 I apologise for the slight delay I've been with India today being videoed and it ran over just a fraction. I'm Martin Wolff from the FT. I'm actually replacing my colleague and friend Gideon Rachman in moderating this panel. He couldn't unfortunately be here. It's a very interesting subject, sort of the economic future of Europe. With the idea I understand that it's entitled Musical Chairs and the idea is that we're playing a game of musical chairs worldwide and we wonder whether Europe at the end of it will have a seat at the economic table. We have a slightly reduced but very distinguished panel. We unfortunately, Morten Bodskow, the Minister for Industry from Denmark was unable to come because of flight delays or other such problems. So instead we have to my left Robert Habeck, who's Vice-Chancellor and Federal Minister for Economic Affairs and Climate Action of Germany. If you don't know the answer to these questions I think we can safely say nobody in the European Government does. To your left is, I apologise if I get the name wrong, Wellen Charyo. I'm pretty terrible I expect. Is Chair of the Executive Board and Chief Executive Officer of MAC, also in Germany. Finally, Jose Maria Alveres Paleta, again I apologise who is Chairman and Chief Executive Officer of Telefonica. We're going to divide the discussion into two parts. The first part will essentially be what's the problem and the second part is what's other the solutions. The business people will explain what the problems are and the politician will start off by explaining what the answer is. I'm not going to give an introduction on this. I have followed the European economy of course for much of my life, far from all of it, living in a member. Needless to say, Brexit is for me a personal and national catastrophe, but I won't go any further on that. That must be... That's the first problem I would say. That was a person that is presumably well known, my view on this and there was made a secret of this. I've always considered myself a European as my parents were. But we will look at what's the problem, what are the problems and what might be some of the solutions. I think it's pretty clear there is a problem, both a long term one and a shorter term one. The most obvious short term one is, the IMF pointed this out very clearly, I'm not really short term, is that the US is the only major economy and certainly the only major developed country that is back on pre-crisis trend. And that is very definitely not where Europe is right now and it faces I think the risk of a significant slowdown with particular problems I think many people feel at the moment in Germany which has been the locomotive of the European economy. And this is linked of course to some profound changes in the global economy including in the manufacturing sector. But in the long term I'd like to just bring out one fact which is interesting. Not long ago I asked my colleagues to look at the market capitalisation of the top ten American companies and the top ten European companies in which I included the UK and Switzerland by the way because they are very interwoven. And the interesting two points emerge, seven of the top ten American companies didn't exist 40 years ago, they're very very new, seven of them are of course tech companies and you all know which they are and the two biggest have a market cap which is equal to the market cap of the top ten European companies and you know which the two biggest are. So that's a pretty big difference and it is accumulated of course over two generations really going back at least to the 60s in the tech sector and the valuations associated with it. So that indicates something is very interesting. I could say more about the European companies but I will note one thing that a remarkable number of them are in the luxury business. So that's where we are very crudely. So Berlin, what's the problem? So first of all good afternoon everyone and thank you for having me. Speaking about problems can take us almost a whole session so I will try to be focusing on what I believe are the roadblocks. This is a particularly timely discussion. First of all because we have tough competition and US and China are advancing very quickly. And second because the coming European elections may further slow down the pace and the path towards regaining and boosting strategic autonomy. So what are the challenges? I would like to start by something that I believe you mentioned with the different orientation which is Europe continues to be operating very well in crisis. So short and orientation that bring everybody united behind a single problem and a single mission. But to a certain extent there is that unity when it comes to a strategic foresight. And in a way that is what I believe is causing this fragmentation. When it comes to operating strategic priorities, I in my view the flawless coordination between Brussels and the member states is key. And today I don't see this consistently happening and this is creating a disadvantage for Europeans. Contrary to other countries which are very well aligned when it comes to implementing certain initiatives which are critical. I think the second point I would like to mention is over regulation. I mean obviously we need to regulate certain topics but when it comes to regulation and even contradictory regulations like we could mention the PFAS versus the CHIPS Act which is both very good things. But when you look at this in the context of the ambition of Europe of doubling the market share in semiconductor solutions you wonder how you make the implementation of those two topics feasible. So over regulation is slowing us down. I think we spend too much time debating and probably we have to really act with much more sense of urgency. And I think the third topic that I would like to mention is an environment that is behind when it comes to supporting innovation. I