending more and more in essence it precedes the enlargement of the European Union and various silly regulations that were imposed. So Europe just decided basically to spend more and rely more on governments. But by now I think if you haven't been depressed coming to this lecture by now you should be quite depressed because it all looks terrible. So I'll quickly point out some good things about Europe so you don't think that it's all bad. Despite everything that we've mentioned and despite many issues that every one of the European Union countries has generally most economists and social scientists agree that one of the perhaps the main precondition of having economic growth and successful economy is having a rule of law. Basically if I'm a private entrepreneur, private firm and some other private firm is doing something that basically is damaging me I could go to the regulator or the courts and argue my case and if it's a just case succeed. Or if I have an argument vis-a-vis the government and the government is doing something bad which most governments tend to do then I can go again to the courts or to the independent regulator and argue that this wrong should be righted. So the rule of law it comes in various guises. Mostly people think of the judicial system but it's not just the judicial system it's also the regulatory system is the number one precondition for successful economic growth. So if we look on that actually most of the EU except for my own country in Greece look quite good and I should say here that previous Bulgarian governments are responsible for the state of the Bulgarian but it's not our government. But you see that on this indicator this is between 0 and 10 it verges between 0 and 10 when if you're let's say in let's pick a country Tajikistan basically a zero so you know there is no rule of law the president decides everything and in fact I think last week the Tajik president decided that he would be a president for life and it was very easy everybody agreed but he didn't need a referendum just government degree president for life so that would be a zero and you go to as high Finland actually which is highest in the European Union is also highest in the world at nearly a nine but you generally see that a fairly large number of European countries about a third of the European Union performs quite well here I've shown relative to the US but it performs particularly well if you compare to China here and so on so actually we are very significantly above the rest of the even industrialized world in terms of the rule of law and again mostly northern northern Europe but also some of the former East European countries like Poland which is good news if you get a few other things right it basically means that you have a good fundamental for growth in some of Europe you have to catch up and on that particular indicator enough European countries even ahead of our main competitors so we can hope to achieve better things if we try more well why haven't we then so we have a good rule of law I've showed you some of the other reasons for why we haven't but I'm coming back to this topic of university education innovation also linked to the innovative companies so this is again sort of a public finance view just asking the question of each country how much of its GDP every year it spends on research and development most of this happens in the business community but a lot of it happens also in universities like this university this is not necessarily a pure measure of innovation because some countries can spend a lot and it can be totally ineffective but generally more expenditure on research and development goes well with subsequent innovation so we notice here that the United States which I already mentioned actually has a lot smaller share of government overall so this is not really organized by the government or at least not much of it spends about 2.8 nearly 3 percentage points of GDP on research and development we have a few European countries which is again good news including Denmark very prominently Sweden and Finland that spent 3% or more which is very good news then we have fortunately not Bulgaria this time Romania which spends basically nothing on research and development and in general with the exception of Belgium the rest is mostly Southern Europe and a bit of Eastern Europe spend very little on research and development the result of that is that exports that come out of this region of the Southern and East European region basically are not R&D intensive in fact during I mentioned or it was mentioned that during the Eurozone crisis I was finance minister so I spent many sleepless nights in Brussels arguing with other finance ministers where the Greece belongs to the European Union doesn't belong to the European Union and the Eurozone and at some point we decided to look at basic trade statistics to see if public finances in Greece get better basically how the economy could grow incidentally even today the Greek economy hasn't grown over the last few years but basically what does what does Greece export what are its main competitive products in small audience I'll just ask a few people but I think you'll be embarrassing to ask in such a large audience and basically the answer is nothing so Greece exports nothing so it has in terms of its official statistics it exports what's called maritime services shipping but basically the reason that it exports shipping is that in the Greek constitution until very recently it was written that shipping companies are not charged any taxes zero so you don't pay any taxes if you're a shipper in Greece and that you can imagine came from how to put it politely I wouldn't call it corruption just a lot of successful lobbying on the part of the sector at a certain stage in Greece's development but basically about 25 to 30% until recently of Greeks export statistic was shipping which wasn't some of it is actually Greek but most of it wasn't Greek it just registered in Greece and then another about 30% is related to olives so it's either olive oil or pressed olive oil or hot pressed olive oil or olives or essentially olive derivatives so really check the statistics another 30% is related just to olives and then there is another about 30 to 40% that is mostly other agriculture non-olive agricultural products so there is some wine which is not great if you've tried it but somebody must be drinking it and very Swoozel which is better to drink and so on but basically it's agriculture so if you are reasonable even undergraduate level economist and you've gone through your first two years of