The one question on everyone's lips was the future of Europe. In the short term, how will the Eurozone crisis be resolved? In the longer term, what prospects are there for the continent as a centre of business growth and investment?
The overriding conclusion was bleak. Europe faces a declining future, dogged by an obscenely over-leveraged banking system, high public debt and low to no productivity. One commentator described a conversation with a senior Chinese official, who described Europe as "an old people's home sliding into obscurity."
If it doesn’t concern you that the Chinese have their doubts about the investment potential of Europe, it will really concern you when Europe’s largest company, Shell, publicly express these exact sentiments. Simon Henry, the Chief Financial Officer of Shell, joined us for a special discussion on the role of corporates in the capital markets - his verdict on investment opportunity in Europe was damning. (Click to watch.)
Why should Mr. Henry’s criticisms of Europe matter? Well, Shell is Europe’s largest company by market capitalization, standing at $250 billion. They are Europe’s largest investor, with over $32 billion invested last year (excluding M&A). They are Europe’s largest dividend payer, with $11 billion handed out over the last 12 months. They are 1% of the world’s stock market. As Simon rightly put it, “what we think, matters”. And yet, despite Shell’s 150-year history in Europe, they invest less than 15% of these huge cash assets into Europe.
Where is Europe going so terribly wrong? According to Mr. Henry, Europe fails to recognise the importance of the private sector as a critical partner for stimulating growth and productivity in the economy. The dialogue between policymakers and business is non-existent. The private sector feels left out of the process - with the door firmly shut in their faces.
He adds to the list of European woes, an increasingly dense regulatory environment and an unstable long-term investment horizon, characterized by sudden policy changes such as tax hikes, energy emission targets and the like. In conclusion it is an environment which looks less inviting than, say… China.
I will let you make up your mind on the future of Europe and would encourage you to see the videos of the event. (Click here)
There is one point that started to emerge from these discussions ,which I found particularly interesting. Investment analysis is often strewn with generalizations about the opportunities and challenges in areas of continental size and diversity. Europe is doomed. China is volatile. Emerging markets equal growth.
The reality however may be a little more nuanced. Rajat Nag, Managing Director of the Asian Development Bank (another speaker at Bellwether Europe), touched on this point when he spoke of London’s ‘cluster effect’. A global city of London’s history and position, says Mr. Nag, gives The City a peculiar power to draw in the best talent, organizations and ideas. London can do this despite biting economic recession in other parts of the UK and Europe. Taking this into consideration, investors may be wise to look at cities, rather than countries or continents when refining their investment decisions.
Has Europe become the old biddy of the global economy or is there life in the old dog yet? I’ll let you decide.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