mean definitely in my sector pharmaceuticals and pharma and healthcare have been traditionally one of the most active contributors to economic growth in Europe. And we don't see that the environment is evolving to worse from different perspective from investment to the regulatory environment to the consistency between the European level and the country level to help innovative industries to thrive. Thank you very much. I will stop here. I have other comments that may come back later. Unfortunately we have very limited time and we do want to give you the opportunity to ask questions so you should be thinking about questions. But I would also note that in my view a question consists of one sentence with a question mark. I do know the difference. So speeches can be delivered elsewhere. Jose Maria. Well again thanks for having me here. The first thing that I would like to say is that we don't have a challenge. We have a problem and then potentially a challenge but we have a problem. We have created something pretty unique in Europe in the last 30 years which is a single market, a single market of 440 million people, 23 million companies. And we represent 15% of world GDP. But instead of taking advantage of that we are lagging behind. And we are lagging behind because we are investing less in innovation, 2.3% in R&D, far away from the 3% that was the target. China is leading in 37 out of 44 leading technologies. The US is leading in the other seven. There is no European company on that space. Out of the 50 largest ICT companies in the world, only five are from Europe. And in my sector, in the telecom sector in the last 15 years, US telecom companies have been up 260%. European companies have been down 60%. So it's not the sector, it's something around the European sector. And we are lagging behind in the deployment of next generation network. There is an investment gap of 174 billion euros compared with the targets that the European Union has for 2030. So at a time that this innovation cycle is accelerating and we are leaving the convergence of AI, quantum computing, next generation networks and blockchain, which is going to create an explosion of innovation that is even more intensive than the ones that happened 20 years ago. We have created something that is very valuable but we are not taking advantage of that. So the question is, why? And my view is that we are running this thing with the rules of the previous century. We are still running innovation. We are still running some sectors with rules of the previous century ignoring that there is a new economy that has been created that is totally beside this growing. So we are competing in an unlevel playing field. And we need to acknowledge that there is a definition of the relevant markets. So we are not asking for anybody else to be regulated. We are asking same service, same rule, same obligation. And we are not there. So I will finalize by saying that it's time for Europe to decide where do we want to be five years, ten years down the road. And when we decide that, when we have a common view, how we want to take advantage of this massive value-creating thing that we have been creating with the single market, then we decide what's the competition policy and what's the industrial policy that is according to that target. Because we are still living with targets that were imposed 34 years ago with most of this economy was not even here. So I will stop there. I think that we have a massive problem, a massive challenge. And I think that time has come, as Beleng was saying, to act. I mean, if we want to change things, if we don't change things, nothing is going to happen differently. So Robert Havoc, do you agree there is a big problem? And if so, do you agree in any way with the analysis that you've heard of what it is? I agree completely that there's a problem, but I even would make the point that it's bigger than discussed until now. Maybe I can come back to your first remark, Brexit, and tell you what I think is the problem. And then all the different aspects of regulation and this risk averse finance tendency in Europe shows up even harder to this hard light. But the real problem is that economics, and I think the history of the World Economic Forum maybe tells the story, economics was considered as a neutral sphere business-making. And the rule of businesses is invest in money, invest again and so on and so on, open borders. No ideology, no politics interfered, and business people always ask from politicians, stay away from our sphere. This is what a minister of economy has to be done in the past years, do nothing. Let us alone deregulate the market work. That was the basic idea. Do you remember the famous book of Fukuyama and of history that was meant that nothing is going to happen, but that no politics, not an ideology, is interfering into this globalised open sphere of economics. And this is gone. Now we live in a time, and I think it was always there, but we haven't always recognized it, where economic relations are deeply woven into the sphere of interest relations and interest relations are power relations. And the war on Ukraine, the dependency in energy, using energy as a weapon, but also to see how fragile our society is because we can't produce mass in the times of COVID-19, shows us that the idea that we always help each other and the flow of on-demand goods is not disrupted never ever has come to an end. Europe and Germany, especially, or its power, relies on these open markets. Now we have a fragmented world. Brexit was one sign of it, but not the only one and not the first one. And we have to anticipate that these interest politics in economic spheres is an ongoing phenomena. And then now we see that our own mistakes, European mistakes or hesitations are not being competitive enough. Now they become a real problem because the world has changed. And this real problem