4 ways leaders can build Europe’s economic resilience

  • The war in Ukraine has strengthened solidarity among European Union states as they unite against Russian aggression.
  • European leaders in government, business and civil society must respond to the crisis without neglecting its strategic imperatives.
  • Sustaining progress in four key strategic areas can secure Europe’s future trajectory.

The 64 km column of tanks that Russia sent to Ukraine failed to take kyiv but managed to end the illusion that Europe is safe from direct military attack. This birth of a geopolitical Europe, a moment I have heard best described as “Europe’s coming of age”, has brought down the curtain on an age of innocence which, for most Western Europeans, had lasted a lifetime.

In this new context, one thing counts above all for the survival of the EU: its ability to defend itself and remain united in the face of external threats. But adulthood also means being able to respond to crises without losing sight of strategic priorities. As the repercussions of the war reverberate across the continent, several European business and government leaders are already thinking long term.

Here are at least four areas where they could join forces to forge a more resilient, competitive and sustainable Europe.

1. Fulfill the promise of Europe’s strategic autonomy

Strategic autonomy, generally understood through the prism of security, has also translated into autonomy in the materials, technologies and skills that will fuel tomorrow’s economic growth. In all of these areas, Europe has undergone a transformational shift in policy and mindset, first triggered by the sobering supply chain shocks of the pandemic and now hardened by the return of war on the continent.

Germany, for example, increased its defense budget by €100 billion to reach 2% of the country’s GDP, a NATO commitment that had long eluded most NATO members in times of peace. This will push the EU’s collective defense budget north of 20% of total global spending this year.

The imperative to build Europe’s “open strategic autonomy”, launched for years in think tanks, has now become a received idea in national capitals. Europe’s reliance on one or two markets for critical raw materials is more complete – up to 98% in some cases – than its better-known security and energy dependencies. Market solutions alone have not been able to reduce overdependence, and the European Commission is now actively considering concrete policy proposals to strengthen the European raw materials industry.

Together, rising defense spending and the drive to deliver on promises of strategic autonomy will drive significant increases in investment in military and civilian research and development. Europe’s deep tech ecosystem is already enjoying a moment, quietly attracting unprecedented levels of foreign investment.

Stronger mechanisms for public-private cooperation will ensure that the large public investment expenditures that need to be brought online attract as much private capital as possible. And that supply chain vulnerabilities are identified and patched before they stifle growth and innovation – or see some of Europe’s most promising deep tech start-ups steal the nest.

2. Turning Europe’s energy dependence into an economic opportunity

Given Europe’s dependence on Russia for its hydrocarbon imports, the war has increased pressure on the region’s energy systems. Russia provides 40% of Europe’s gas, 20% of its oil and 45% of its coal, making the diversification of energy supply and the adoption of renewable energy one of the main priorities on which European leaders must work together.

Last March, the European Commission launched its RePowerEU plan to decouple the European energy system from Russia by 2023 and meet its climate commitments in an accelerated timeframe. While RePowerEU is built around new targets for energy saving and uptake of renewable energy sources, it will also be a way for the Commission to help deliver affordable energy to Ukraine and other countries. other countries directly affected by the war. The additional €210 billion needed to achieve energy independence will require coordinated efforts from the private and public sectors, both at national and EU level.

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Companies have been very active in developing and deploying innovative climate solutions, from carbon capture technologies to breakthroughs in fusion energy to sustainable fuels. Despite this, Europe still lags behind in innovation compared to other geographies. The target of investing 4% of EU GDP in research and development is still out of reach – with the bloc reaching just 2.3% last year.

Leading climate innovation will help Europe move from the fossil fuel paradigm to a new one, which promotes R&D through government policies and tax credits that accelerate uptake and scale-up. scale of innovative technologies. Only then can climate innovation become a source of long-term competitiveness for Europe and fuel the continent’s economic growth.

3. Making European labor markets more resilient

A consequence of the economic shock induced by the pandemic has been the increase in the unemployment rate in the European Union, rising by 6.2% in 2022 (an increase of 2% compared to the previous year) and reaching alarming levels in Spain (13.5%), Greece (12.9%). %) among other countries. As Member States implement their National Recovery and Resilience Plans to address the challenges of their national labor markets, it would be important to complement these reforms with policies that can help integrate Ukrainian refugees into the labor force.

Since the start of the war, nearly 6 million people have fled Ukraine and nearly 8 million have been internally displaced, resettling in the western regions of the country.

This is the largest forced population movement in Europe since the Second World War. The scale of Ukraine’s humanitarian crisis (five times the influx of Syrian refugees in 2015) will be felt across Europe if countries are not immediately able to respond with adequate support.

While Ukrainian men between the ages of 18 and 60 are required to stay in the country to support its defence, women with their children and elderly relatives are forced to flee. Due to war, women face the double burden of caring for young and elderly family members even as they become the main breadwinner for their families, sometimes entering the labor market for the first time. .

When the EU activated its Temporary Protection Directive, it provided all Ukrainian refugees with a residence permit for up to three years, access to education and employment, and free circulation in the EU. However, the scale of the challenge requires active public-private cooperation to ensure that Ukrainian refugees thrive in their new homes.

The role of business is critical in four main ways: helping governments develop retraining and upskilling programs for Ukrainian refugees who want to work; offer apprenticeships, internships or maternity cover programs to quickly integrate refugees into the workforce and into society, even if it is for a temporary period; provide subsidized childcare opportunities so that women can enter the labor market; help establish “support groups” to help Ukrainian families navigate their new local environment.

4. Strengthen Europe’s global leadership in food security

Conflict is the main cause of food insecurity in the world, and the war in Ukraine, which involves two of the world’s largest sources of calories for human consumption – 12% of the food traded in the world comes from Ukraine and Russia – could see the number of undernourished increase by 7.6 million. Some regions, such as the Middle East, North Africa and East Africa, are highly dependent on grain imports from Ukraine and Russia; a staggering 50% and 90% respectively.

Europe is a net exporter of agri-food products and seems not only able to absorb the shocks of war on its food system, but also able to support partner economies by exporting its food surpluses. Beyond maintaining global food trade, Europe could stimulate sustained investment in long-term food security programs in countries particularly affected by the war and the commodity shock it triggered.

At the same time, rising inflation, soaring energy prices and progressive land degradation could, in the medium to long term, hamper Europe’s ability to meet its own food needs and reduce its ability to produce a food surplus for export. Here, public-private cooperation would be crucial to foster sustainable and innovative agricultural practices that preserve land quality while improving crop performance.

An opportunity for action

In a few days, European leaders from government, business and civil society and their global counterparts will gather in Davos for the annual meeting of the World Economic Forum. It will be a crucial platform to make progress in these four key areas for Europe’s future trajectory through the structured multi-stakeholder dialogues that the Forum will host. These high-level dialogues will complement the ongoing work that the Forum carries out through its action-oriented communities, such as the CEO Action Group for the European Green Deal, which aims to support the EU in achieving its climate goals, and Leaders for Europe’s Digital Decade whose focus will be on accelerating the region’s digital transformation.

Mary I. Bruner