economics and you ask the question a country like Greece looking at the exports how can it grow basically you don't have a good answer can't really something else has to happen but then for it to happen you either need research and development you need more people in universities, more people in secondary schools and so on anyhow a diversion to get to the main point that with the very few exceptions in basically the Nordic countries plus Germany and Austria we don't really spend that much on research and development. My favorite picture it was I think mentioned in the introduction that when I was at the World Bank I started this actually academic initiative that ended up as a policy initiative called Doing Business where we asked a very simple well several related very simple questions if some of you are not familiar yet with the Doing Business report it's one of the most exciting publications in the world you definitely should look at it but it basically asks many both academics and many politicians when they have nothing better to say about business they say it should be much easier to start a new business so we are going to make it easier to start a new business so in this project that we started about 12-15 years ago by now we said well let's take the same type of company around the world and let's ask three questions if you want to start it how long would it take you how much it would cost you and how many different procedures basically how many different agencies you would have to go to so very simple questions and we looked at what the laws and regulations would provide for that so that's one of the sub-indices which is called these of starting a business and similarly we have several other type of indices if you're a business you deal with for example an index on paying taxes which asks the question if you're a small business and you want to pay your taxes how difficult is it how often do you have to pay taxes can you pay them electronically or not how many hours does it involve senior management or you if you're the entrepreneur to pay these taxes and basically what are the legal procedures and we go you know how do you get a business license how do you enforce a contract in the courts and so on so ten or eleven different topics to get to this index of how easy or not it is to start a business this is basically the regulation what the state provides for businesses to operate relatively easily or not so easily and it covers essentially every country in the world the index has by now 189 countries around the world and every year we rank them 1, 2, 180, 89 and then we ask the question who is best who is worst but also who is improving so if you look from year to year you see who is moving up who is moving down so looking across the European Union we notice that the hosts Denmark in particular is actually best in Europe on ease of doing business now if you're in your country and if I'm presenting this to businesses and I've presented this literally hundreds of time to businesses nobody would agree that their country is better in anything so they'll say no our government is extremely inefficient is very slow taxes are very high which is probably true and generally it's difficult to run a business but this is comparing across different countries in the world the number of indicators and it basically says all things considered actually Denmark is number three in the world the numbers signify out of 189 where you stand number one is Singapore and number two is I think New Zealand for this for 2015 so Asia performs quite well on these indicators beyond that you actually see which is I think good news that the number of the European countries not only Denmark do quite well incidentally this is a chart that is very favorite in Brussels when we discuss issues of Brexit or Greece leaving or anybody else wanted to leave or do something crazy with the European Union because it shows why countries like Denmark and like the United Kingdom should stay in the European Union in my mind which is to improve the doing business rating of all the other countries in the European Union but also more seriously to improve overall the way that doing that business operates in the European Union why because often when we do analysis of the European Union and how it can grow better and prosper we do this comparisons that I started with while the United States is better in this better in that Asia is better in this better in that and then you come to this point while they are different but there is a reason for that so somehow they are different than us institutionally, culturally infrastructure wise they are different so it may be difficult for us to do the same that what the US does but it's very difficult for somebody to argue when you put a picture like this and says Denmark you know nice country not too different from some of the other countries in Eastern Europe why is it significantly better in ease of doing business when let's say the Netherlands you know similar northern European countries people like bicycling so its culture must be quite similar but yet there are significant differences between or Luxembourg even actually Luxembourg people don't like to bike much but they are the similarities well let's find if they are similar they should be able to be able to implement similar regulations so let's actually implement this better but not get you know Belgian regulation to Denmark but get Danish regulation to Belgium and British regulation to well I wouldn't say Italy but you know other countries in the European Union so if you have the top countries being frustrated and basically saying okay enough with Europe you know it's too painful and we don't want to be part of it what's going to happen with the rest of Europe well it's going to be worse because there isn't this pool of the top performers if you like to say the whole of the European Union has to be like us so we need to improve and maybe even better than even better than us but still the positive view from this picture is that still all of Europe even Greece is actually in the first half of the global picture on ease of doing business so there are many countries behind us that still haven't figured out how businesses should operate relatively easily I imagine one of the favorite topics to discuss in Denmark is taxes so I'll show you just two different pictures of taxes but first to note that in terms of at least corporate tax policy Europe is actually better than the United States in most businesses who've worked in both continents would tell you that while the US is better in many