can be defined and then also overcome, as you just said. So shall I give you some... No, you are not at the part where the solutions are coming, are we? Not yet. You're going to have an opportunity to start. I would say the real problem, the world in which we live in is even bigger than different aspects like over-regulation and lack of investments, lack of innovations and so on and on. It's that the idea of economics has changed fundamentally in the past 15 years, I would argue, but we have seen it in the last two. If I understand you correctly, there is obviously lots of aspects of this. A part of it, what you're talking about, is what Belen and Jose Maria talked about, which in a sense is... Let me be crude about it. There are predatory competitors out there that are not playing by the rules and are better at not playing by the rules than Europe is, partly because they're united and they're huge single countries and partly because they're very happy not to play by the rules. That's part of it. And then there's a bigger metaphysical ideological idea which Europe really brought into the social market economy, as it were, which is very much embedded already in the original treaties and very much a German idea. Is that the other part of what you're thinking? Yes, both is true. Local content rules, subsidies, like long time not seen, the advantage of the lowest level of regulation, sometimes climate issues and so on. They are all part of a competitive game that we are not used to. But let me be clear. Other countries, other economic fears, they can do it. We thought of them as the cheap working bank for our products and we earn the money. We means the Northwestern Hemisphere in a way. Of course, the Middle East, China, other countries, they have the right themselves and they're using their advantages as we have done before using ours. But the question of this panel is what is the European problem in a new economic world order? And the problem is that the arrogance with which we have thought that we don't need to do anything because everything is working to our advantage, that is gone. And now we have to work hard and we have no other choice as to do our homework. So let's come to you and then we get the feedback and finish this part of the discussion. So, we've made huge mistakes. I'm talking about a European. The world has changed against us. The world has changed against us. We have created very big problems for our enterprises in various ways. So what do they do now? What should the politicians be trying to do? Mistakes is maybe the wrong word if I may say so. Of course, let's say Germany was dependent on Russian gas. That was a mistake from our perspective today and a huge mistake. But when this developed, mainly the social democrats in Germany thought that we may become to a peaceful relationship with Russia and then we have a business relationship and out of business it was a gas relationship. So was it a mistake at the beginning? I don't know. It's a structural change. You talked about or you talked about the lack of investment. Yes, but we have a very fragmented banking sector. We have no capital market union. We have no banking union. If you look at the European banks they are in the world scale, they are really small. They don't have the financial fire power in a competitive world. Was it a mistake in a way that national arrogance to say we care only about our own small banking system but now we have to now we are seeing the consequences and now the state or the public money has to step in because the financial market is not powerful enough. But our financial rules are not built for such a powerful role of the state interfering in the economic sector. So you see it's a lot of structural change and development in the political system that has to be worked off now. If I may ask you, Willen, that has come to you here how do you respond to what you've heard and in particular if you think that we are now in a competition of great states which are essentially mercantilist powers and the US has followed or is following China in this regard I'm not going to debate who's starting this. Is it the logical implication that a necessary condition for the success of the European economy seems implicit in what Rob was saying is a much deeper integration of the financial system the fiscal system and the policy system. So let me first comment on the mistakes. I would call that complacency. I think for many years Europe has been very complacent. After the pandemic and many other multi-crisis the pressure has increased and once again I believe that yes definitely further integrating making having an industrial policy an integrated industrial policy that clearly outlines underpin the priorities is going to be a very very very important step but you know there is no strategy without a realistic implementation plan and at the end Europe can be is only operated through the member states right and I think this is an opportunity to launch a call for action to a European political leaders to first of all regulate taking into consideration the priorities of the European industry in whatever sector and definitely the financial services and the financial sector has to be integrated further supported because you said it we have small European banks but why is this happening I mean we are not going to debate specifically on this sector but definitely because in a way the hyperregulation is eventually preventing growth of that industry as I could talk about the pharma industry as I mentioned before so having a clear industrial policy is important but to me the most important is that there is more consistency between the European vision the priority and the alignment with the member states in order to be able to make tough choices I mean we have reached a time in which we need more accountability I think this first accountability and not understanding