Stéphane Boujnah: Europe must ignore ‘pessimism of impatience’

Imagine a space traveller coming back to Europe after a very long trip, not informed of any of the events that have taken place in the past decade. Presented with the data, he or she would see an ideal picture. Economic forecasts point to a sustained period of strong growth, no inflation and a current account surplus. It is the kind of ‘magic triangle’ that policy-makers often try to achieve for many years without success.

This is not a spike, nor a temporary phenomenon. The underlying momentum is very robust. Over the past five years Europe has created 7 million jobs; employment rates for men in the adult age range are now equivalent or above those of the US. Fiscal consolidation has been achieved everywhere on the continent, with only two eurozone countries having a fiscal deficit below the 3% of gross domestic product threshold.

A positive picture

Political uncertainty has dissipated within the EU. Major reforms have been, and continue to be, implemented. The single market is thriving. Recent cases show that Europe has now the most advanced and sophisticated competition policy in the world. This can only improve the business environment.

New entrants, especially small and medium-sized enterprises (SME), are able to grow and exploit opportunities while Europe has become an extremely fertile ground for innovation. According to the International Federation of Robotics “the EU occupies top position in the global automation race”. Half of the 10 countries with the most industrial robots belong to the EU. On average, the density of robots in Europe matches that of the US.

This momentum is especially strong in the financial system, which has improved profoundly since the global crisis. It is now integrated, well regulated and going full speed towards convergence. This movement goes directly from the founding fathers of Europe who built the single market in 1957 to the banking supervision mechanism of November 2013, which is the single most important step in European integration in the past two decades.

Eurozone banks enjoy a common equity Tier 1 capital ratio of about 14%, which is higher than the required level and substantial in absolute terms. It explains partly why Europe is well positioned in financial institution rankings. Eight of its lenders appear in the top 20 of S&P Global’s latest ranking of the biggest bank balance sheet, while even more large insurance companies are founded and headquartered in the region.

The capital market union is progressing and the banking union is already a success. With Brexit, financial activities will migrate to continental Europe, offering multiple opportunities for new synergies and innovation. We can look with confidence to a future when equity, debt and derivative markets in the euro area will equal the US in depth, liquidity and sophistication. Investors can also look at Europe as a beacon of stability in financial regulation, at a time of regulatory uncertainty in other financial centres. This robust environment provides all European actors with clear guidelines on the rules of engagement.

Confidence high

Surveys show that European business and consumer confidence is at an all-time high, and illustrate that citizens remain extremely positive on key elements of the European project, especially the common currency. Those political parties that campaigned against the euro have either had to change position or have paid a heavy price in the polls.

Yet there are many signs that optimism for the future is not as strong as it was. Among analysts, economists and pundits, there is a tendency to judge Europe by comparison to a perfect model. Many US economists, for instance, would insist that the euro is not what they call an ‘optimum currency area’, and therefore cannot work in the long run. This could be called the ‘pessimism of perfection’, and is hardly justified.

Of course, Europe is not perfect. It has never been, and will never be. Nor, for that matter, are other large economic areas. The history of Europe consists of many crises and messy compromises, but it has always survived and progressed, not as a perfect theoretical design but as a common and very concrete project.

There is also the ‘pessimism of impatience’. The European architecture is incomplete, which in the eyes of some observers justifies criticisms. Those critics would point, for instance, to the absence of common deposit insurance and common resolution fund as major problems in the banking union. Theoretically they are right, but from an historical and political perspective they are wrong. The banking union did not even exist four years ago, and however incomplete, it is working. Problems are tackled, balance sheets are restored and a common supervisory framework is in place. There is no doubt that further inroads will be made in the not-too-distant future.

Economic uncertainty

People in Europe are not immune to the general sense of economic insecurity that currently engulfs the West, and the resultant wave of populism and nationalism. The global economic transition, the exceptional pace of technological progress plus geopolitical uncertainties all fuel deep and widespread anxiety. It translates into a perception by some that globalisation has triggered the largest ever transfer of jobs and wealth, which benefits the middle class of emerging economies while those of developed countries suffer.

For everybody, Brexit is a complete change from the situation we have known for almost 45 years. Even though the outcome of ongoing UK-EU negotiations is still unclear, it is a watershed moment. Diplomats, entrepreneurs, bankers and citizens of Europe understand that the only certainty is that the March 31, 2019 deadline is approaching. Irrespective of the outcome of the Brexit talks, the EU must prepare and activate a set of unilateral measures when time comes.

Brexit is a piece of bad news, but it forces the eurozone to look at is own future. What ultimately matters for the currency bloc is its underlying long-term vision, which must be ambitious and at the same time firmly grounded in reality. Europeans have the same currency and therefore share a common destiny. It is ultimately their responsibility to decide whether they want to share other elements of their economic sovereignty.

Crucial to adapt

The private sector has an essential role in shaping that vision. Our decisions on investment, location, hiring and training affect the bloc’s future. Infrastructure in particular matters, as it creates economic and physical links between different countries, providing the backbone of integration. As a key piece of financial infrastructure, Euronext is capturing the opportunities arising from this new environment.

The key to survive is to adapt quickly, and Euronext’s strategy since May 2016 has been to identify when we can bring value to issuers and investors, knowing that ‘Europe is back’, and identify where there are more opportunities for issuers listed on European markets. Euronext has launched a series of initiatives over the past 18 months to leverage opportunities. For example, take SMEs, which need equity to finance growth and risk. This led Euronext to launch its Tech Hub initiative, not only in our core markets of Belgium, France, the Netherlands and Portugal, but also in other EU countries such as Germany, Spain, Italy and Switzerland.

However, the main demonstration of Euronext’s intention to build on the opportunities arising from this new world lies in our November 2017 announcement that we will expand our federal model to Dublin, with the acquisition of the Irish Stock Exchange (a transaction still subject to regulatory approvals). It is anticipated that Frankfurt, Paris, Amsterdam and Dublin will be the main beneficiaries of Brexit; Euronext is historically present in two of these financial centres, and soon will be in three.

This transaction is the perfect example of what we wish to achieve: to assemble talent and expertise in different asset classes within the group – the Irish Stock Exchange is a global leader in debt, funds and exchange-traded fund listings – and connect them with our broad universe of trading members to increase liquidity and dynamism in their markets, while always respecting local specificities.

Times remain uncertain and challenging for the EU, but the region has great strengths to capitalise on in order to move forward and stay competitive in the global economy. In this context, pragmatism is important and agility is key – and the difference between those who try to identify and capture opportunities and those who suffer consequences may soon materialise. This is why Euronext remains open, and ready to offer its federal model to independent exchanges that want to combine their forces with ours.

Stéphane Boujnah is CEO and chairman of the managing board of Euronext.