dimensions tax policy is quite painful in the US of course larger US corporations hide taxes mostly by coming to Europe and hiding it here or in other parts of the world but you would see that both the level of taxation generally speaking and also the direction of taxation has been beneficial to Europe actually yes Denmark is there as well so in particular you see that in the last roughly 25 years corporate taxes have been falling in some countries like Ireland you see a tremendous fall over the last 25 years this picture should have had Bulgaria which has actually the lowest corporate income taxes in the European country at 10% in fact if we have managed to be good at something in government in Bulgaria it's tax policy so we have what's called a flat tax I recommend it to Denmark so we have 10% personal income tax 10% corporate income tax basically everything is 10% so regardless of which tax you're looking at it's 10% and we have nothing above it so regardless of what you produce it's 10% it's easy to remember and incidentally when we had in 2010, 11, 12 all of these discussions on taxation in the European Union the Germans in particular and the French were always very excited to say we should have uniform taxation so that nobody cheats on taxes as if nobody in France cheats on taxes and then I'll say that's a great idea let's have Bulgarian taxation it's easy 10% non-finance people can understand it and always kill the discussion that you know it has to be uniform but at the French level not at the Bulgarian level but on taxes while businesses can complain and I'm sure that in Denmark businesses do complain of high taxation not that relatively speaking actually taxes corporate taxes in Europe have both been falling and historically actually are not as high as they have been in on average the exceptions in the United States this would be even more surprising to you and it goes towards the end of my presentation of say well what Europe has is that corporate income taxes I wouldn't say low but at least falling personal income taxes are very high as they are in Denmark but not in Bulgaria and not in many of the East European countries but on top of the personal income taxes this is basically what individual pays when they get their income labor taxes which is essentially what you pay for social security and also for pension contributions if your pension system is mostly publicly funded also very high now why am I focusing on labor taxes and not on personal income taxes well because a lot of economic academic research over the last decade has been trying to find this answer why so many able people able body working age people are not working so what prevents them from entering the labor force and there are different explanations but one preponderance explanation is basically this that if you have very high social security taxes which are levit I should say on your wage so you come as a first time worker so you finished university or high school you joined the labor force you don't have a very high wage at least most of the cases on top of that wage you immediately levit this additional labor tax essentially so that in the future you can be covered for healthcare for pension and so on so in a way it creates this disincentive for employers for businesses to hire people who are less experienced because regardless of how experience or not experience you are you still have this essentially add on on your wages on your wage bill to pay so there is a lot of fairly convincing academic research to say that the higher the labor tax the less the newer generation the just educated generation of young workers employees join the labor force they basically say well you know if I join I'll have to pay a lot of social security taxes plus it's difficult for me to be employed because employers don't want me they want somebody who is already experienced 5-10 years and has essentially the capacity to understand better the work process I pointed I put this graph here mostly as good news to Denmark within the general bad news on tax policy to say that a few years back Denmark actually significantly reduced social security taxation essentially following this very logical economic argument that unfortunately few politicians follow in any country in the world which is to say if you reduce social security taxes directly levied on wages chances are labor participation your employment rate will go up and actually if you look in Denmark not just in Denmark some other countries have done this as well before and after the reduction in labor taxes you would see that employment the employment rate actually goes up very very very convincingly very soon after this is done but this picture is more for countries like France and Germany even in this case and Greece of saying one thing that you need to do is somehow reconfigure your tax policy don't have this type of direct taxation on labor and shift it somewhere else where else I think we'll discuss we'll discuss in a bit this is just a picture from the doing business the earlier argument that I met but specifically to taxes one thing is how much tax you pay and another thing is how painful is it for you to pay this tax to note again that in the area of taxation excluding the Czech Republic, Portugal and Italy most of Europe is actually quite competitive with the United States so it's not the case that the United States here have figured it out and if you follow presidential debates in the United States and now you do because it's fun, you notice that every presidential candidate says that they'll change the tax system and it has not been changed for about 60 years so they fail miserably to change to change the tax system so now I'm getting to the final part of my presentation just three or four more slides of saying ok so we now hopefully have sort of an idea of what are some of the problems and how they compare to the rest of the world but also what are some areas that we can build on like the rule of law or the fact that regulation on business while it clearly has some differences across European countries still is by and large better than in the rest of the world so what areas that we can build on and these I'm going to just pick some areas to hopefully inside discussion after all these are by no means all the areas well one topic is digital trade so this is an area where Europe actually has some comparative advantage in the sense that we have high internet penetration much higher than in the rest of the world even in southern and eastern Europe in fact Bulgaria my own country is among the top 10 countries in the