who is doing what is actually getting on our way to progress and I mean the private sector cannot work in isolation on this we have to really work and in hand with government and political leaders Jose Maria what do you think of the solutions and how far are some of the questions that we've been discussing relevant and what are the other things because my reading from what you say is that it doesn't need a concerted European will I may misunderstand you but it does need the European governments and the commission to get out of the way am I understanding you correctly partially correctly I think that we need both I mean my point is that we love to regulate but we need to incentivise my point is the following we invest 2.3% of the GDP in R&D but in experimental R&D which is high risk high reward we invest just 42% of that amount China invest 83% the US invest 65% so the incentive to invest in high risk high reward is not here and Europe used to be the home time of innovation in my sector the GSM was a European standard neither 4G nor 5G has been a European standard so my point is that we are addressing the money in the wrong places because we prefer to have 5 antennas in each roof rather than to innovate there are more telecom companies in Spain than in China it makes no sense the definition of the relevant market is wrong we need to reconsider that because we are ignoring we pretend that there is the digital economy doesn't exist there is a survey from the Microsoft Research Centre that calculates the value or a 4 members family in the US data all along the year between 25 and 40 thousand dollars per year if in Spain there was to be 10 million households of 4 members that means that 250 or 400 billion dollars are not scoring to the GDP of my country what is this money we are not part of that economy so my point is that we need to make a reflection of where we stand and where we are going to go and once we have decided that then we need to reconsider the definition of the relevant market the competition policy and how we treat those new players because it's not about great states it's about great platforms in my case we are competing with streaming platforms we are competing with messaging platforms and those are totally being ignored in the definition of the relevant markets so I think that we have we are ruling this world with analogical measures it is a digital world and by the way it is accelerating through AI AI is a game changer it's an acceleration of all those trends so my point is that if you ask me one thing the top of my mind on my wishlist deregulate deregulate us we were regulated in Spain because we were a former copper incumbent monopoly we will be full fiber this year we are no longer the incumbent we are not a monopoly so we should not be regulated let us compete do you think that Europe should be considering the idea of a European champions in key sectors I think that champions are being created by the market I mean you don't create champions the market creates champions because you are relevant the problem that we have is not that one because we cannot play at scale my point is that when you have 27 regulation for a spectrum when you don't have a harmonisation of spectrum with each country award spectrum with different rules I mean it is impossible to create a single market of that so I'm definitely for more Europe more harmonisation of Europe and more incentives rather than regulation and I think that lately Europe is going into that direction I would strongly suggest to accelerate where we want to be ten years down the road it makes no sense that there is no European company about the top 44 most advanced technologies on earth it makes no sense or our market deserves more than that can I just ask one question for you Robert which is you talked about the financial system it's an important example it is this is the one that I looked at most closely in the crisis and one of the reasons perhaps the key reason is ultimately when crisis hit the backing for the sector came from member states because they had the fiscal resources and actually quite a number of banks went home they left markets in other member states because the governments their governments would essentially only back them their core business in their home country and this is one of the key sectors perhaps the key sector where it's really hard to separate the sector itself from the governments that back it and that means that you have to increase fiscal resources at the centre the deposit insurance issue is one important part of that and my impression is that generally Germany has been particularly unwilling to proceed in that sort of that sort of direction fiscal integration of that kind in these circumstances do you think Germany might change its view I hope so I can explain once again why I hope so I just started explaining that we are not only talking about economic when or growth or business this is deeply related with politics now like it or not this is the case as a European I'd like to see the value system I truly believe in not to be pushed away out of the world order so therefore I agree the answer is more Europe we have to integrate the financial sector but let me give you other examples the idea, the similar market works was the idea of level playing field meaning the DG competition is carefully watching that no country is doing more investments compared to his GDP than other countries and this leads to a over-regulated form of investment strategies it took three years time to say yes we want to build a factory or decarbonise a factory but the real competition is not between Spain and France or Germany and Poland or Denmark or Sweden it's between Europe and China and the US so the rules according to which we are acting are in a way out-fashioned they are they are not fitting to the world we are living in in the morning third example financial