The sun sets behind the banking district in Frankfurt, Germany, on April 21.
Kai Pfaffenbach/Reuters
Ludovic Subran is chief economist at Allianz.
For all the indignation that Donald Trump’s policy pronouncements often generate, European business leaders do not seem much concerned about the prospect of another Trump presidency. Some even view it rather optimistically.
Not even Mr. Trump’s expected unilateral trade moves seem to alter the equation much.
That’s because Mr. Trump’s protectionist policies could provide European business leaders with political cover to help them justify shifting production out of Europe.
The motivation to shift capital and production out of Europe go well beyond the oft-cited lower cost of energy. To the west, labour productivity in the United States, on average, grew 0.8 percentage points faster per year between 2008 and 2023 than in the Eurozone. To the east, there is high growth potential and associated investment opportunities.
Whichever way you turn, many governments are eager to attract and accelerate investments, not slow them down or reject them, as seems to be the case all too often inside the European Union.
The EU excels at having regulations and plans for nearly everything, while it often underperforms on execution. To give but one example, just 55 per cent of the EU’s Digital Decade goals are currently expected to be met by the member states by the 2030 target date.
No wonder European investor patriotism is vanishing. Among investors, there is even a sense that the EU’s economic fortunes increasingly resemble those of Hong Kong, which rejoined China in 1997. Business leaders who had made fortunes as a bridge between mainland China and the rest of the world saw the writing on the wall as the Chinese Communist Party showed signs of shifting the island’s priorities and began to cash out.
The numbers of those in Europe voting with their feet and moving production are rising. What is described as deindustrialization in the European debate simply translates into more industrial investment in the U.S. and other dynamically growing economies around the globe. In either direction, it is a stark vote of non-confidence in Europe.
Indeed, one could even argue that the EU, for all its high-flying aspirations, is turning more or less into an adjustment variable for globalization.
Just consider the EU’s efforts to include non-trade issues in the trade agreements it pursues. The intentions may be laudable when viewed in the abstract but, from Latin America to India, the EU finds few, if any, takers. Indeed, it is regarded both as acting against its own economic interests and, in particular, as crassly overestimating its own economic power, attractiveness and dynamism.
To restore its overall competitive edge relative to the U.S., the next European Parliament urgently needs to tackle obstacles to higher productivity growth. The top priorities should be reducing red tape and overregulation, overcoming issues that hold back the speedy and timely absorption of EU funds, reigniting efforts to deepen the Capital Markets Union as well as improving digital capabilities.
While U.S. industrial policy, including the CHIPS Act and Inflation Reduction Act, is prompting the private sector to ramp up capital expenditures, the same degree of crowding-in is not being realized in Europe. The pattern continues: While the EU’s programs have been criticized for being too complicated and detail-oriented, the U.S.’s offer of tax incentives targeted at manufacturers has been praised for its simplicity.
In addition, vested interests in European nation states have blocked progress in creating a Capital Markets Union. This has come at the expense of a critical tool that could boost cross-border risk sharing, reduce the reliance on bank financing, improve capital allocation, support the energy transition and promote higher economic growth.
All of which raises the question: What needs to be done for investor patriotism to return as a decision-making factor for European business? The answer is quite straightforward: The EU and member state governments alike must make swift progress on the long list of to-dos.
That might happen sooner than many people expect right now. Not only in the younger generation is there a growing sense of the need to adjust to new competitive realities around the globe. That, in turn, requires strengthening the forces of economic growth, abandoning the bureaucratic mindset and a willingness to abandon outdated assumptions.
In that process, the increasingly adversarial relationship between business and government also needs to be rethought. Giving more room to the entrepreneurial spirit is an old European virtue. Revitalizing it is key for old Europe to succeed in the global economy of the future.
