Goods• EU #1: *exporter and importer

*exporter to emerging markets*exporter to each of BRICs*exporter in 9 of 20 product categories

• EU 19% world export share – past 15 years*China: 3x to 16% share*US 12.5% and Japan 8.6% (both down 6%)*EU gains in upmarket/high- and medium tech goods

• NAFTA #1 market = entire Asia-Pacific: both 23% of EU exports• Wider Europe: 21% -- 3x EU exports to China• China: 30% annual growth EU exports – but EU exports more to Switzerland

• Imports: *China #1 supplier (18%); EU most important Chinese export market*Share of technology-intensive EU imports from China > intra-EU

share*“Made in China” vs. “Made by China”

Services: Europe’s Sleeping Giant

• Services: all net job growth in EU• EU#1 services trader 18 EU Member States among Top 40 43% export share• EU#1 in 8 of 11 categories• EU 10% export growth/yr; 1% > than global; 1% < than Asia; 4% > than NA• EU15 4x trade surplus• EU27 trade surplus with all except Caribbean and North America • 70%+ of EU economy; only 23% of global exports = room to grow• Services vs. manufacturing? False choice.

• North America: 1/3 of exports and imports• Wider Europe: 18% EU exports/17% EU imports• BRIC s trade: *12% EU exports/10% EU imports

investment: *services 60% of EU FDI; 33% manufacturing*top means to enter emerging markets

MoneyForeign Direct Investment (FDI)

• Trade is a misleading benchmark of commerce. Out of date.• EU #1 source and destination of FDI – more important as investor than trader.• EU #1 investor in US, Japan and in each BRIC.

• FDI Out of EU: North America: 38% (33% US) > next 6 destinations combined.EU FDI in US 13x that in China/India combined.US most profitable for Europe: $106 billion

2010Wider Europe: 23% (↑ 6% since 2001)BRICs: Russia/Brazil, not China/India

• FDI Into EU: US: 44% > next 20 investors combined; U.S. 30% ↑ 2010.EU 60% US FDI 2000-2009; BRICs: 3.7%2000-2009: US FDI in NL: 9 times US FDI in China

US FDI in UK: 7 times US FDI in China US in Ireland: 3 times US FDI in China

Europe most profitable for US: $196 billion 2010

MoneyFinance/Portfolio Investments

•EU #1 portfolio investor: North America, Wider Europe, Russia, India, Oceania#2 in Africa, Caribbean, Rising Asia, Japan, L. America, MEast

•55% to North America (US 51%; Asia-Pacific: 20%; Caribbean/Japan 11% each.•Portfolio Investment into EU: North America (45%); Asia-Pacific 27%; Wider Europe 24%

•US/European financial markets: 2/3 global banking assets3/4 global financial services70% private/public debt securities80% all interest-rate derivatives75% all new international debt securities70% all foreign exchange derivative transactions

•92.8% of global forex holdings in dollars (62.1%); euros (26.5%); sterling (4.2%) mid-2010But: *Investment banking revenues : Asia’s share 20% (13% in 2000).

*Global stock market capitalization: transatlantic share 50% (78% in 2000).*Secondary European financial centers losing ground.

Energy• Break the link between wealth production and resource consumption: EU lead.

• EU dependent on foreign sources: *54% today, 70% in 20 years*some countries 100% dependent

• EU more energy efficient: *half energy needed as US/20% less than Japan *EU 13 of top clean tech R&D companies *Patent leader *Germany #1 exporter environmental goods

• Imports of Traditional Energy: *Russia #1 supplier of oil and coal *Africa #1 supplier of gas (Wider Europe;

Russia)

• Renewables: Solar Imports: € 10 billion, 7x exportsSolar Exports: € 1.25 billion – Rising AsiaWind Imports: China ½; Rising Asia and Latin AmericaWind Exports: ↑ 2000-2006; ↓ since. Denmark; Germany;

SpainBiofuels: biodiesel vs. bioethanol?

People

• Europe: Aging, shrinking, net importer of labor. *W/o reforms, could reduce EU output growth 1/2 by 2040.*Mismatches in labor demand and supply exacerbated.*Fragmented labor markets despite free movement of labor.

• Europe needs to double current net immigration to halt its population decline, triple it to maintain the size of its working-age population, and quintuple it to keep worker/elderly ratios at today’s levels.

• Europe : Magnet for the Unskilled. *Highly skilled foreign workers: EU 1.7%; AU 9.9%; Canada 7.3%; US

3.5% *85% of unskilled migrant labor goes to EU and 5% to the U.S.;

*55% of skilled migrant labor goes to U.S and only 5% to EU.

Innovation and Ideas

• EU is a Knowledge Economy. Innovation is essential to continued prosperity.*EU 31% Global R&D (US 38%; Japan 24.5%; India/China 1%)*Knowledge: 75% of manufacturing output (1950s: 20%). *Innovation is increasingly international and collaborative.

US companies 71% of all foreign R&D in EUEU companies 75% of all foreign R&D in US

*Extra slice of knowledge = extra slice of profit.

• EU: *Tremendous diversity: innovation leaders and laggards.*31% of Top R&D companies (US 34%; Japan 22%)*Squeezed between US/Japan and rising innovators.*Strong lead in innovation performance over each BRIC country.

*Inadequate attention has been paid to social and services innovation. *Problems with taking ideas to market; fragmented patent system.

*EU global research networks are less thick/productive than U.S. networks *EU failed to increase R&D as share of GDP; could be eclipsed by China.

Conclusions and Recommendations

• The Great Reset is under way – but not complete, linear or preordained. • EU has a decade to reposition itself ; current crisis could be watershed moment.

8 Priorities1. Get the recovery right.2. Boost productivity.3. Complete the Single Market.4. Awaken Europe’s sleeping giant: services.5. Break the link between wealth production and resource consumption.6. Innovate.7. Power to the people.8. Become a critical hub in the G20 world. Connect and Compete.

*Consolidate the EU’s geo-economic base – Europe/North America. *Leverage growth, human talent and innovation in emerging markets . *Reengage in neglected markets: Turkey, Africa and Latin America.