sector competition or a single market third example today in the morning we discussed with President Zelensky support for Ukraine and Europe has no defence industry we have 27 defence industries and if we have common projects every member state is looking very carefully that some part in the whatever ammunition or tanks or whatever is just done that it can only be produced in Belgium or in Luxembourg I don't know if they have any defence industry you see what I mean there is no willing to cooperate the national proud is we have our own defence industry and this is then we try to overcome it by hundreds of complicated regulations but now to the solutions we have seen in times of crisis that Europe can gain speed in the energy sector which is part of my portfolio it was an incredible solidarity and we have done things we have never done before we have been shooting deregulate we have built up grids pipeline systems and LGE platforms in weeks normally it takes years we have a common purchasing platform we have a common buyers platform for the gas market this is all developed was all developed over only few days actually so Europe can if it wants and from my perspective this is deeply I'm going to take questions now and just repeat be brief and to the point I will take this lady here to the would you stand up then they can get the mic to you I presume there is a mic yes that will be help probably thank you say who you are and the question very brief I'm the general secretary of the trade union advice we committed to the OECD I have a six words question what can Europe learn from bidenomics that's a good question I'm going to take several the lady next to you what can Europe learn from bidenomics what can Europe learn from bidenomics your question I'm Monique Andres I'm EBP for YARA International EBP Europe very much agree on what you said my question is how positive you are in order to achieve the integration all across Europe and in order to face and also change this fragmentation that has led us all to the situation where we are okay and I have one final third in this round I think this gentleman would you stand up so they can recognise you my name is Patrick Cremor I'm president of the Max Planck Society my question is how can Europe promote the transformation to a sustainable economy okay that's very good I will give I want to give you all the opportunity to answer all of them but I can give a fair chance okay what let's start with the two business people Jose Maria what can Europe learn from bydonomics bydonomics I think you mentioned the chips act if I remember correctly which was one of them and the IRA is another so should Europe be doing things like that I think Europe is doing things like that if you judge upon the amount of subsidies or incentives that Europe has done in the last year is roughly 700 billion euros which is roughly the same in the US my point is that are we applying the right incentives are we having the right incentives to apply this to a place in which we are driving something for the future I think the US is there, we are not there yet is highly fragmented each country has its own list of interests so in my opinion we need to build a European agenda and I don't think we are there yet in this specific again I'm going to repeat myself and I know that but you know in this specific area 44 leading technologies those are the leading technologies it's accepted we need to be there and we are not so it's not about the amount of incentive Europe has proven that when it's it wants it can act very quickly in my opinion is what is the agenda behind that which is not clear for me can I build on this a bit because you know incentives are not enough if Europe and this is what I was referring referring to before when I was pointing at the misalignment between ambition and realities if Europe is aiming to double the market share from 10 to 20% in the semiconductor materials industry Germany is providing economic support to very important cheap manufacturers but it's the agility with which the whole thing is implemented enough right so I think we have to really integrate all those topics because those are not disconnected to at the end maximise the impact then perhaps I can build on the fragmentation topic which very quickly I would like to listen to to listen to the vice chancellor on your political perspectives but I think definitely we need to have political leadership stepping up to deal with the country priorities which of course are absolutely critical but to help in Europe build that strategic foresight which I believe is what you mean Maryam when you say what do we want to be in 5 to 10 years and most importantly find the balance between driving European priorities the two or three critical priorities that are going to raise Europe competitiveness even if you have to make trade-offs at the member state level so may I ask you to comment I mean in some sense all of these questions are for you yeah but I start with pyrenomics and sustainability sustainability economy is quite but I would like to add one thing which may be directly related in a way I was thinking because Jack the Lord just died I knew and one can I leaving aside next gen which is significant next generation EU the two great reforms we monetary union and the single market basically done in his time and that's more than 30 years ago so to an outsider it does look that there's not just and this is I think a lot of our discussion the political stalemate problem is prior to all the other problems that we're talking about and the fact that there hasn't been a really big institutional reform even though everybody has been talking about these problems now for three to two decades at least is an indication that politics is some way where it starts yeah you're right and once again Ukraine we discussed today mainly military support and economic support but they