Come on Europe - get over it and focus on the future

 

It was one of those nights in Davos. Everyone was rushing to one party and deciding to miss out on two others. Amid the electrifying frenzy, in a small wine cellar of the main hotel gathered some of the leaders of Germany's biggest and most prominent industries. As the cellar grew packed and warm, two seasoned transatlantic leaders and a German minister gave informal speeches on US-European relations. The US is an important ally in a world of declining growth and rising conflicts, they said. It was a relevant message—if only there were Americans in the room to hear it. The absence of our friends from across the pond was clearly felt in this gathering of some of the world's high and mighty, and in some ways is reflective of the situation in which Europe finds itself.

In 2012, as Europeans wrestled with their crises, heads of state, finance ministers and CEOs from China, India and the US came together to press for a solution. In 2013, in the World Economic Forum in Davos and in other examples, as the Europeans continued to direct the discussion towards challenges closer to home, they seemed to stay away.

Consumed by Faustian pondering

Wherever you meet European politicians, policy-makers, academics, journalists and other thought-leaders these days, there is much talk about changing the fundamentals of the European Union—whether it's the banking sector, the social services, the education system, the energy supply, the share of industry of our economies. The conversation always goes back to "structural reform".

While there is a definite need to solve some real and major problems, there is a perspective that needs to be taken: This crisis is already on its fifth year. It might well take another five years for needed reforms to show their effects. Structural changes often require a full decade or longer to unveil their potential. This is admittedly too long a wait for those in southern Europe who are now suffering from unemployment and bleak prospects. And it is similarly too long for those in northern Europe who see themselves as the ones who will foot the bill in the end.

Welcome to the VUCA world

Those who expected the world after the crisis to be the same world they knew before it must be sorely let down by reality. We are on a journey towards the "new normal", which we are only beginning to understand. Some patterns have begun to show:

• Renationalization. At the industry level, in the banking sector, there is no longer any real "European" bank. At the state level, German chancellor Angela Merkel officially declared that the era of multilateral agreements has ended and now is the time for bilateral solutions, such as in trade.

• US rebound. Low energy prices, a well-educated and young workforce and wages that are surprisingly only 10% higher than in China are making re-sourcing industrial production to the US a truly sensible idea. Over 100 international companies now plan to re-source to the US, while many European firms are starting to consider the same.

• China upswing. The ruling party is renewing its pact of growth versus allegiance. Rural areas have been given fresh development plans, including relying on cooperative regional banks to spur business (not unlike the German Sparkasse example). The economy is clearly on its way towards higher values and higher prices. It may come as a surprise to Europe to learn that China is a major exporter of innovation to Europe, with a positive balance of 600 million euros in 2012.

• The unknown growth driver. What will drive growth next is harder to identify. The unification dividend after the fall of the Iron Curtain, the rise of the information technology industry and the financial services boom all provided us in the past a signal where to allocate investments. Today the signals are less clear and less certain. Europe might be in for a slow decade, but neither businesses nor society are equipped to deal with the challenges.  

In the early part of this millennium, military forces were faced with a new reality of conflicts, characterized by volatility, uncertainty, complexity and ambiguity. It is evident that the concept of VUCA has its applications and relevance in the business world as well.

Europe needs to urgently adapt to the new challenges. While it is important to kick-start structural reforms and clean up the mess of the past, that is the job of experts and administrators. But developing and focusing on the right strategies to succeed in a VUCA world—that is the job of leaders.

On the issue also view Roland Berger's Bernd Brunke giving an interview to BBC http://www.bbc.co.uk/news/business-22194191

Follow Torsten Oltmanns on Twitter: @torstenoltmanns

Image credit: Nicu Buculei on Flickr