Edmond Israel Foundation Vision for Europe Award: Speech by André Lussi

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European integration and globalisation

Speech by André Lussi, Chairman of the Edmond Israel Foundation, on 17 September 1997

1. Introduction

European Visions

European integration and globalisation - these are the dominant themes of our times. Not only for politics and private enterprise but for each and every one of us.

Before going into detail, a short retrospective. A retrospective on the foundation of the European Union in 1957, which - together with other developments - has paved the way for the global era. The foundation of the European Union was based on three main factors:

the awareness that the individual countries were weak in the structure of the two super-powers, the United States and the (now divided) Soviet Union;
the tragic experience of the two world wars in this century, with the unnecessary loss of millions of human lives and the self-destruction of Europe; and
the desire for a better world, with more freedom and equity.

These desires - this vision - determined the founding treaties of the European Union which define as their main objective maintaining peace and increasing economic wealth through the establishment of a common market. The plan of Robert Schuman and Jean Monnet, which led to the creation of the European Community for Coal and Steel, had the express goal of creating such conditions, that would render impossible armed conflicts in Europe. This plan has been successful; the integration of the national economies has made significant progress. World-wide trade increased more than thirty-fold between 1958 and 1992 and trade between member states of the European Union has increased more than the forty-fold since its creation. The degree of integration and inter-dependence becomes particularly evident when international trade breaks down temporarily. One example is the French truck drivers’ strike last year which led to a chain reaction in several European economies.

Economic integration and globalisation

However, the European Union is far more than just an economic club - important progress has been made in reconciling former hostile nations and in strengthening political union - not least thanks to the untiring efforts of Chancellor Kohl. Without your vision, Chancellor Kohl, without your foresight and without your persistence this progress would not have been possible and the 'European house' would not be close to completion. We would like to offer you our deepest appreciation for this.

Regional competition

Economic integration is frequently put on a par with globalisation - understood as the elimination of distances. In my view this definition is too narrow. Globalisation is brought about and supported firstly, by the removal of restrictions in trade and capital movements and secondly, by information and communication technology. Information and communication technology has made quantum leaps over the last years and increasingly determines our way of life. For banks and other providers of financial services, globalisation means that their services are available 'around the globe' and 'around the clock'. By this I mean not only world-wide communication and information available within seconds but also the simultaneous evaluation of financial data, electronic access to financial markets around the world and real-time settlement of the transactions carried out in these markets.

As a result of globalisation the individual countries and their governments enter into world-wide competition with other countries and regions for internationally transferable capital and investments. Investors take advantage of the local and regional differences and thus put pressure on governments to adapt. By competitiveness of a country or a region I mean: attracting investors and investments by creating favourable conditions - investments lead to economic growth, job creation and higher tax revenues - and if possible at the expense of other countries or regions.

European Competitiveness

How competitive is Europe? According to a study conducted by the World Economic Forum, Europe is not very competitive. Asia, the United States, Canada and New Zealand rank highest. There are a number of research studies on this subject as there are a number of criteria and benchmarks to measure competitiveness. Nonetheless, it is undisputed that the European competitiveness needs to be improved.

2. Improvement of European Competitiveness in the globalisation era

What does this mean in practice - what measures have to be taken? What actions can governments take, what actions can private enterprises take to position successfully in the new environment?

I see four important areas:

First, further deregulation, less state intervention in the markets, in particular the labour markets;
Second, further deepening and broadening of the European Union;
Third, solutions for the problems arising from the ageing population in most European countries; and
Fourth, further education and continuous training.

Role of Governments

The task of governments is to set a framework which allows and promotes entrepreneurship. Entrepreneurship means: taking the initiative and assuming responsibility, taking risks and being rewarded by profits for good decisions and being penalised for bad decisions by less profits or even losses. Creating a framework means: To limit state intervention in the economy to those domains, where the market fails. In this regard the principle of 'in favour of the market' should be applied. Besides the unwillingness for reforms we are particularly concerned by the over-regulation of the labour markets, not only by the State but also by unions and employer representatives. This restricts the entrepreneurial freedom, and - together with taxes and social contributions - increases the cost of labour. This, in turn, reduces the demand for labour. Deregulation and incentives for new employment are not only economically required, they are also desired by the people. Without increased flexibility new work forms, such as tele-working, are not possible; accordingly entrepreneurs often invest and create employment in other regions.

European integration

The competitiveness of Europe and the continuation of economic integration are closely linked. The European countries must work together to master the challenges and, in my mind, an economically integrated Europe also needs a single currency, the euro. The euro has numerous well known advantages, which I do not need to repeat here.

