Is a European revival coming

03/01/1999

Is a European revival coming?

Robert Haavind, Editor in Chief, [email protected]

For many centuries, Europeans led the world in economic development and trade. In this century, the US became the world`s leader, most recently in the high-growth electronics-based industries that have become the engine of national economic expansion. In the rest of the world over the past couple of decades, Asian nations, led by Japan, had the fastest economic growth, and moved to world leadership in a number of segments of the electronics business. Europe became a follower - in semiconductor chips, PCs, and most other electronics segments.

Going into the next millennium, a new alignment is emerging. If Europe is successful in blending its economies under the banner of the new euro currency, it will become the world`s largest trading bloc, eclipsing the US. Some economists confidently predict that in the future the euro will become the lead currency for world trade, displacing the dollar. The revival of depressed Eastern European economies could provide emerging markets for Europe`s high-tech products. Thus, Europe has the potential to regain world economic leadership.

While Europe is poised to move up, the Asian miracle has tanked. Japan, by far the leader in Asia, is in economic disarray and its leaders seem unable to implement the tough measures needed to rekindle growth. While there are a few bright spots in the rest of Asia, such as Taiwan and Singapore, there are many unresolved problems elsewhere, such as in Indonesia and China. Thus, it may take several years for Asian nations to regain the trust needed for capital to flow into renewed super-growth there.

What about the US? It has continued to outpace Europe in economic growth, but this balance could shift soon. Growth in the US is increasingly driven by consumer spending, which has been rising faster than incomes. Some economists believe that an overpriced US stock market is creating much of the buying euphoria, and that this bubble could well burst (if it hasn`t already by the time you read this).

Will Europe seize the opportunity to gain world economic leadership? Many bright Europeans are working to make this happen. High-tech centers are emerging around such places as Grenoble in France and Leuven in Belgium, where LETI and IMEC, two major electronics R&D facilities, are headquartered (see "Technology networking will speed European research," p. S26). Venture capital firms are beginning to stake new enterprises - often based on advanced European research - in these regions and elsewhere in Europe. STMicroelectronics has been a leader in mixed signal IC technology. The world`s first 300-mm wafer fab is being built in Germany. Telecom is big in Scandinavia, with companies like Nokia (a formidible innovator in wireless technology) and Ericsson (a major player in switching systems) building strong global market shares.

But political intrigue, a European tradition, can put a damper on innovative technology and entrepreneurial spirit, as can now be seen in Japan and Korea, for example. Many nations with different agendas are involved in the EU, and every step of the effort to integrate these diverse economies has proven difficult. Central banks in each nation must cede much of their power to a central European bank. Similarly, there are different interests within different states and regions in the United States. But its system effectively insulates economic activity within US borders from these political differences. It remains to be seen whether European politicians can deal with these divergent views as they blend their economies.

Will entrepreneurial companies with new technology help vault Europe into economic leadership? In the past, the giant European companies, which are slower to adopt innovation, have been able to thwart the rise of upstart competitors that might challenge their markets. While Dell and Compaq emerged in the US to challenge IBM in PCs, it proved much more difficult for Nixdorf, for example, to penetrate world markets from its European base.

Can Europe foster the innovative surge that helped propel the US economy? The pieces are in place. If Europeans can get it together, they can reign again in the 21st century.