are on their way to the EU now and everybody wants it I hope and the western Balkan states are eagerly watching they also want to be part of the EU so we need structural reforms this is going to happen this is a huge change in the structure of the EU I think the structure we have now can't cope with that amount of new member state and the country as big as Ukraine so there is time is pressing going back to economics the question was one question was do we have we to do the same spending billions of money for subsidies for industries as the US is doing and actually I think we should not I hope not but maybe we have to do from my perspective there are two forms of subsidies one is good and one is not so good the good one is sometimes we have to create markets to solve the head and the egg problem let's talk about hydrogen everyone is talking about once hydrogen in the 2030s but it's not there but we have to invest in the grid we have to create a market for that and that is a political job we have to do this is a good form of subsidies spending money into a development that is wanted by the society maybe the governments and the best of all our words society and government are wanting the same but it's not there this is the right form for subsidies and the bad one is that we want to steal the industries from others and the IIA is maybe also a little bit of the first one but actually it is very aggressively directed also into the industries of other countries and I hope that we are not doing the same because this leads directly to the subsidy raise we all want to avoid and this brings us also to financial limits and can you concrete stories of companies when I became minister in 2022 or end of 2021 that had made investments decisions in Europe in Germany and half a year later they came up and said now there is the IIA now we are moving to the US except you give us million euros more than we stay and then we had to pay the money otherwise they went away so this is not sustainable economics but in a way I can't let it happen so if this is not the best of all words but if I have to live and act in the in the grey word then I act grey so then I am willing to spend the money though I think it's wrong so the best would be that the US and the EU after the elections we both have elections in this year come together and remember that once there was a point of time where economic cooperation was was of added value to both our economies I hope we have both governments and commissions that will think that way so we've got about 45 seconds left does anyone want to comment whether either of you want to comment on what the Vice Chancellor has just said I just wanted to because this issue of the subsidy race and the zero sum nature of it I am my own concerns about biodonomics it seems to me a very important one but maybe you can only start getting into the negotiation if you've got money which is actually an issue for the US too I'm not advocating for for bigger subsidies not at all I am advocating for a clear strategic roadmap in which we align on how do we make Europe more competitive and you know then is only through the conversation between the public and the private sector that we will be able to see what are the financial means and resources that are necessary and where is this coming from so once again it's not only a matter of subsidising growth but it's actually aligning and making choices on what are the priorities guiding us the public and private sector to boost Europe competitive and we have to do this very decisively we need to definitely do it very decisively I mean we cannot compete with the US in terms of financial resources at this time I mean Jose Maria mentioned AI we are lagging behind on something which is going to be transformative to the world we have invested 1.7 billion in 2023 in Europe while the US private equity and venture capital have deployed 23 billion so you know let's be let's align on the strategic priorities let's develop the roadmap let's focus on implementation because at the end it's a bit simple it's a bit of simplification but the more complexity we bring to the equation the more we are going to lack I have to I knew this would happen because it's a huge subject which we're trying to cover in a very very very short time all I would say at the moment is that what I take from this is there's an agreement that there's a very big problem there's agreement that this very big problem has a lot to do with the structure of Europe politically and institutionally which is and finally that it's very very hard to change this my I think you said one thing that is encouraging which is of course goes all the way back to money which is Europe is built in on and in crisis and this is beginning to look like quite a serious crisis in the economic situation of Europe so maybe one should take the optimistic view that political pressure from below to fix it will actually allow for quite radical changes and may I finally say I do hope that we don't get into an open-ended zero-sum subsidy war across the world I think that's going to be very unproductive Can I take a second thought that gives us some hope I will be killed if you do but I'm happy to be killed so I'll give you You started with a Brexit and when Brexit happened there was talk about a Dexit and Italy etc nothing of it happened and I met my colleagues on the other side of the tunnel in Great Britain and this is a conservative government and I have the feeling that they are not too happy with a Brexit so I think that's true Right now they wouldn't have both I guess so there is hope, people can learn Well maybe the really important point I'd like to tell my European continental friends that we've done you an enormous favour by eliminating similar ventures by anybody else this is probably unnecessary but not sufficient condition for solving your problems Thank you very much