I only would like to say:

We cannot delay the introduction of the euro - neither politically nor economically. A delay would lead to a confidence crisis and undermine this 'project of the century'. The discussions on the use of decimal points and on any delay in introducing the euro create uncertainty among market participants who are making significant efforts to be prepared for January 1st, 1999. Economic convergence in the European Union is vast. The bases for a stable euro are good: In most European countries inflation has almost become an out of date term, public budgets are in a consolidation phase, interest rate levels are low and the exchange mechanism of the EMS is working. The interest rate difference of European government loans has decreased significantly over the last two years. Financial markets expect a timely start to monetary union and are acting accordingly.

Further integration also means enlargement of the Union, including the countries of Central and Eastern Europe which have significant growth potentialities.

Demographic development

Most European countries have to find solutions for the financial effects of ageing populations. The so-called 'generations contract' is a burden for public budgets and the working component of the population. It increases labour costs. Turning away from this outdated form of retirement provision - at least to put a stronger emphasis on private pensions - is unavoidable. In most European countries birth rates are decreasing. People are living longer and retiring earlier. In the European Union the ratio between contributors and recipients today is about 0.6. By the year 2015 this will increase to 1.1 with the respective impact on labour costs; unless state pensions are reduced.

Education and continuous training

The framework to meet the challenges of the global era also includes better education and continuous training. I purposely mention continuous training. Without the willingness to learn during the whole life, to continuously strive for new knowledge and learn about new developments - particularly in the domain of technology - the risk is high to be 'depassé' sooner or later. The formula applies: 50 percent of our current knowledge will be outdated in three years. In addition: the economically highly developed European countries have to increasingly rely on products and services which are based on capital and knowledge. This requires a high degree of experience (and flexibility).

3. Contribution of Cedel International

Role of the capital markets

Capital markets form the backbone of modern economies. Thus active capital markets, channelling capital for the most efficient use and to all regions, are indispensable to resolve the problems previously mentioned. Active capital markets require a first class capital market infrastructure, including efficient and cost effective settlement of securities transactions as well as the availability of high quality custody services.

Cedel International in a changing environment

Settlement of cross-border securities transactions and custody services form the core business of Cedel International. The environment for our business has also changed dramatically over the last years. Cedel International has been always been a global player with a world-wide presence, links to 33 domestic markets and members of staff coming from nearly 30 countries. I would only like to mention some key words such as globalisation, technological revolution, deregulation and liberalisation of markets, creation of a European Economic and Monetary Union and appearance of new competitors. The results: consolidation of financial markets, mergers of banks, insurance companies, exits of market participants, 'commoditisation' of services, pressure on margins linked to the requirement for rigorous cost management.

Strategy of Cedel International

How do we, as Cedel International, react to these challenges? How do we position in this new environment?

We act through a large scale investment programme - more than USD 500 millions in the next four years. The objectives are: Creation of a new technological platform for the real-time settlement of cross-border securities transactions, significant improvement of the quality of our custody services and customer communications by way of information transfers to and from our customers via various media. In addition we intensively prepare for the introduction of the Euro on January 1st, 1999 as well as for the year 2000.

To make this investment project attractive to our shareholders we have decided to enter new markets. We will offer other banks and financial services providers the opportunity to transfer their securities processing to a newly created company and to build a global highway. The global highway will create a seamless link between securities transactions, settlement of securities and custody of securities. Order, execution and confirmation of cross-border securities transactions, as well as their settlement, will be carried out within seconds and this at significantly lower cost and risk than is the case today.

In conclusion our strategy means: We share the necessary investments with other financial institutions. We avoid a multiplication of development investment with the related overhead cost and we offer our shareholders an attractive return on the invested capital. I think this is a concrete and convincing example for entrepreneurship and entrepreneurial initiative. Without the support of the Luxembourg government, which has created optimal legal conditions for our business, this would not have been possible. I would like to take this opportunity to express my thanks for this.

Conclusions

To conclude, let me briefly return to Europe. Europe - the small peninsula on the western border of Asia, has influenced the planet more than any other region in the world. It could always stand up against other countries and regions: European languages, government forms and economic concepts, technologies and natural sciences, culture and philosophy have acquired world-wide recognition. For centuries Europe has brought forth excellent scientists, musicians, writers, traders, lawyers and many pioneering developments and inventions are the work of Europeans. The innovative power was and is still present. I am convinced that the old continent is not 'burned-out', as many pessimists claim. We have a good chance to continue to play a decisive role in the future; if we forget our individual interests and act together with determination. I am convinced that we will then realise our vision; peace and more prosperity for us all and for the next generations.

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