world in internet penetration as are two or three of the other east European countries all the Nordic countries around you and I think Austria so out of the top 10 eight actually are European countries among the top 10 in internet penetration in the world eight are European countries so that's great but then if you look at some basic measures like online banking usage it's increasing over time but it's actually not great well in Bulgaria it's not great at all but even in countries like Bulgaria or the average of the European Union is not so great why is that the case over several reasons I'm simplifying but one reason is that while Europe is supposed to have a single market single economic market so we should be able to trade everything seamlessly without any trouble in the European Union in the area of digital trade actually no single market there are 28 very distinct markets so if you attempt to either do online banking from Bulgaria let's say to Denmark and transfer money or do some other types of payment transactions and so on or in most European countries if you try to buy something over the internet and receive it chances are you're not going to be able to succeed or if you succeed it's going to cost you a lot so as that the case well we can discuss hopefully but basically the answer is that there are several of the large European countries like France for example that are very protective of their market and basically say that or have said until recently that they don't really want single digital market because it somehow endangers cultural identity of countries and people and and so on so as a result one of the key markets that has developed countries like the United States over the last 10-15 years or Korea over the last 10 years in terms of economic growth does not exist in Europe and there are some studies done both at universities and at European Commission that says that if we could just have a single digital market so that basically it operates as one European market not 28 markets with different regulations and so on the European Union will add to its GDP about 1 trillion euro a year 1 trillion euro a year but that's something that is missing so I'll finish with just a few thoughts this is fairly large a large piece of work so I don't pretend to be exhaustive but from this and another about 200 pictures figures that we've worked on for this book project what are some of the things that come up so I've already mentioned most of them I mentioned the second one digital trade services trade do I think as former and to some extent current policy maker that that's going to happen soon? No there is no interest or maybe there is interest but there is no drivers policy drivers in the European Union to actually make digital trade open there are some small initiatives but we are not about to see that happening I mentioned education typically Europeans pride we pride ourselves on having good education and in some parts of Europe like here you do but it turns out in other parts of Europe education is actually quite bad bad by European standards and bad by European standards mostly Southern Europe some of Central and Eastern Europe but clearly a lot has to be done on just providing basic education and then good university services without that it's kind of difficult to see how high tech sector can actually develop if you don't have the skills and the type of people who you need for that to develop a third point we haven't much discussed today but it was very prevalent as a discussion point a year or two ago in the Russian, Ukrainian when there was issues between Russia and Ukraine and it comes every two or three years to bite Europe is that just like in digital trade we are not a single market even though we are supposed to be similarly in energy we are not a similar single market either so every country basically does its own deals with Russia with Qatar with whoever else in terms of providing its own energy it has its own regulators it has its own energy policy and there have been many attempts to change this including in the last few years when I was also part of European policy makings and they have all failed and my prediction is that they will continue to fail up to a point when some of the large countries particularly Germany, France and Italy to some extent in Europe understand that it's also in their own interest so every time that there is a discussion of single energy policy in the European Union everybody says yes, applause and then the large countries quietly go away and do their own deals because they think that they can get better deals that way not part of the European Union as a result Europe is very little diversified in terms of sources of energy we've touched a bit on the public expenditure I think I'll leave it for perhaps the panel discussion but mentioned that a very significant part of cutting public expenditures and basically reducing them to a point where there is less need for taxation so reduce taxation as well with that is the lack of pension reform and it's linked to this topic that we started with that the European population is getting older and older so we are aging as a continent very few exceptions unlike both the US where actually the population is getting younger and Asia where the population is still getting younger for another 10 to 20 years in our continent we are annually losing about 2 million workers or rather working age population every year so in a decade we lose about 20 to 25 million working age population here I intentionally do not discuss yet the topic of refugees and migration I think we'll leave it for the panel as well but Europe is fairly rapidly aging and as a result the cost of pensions and health care as well are rapidly getting higher and higher so unless you somehow recreate the public expenditure system so you can accommodate for that which is a trend we cannot really do much about it in the next decade or so taxes will have to be increased and will have to be increased in every country and I also mentioned taxes on labor there is a bigger discussion on tax reform and I think that's not a discussion at the European Union level that's a discussion at the country level still and I hope for some time to come but a commonality across all European countries is that labor taxes tend to be quite high and that's directly related to few people getting into the labor market and with that I would finish here and hope that somebody else can explain this slide for you and then we'll come back in the questions and answers in the panel discussion thank you very much for your attention