How can sluggish Europe get ahead in 2015?

Despite tentative signs of progress in Britain, economic output in the euro bloc is still struggling. In October 2014 the International Monetary Fund warned that the threat of a triple-dip recession poses a major risk for global recovery. Annual growth in the Eurozone is forecast at just 0.8%.

Sure enough, Outlook Survey respondents cite fostering economic growth and innovation, and youth unemployment, as the persistent issues facing Europe, but respondents also indicate the fall-out between Russia and the EU is darkening the mood. It is an assessment Carl Bildt, Foreign Minister of Sweden, would agree with.

“We have strife and conflicts in the entire south, which is affecting Europe substantially with refugees, humanitarian challenges, and new terror threats,” he says. “The situation is worrying.” Yet, although food exports to Russia represented €12 billion ($16 billion) in 2013, Bildt is confident Russia’s tit-for-tat sanctions on agricultural products will only have marginal effects on EU members.

Bildt explains that the solution to economic pressure hinges on increasing research and development (R&D) spending, upgrading higher and tertiary education and accelerating partnerships within EU borders.

“Governments must take these issues more seriously because the majority of countries that haven’t recovered their pre-crisis production levels are in Europe.”

According to the United Nations, the EU industrial production index remains more than 10% below its 2008 peak, plateauing at 101.5 in the first quarter.

“It is important that we are investing in R&D in the future, [with] investments coming from both government budgets and corporations,” Bildt says, pointing to star pupils Sweden and Finland, which currently invest roughly 4% of their GDP.

While the bloc is targeting 3% of GDP in combined public and private investment levels by 2020, Bildt says this is in stark contrast with the EU’s current 2% allocation. “That is way too low,” he insists, highlighting Brussels’ estimates that the bloc would need to train and employ at least 1 million new researchers compared with 2008 levels, if it is to reach its 3% target.

Bildt believes that Europe must create a climate that encourages innovation. New immigration rules, such as the ones rolled out in the UK in 2013, could encourage the brightest global talent to come to study, invest and set up business. But there is also a need to create low-skilled, entry-level jobs.

“These jobs are particularly important when it comes to the integration of immigrants,” says Bildt. “When you have young people coming in from other parts of the world, this is often where they enter the labour market.”

Vocational training schemes, tied to enterprise, have helped Germany to lower its youth unemployment figures. Partnerships between universities and businesses, mainly start-ups and high-tech firms, have propelled areas around Cambridge in the UK, and parts of southern Germany and southern Sweden, to Silicon Valley levels.

In this expanding context, Bildt says, policy-makers must avoid complacency and press ahead with the structural reforms in their labour market – notably increasing the share of low-skilled entry-level positions in the economy and widening the use of temporary contracts and vocational training.

The Outlook on the Global Agenda 2015 report is now live.

This article was written for the World Economic Forum’s Outlook on the Global Agenda 2015 report, based on an interview with Carl Bildt.

Author: Carl Bildt, former Prime Minister of Sweden, is the Minister for Foreign Affairs of Sweden.

Image: A man is reflected on the glass facade of the Bonn Post Tower as he enters the headquarters of German postal and logistics group Deutsche Post DHL in Bonn March 8, 2012. REUTERS/Wolfgang Rattay