The last fifteen years in Europe have been fantastic ...



Carl Bildt

Chairman Kreab Group

Eastern European Business Forum

Stockholm October 13 2005

We have been asked to comment on what’s been happening during the last year.

That might well be important. But it’s the bigger picture that’s really important.

What’s been happening in these countries during the past last fifteen years has been more than fantastic – for any reader of history it’s obvious that it has been almost miraculous.

I vividly remember trying in the late 1980’s to get to Tallinn in the then Soviet Socialist Republic of Estonia.

If we leave issues of visas and invitations aside – there was certainly no such thing as free travel – there were hardly any links. Three times a week there was an almost empty, distinctly grey and very run-down Soviet ship leaving Helsinki for Tallinn. And you arrived in a town as grey and run-down and depressed as the ship.

Today, things are different.

There are in the order of 40 ship departures from Helsinki to Tallinn every day. And in addition you have a helicopter shuttle – it takes 18 minutes or so – between the city centres. Everything is booming beyond belief.

And the story is more or less the same from Tallinn to Sofia. Ten nations and 100 million people have been transforming their societies, reformed their economies and relaunched their futures. It would hardly have been possible without the magnetism of the European Union and the model it represented.

It’s a success story of truly historic dimensions.

And the interim result – we are still in the middle of this vast transformation – is that we can say that Europe has never been as free, never been as secure and never been as prosperous as today.

Never - in its entire history.

But it’s only the beginning. Fifteen years is a short time. We might look at what has happened during the last year, but our true perspective should be what might happen during the coming fifteen years.

We started from division and decay in 1990 – where are we likely to be in 2020?

The year that has passed has pointed towards the future.

We have seen that formal and full accession to the European Union have given these economies a further boost. We have seen the Orange revolution in Ukraine and the transformation underway there – although not without its challenges. We have seen the political changes underway in Poland. We have seen the Russian economy continuing to grow relentlessly – although fuelled more by oil and gas prices than by reforms.

And we have seen the accelerating effect that the growth in the East of Europe is having on the economies of the West of Europe.

In my opinion, we are in the beginning of the shaping of a truly new European economy. As East and West melt together, we are given the possibility of creating a new European competitiveness that will give us an edge in this new age of globalisation.

We now see competitive forces increasing stronger in Europe than anywhere else in the world. We are affected by the East of Asia as is every other corner of the global economy. But we are also – and to some extent even more – affected by the East of Europe. We have double the increase in competitive forces.

Some are certain to complain about this, but in my opinion it is undiluted good news. Because competition forces change, and change means improvement, and improvement today means a better position tomorrow.

Somewhat provocatively I’m arguing that the 5 % of the European economy that the new member states represent are soon starting to drive 50 % of the changes that we are seeing in the board rooms and economies of Europe. And they certainly represent at the least as much of the opportunities that we have.

Another of my thesis is that we will now see economic growth and reform coming from the East rather than from the West. Things are changing.

The more subject to the new winds of competition and opportunity from the East, the more an economy will reform and eventually also grow.

Why are the Austrians doing as well as they are? It’s not rocket science – look at the map and see what their banks, trading houses and enterprises are doing.

Why is Germany almost certain to outperform France and – give it two years or so – the United Kingdom? Well, you know how their industries have been transforming themselves, investing in the East and seeing the new market opportunities there. And their changes are driving changes in the economy as a whole.

And we see the same on the micro level.

Why is Finnair doing better than SAS, when not that long ago it was conventional wisdom that Finnair was heading for oblivion?

The answer is both East Asia and East Europe. They have outsourced all their domestic propeller operations to Tallinn – it’s just a small jump away. They can have competitive prices and they do serve the most rapidly growing markets. It’s the East that counts.

And going down from the air to the sea:

Why is Tallink today far more successful than Silja Line or Viking Line? Part of the answer is of course a more competitive cost structure. But I would argue that part of the answer is also a stronger entrepreneurial atmosphere, a drive to really succeed and a willingness to take risks.

Much of the discussion in Sweden as well as in other Western European countries today is about preserving things. You hear political leaders talking about the need of preserving some alleged social model – it might be European, Nordic or Swedish dependent on the speaker.

But for three hundred millions or so Europeans this isn’t the issue. For them the issue is to change, to move forward and upward so as to start to catch up with us during the decades to come. They are not preservers – they are changers and attainder’s.

The three Baltic countries are the growth tigers of Europe. Forget about Ireland in the West – it’s Estonia, Latvia and Lithuania in the West that sets the pace. And it’s their economic reforms that are starting to transform Europe.

The so called Lisbon process hasn’t produced much. But what I’m calling the Tallinn-Bratislava process of competitive reforms has achieved a lot – and is certain to achieve even more.

Of course there are numerous problems and vast challenges ahead.

The political systems aren’t always as stable as ours – although ours are sometimes too stable. There is a dangerous discrepancy between the rapidly wealth-creating young urban Europeans and an elderly rural population often feeling completely left behind. There are remaining problems of corruption and of both the administrative and judicial systems. There is a certain risk of reform fatigue setting in if reform results aren’t seen by most.

But serious as these issues are, they are far less so than most observers predicted five or ten years ago. And there are few who do not expect them to gradually fade away. There is no serious risk of sliding backward in countries that have become or are on the verge of becoming members of the European Union.

And that’s really the important thing when you think ahead – as people in business have to do.

I see three big challenges ahead.

The first is the continuation of the reform process in Russia and in the Ukraine.

For all practical purposes there is no reform process in Russia any longer. An initial Putin burst of reforms has been replaced by stagnation and reliance on oil and gas revenues.

So far so good – and the show can go on for quite some time to come.

But the country needs enormous investments – not the least in the oil and gas sector. And it needs a more transparent political system and a more independent judicial system. Administrative reform is long overdue.

Ukraine is in better shape now than a month ago. Rampant populism has given way to cautious reforms. But much will be dependent on the March elections to the Rada.

Medium-term prospects – independently of the March results – are good.

The second challenge will be the coming enlargement of the European Union to the Southeast.

The enlargement of the last decade and coming year or two was a hundred million people. This – over the coming decade – will be a further hundred million people. They are even younger, in many cases even more eager to catch up and make their mark on history.

We are moving towards an integrated European market of well over half a billion people. The importance of this development – it’s to a large extent about peace, but also about prosperity – can hardly be exaggerated.

The third challenge lies in the old West.

Here we see a build-up of defensive attitudes that risks turning into de facto protectionism and the silent building of new barriers in Europe. It is profoundly dangerous for us all.

The forces of the past are crying over either a Polish plumber in France or a Latvian construction worker in Vaxholm in Sweden. And they are trying to create new walls when we have just thrown down the old ones.

But we all know that what we need is more of this – definitely not less. We are not protecting us if we build barriers against them. We lose their services, and they lose our opportunities. There are no winners – there will only be losers.

And what we lose is the opportunity of creating that new, more integrated and far more competitive European economy that the reform processes in the East and the extension of our integrated single market with its own distinct rules is gradually opening up.

We have seen fifteen phenomenal years. But if we can master these three challenges, we can be assured that it’s only the beginning.

You ain’t seen nothing yet, as they say in the West. But now it applies to the East.

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