Challenges and opportunities
for our companies in a changing world,
a changing Europe and a changing Belgium
ADM
23 June 2011
Rudi Thomaes
CEO FEB
Overview of the presentation
• We need to move forward in a new world.
• Policies to cope with the challenges of public
finance, growth and our ageing population?
• Climate change and natural resources: change
the way we live and see opportunities.
2
From a unipolar world to a multipolar world
3
3.0622.314 2.261 1.885
12.454
5.293
1.918
0
5.000
10.000
15.000
US Japan Germany France UK China Italy
The largest economies in 2005 48,571
37,666
27,235
8,040 8,028 7,8386,162
0
10.000
20.000
30.000
40.000
50.000
China US India Japan Brazil Mexico Russia
The largest economies in 2050
New players on the world market
4
The BRIC countries surge ahead
5
0
5
10
15
20
25
30
35
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
%-s
hare
of w
orld G
DP
(P
PP
)
BRIC Euro area EU USA
BUSINESSEUROPE
pro jections
Source:
BUSINESSEUROPE
based on IMF
0
1000
2000
3000
4000
5000
6000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Currency reserves 2001-2010 (in $ billions - Source: IMF)
EU US Japan Latin America Saudi Arabia China
0
50
100
150
200
250
300
Ind. & Com. Bank of China
China Con. Bank
Bank of China
HSBC JP Morgan Chase
Wells Fargo
Banco Santander
Bank of America
Mitsubishi UFJ
Financial
BNP Paribas
Leading world banks by market capital in $ billions (Source: FT, 2 July 2009)
China: yesterday the world’s factory…
…but tomorrow your banker?
8
The crisis will amplify the contrast
-40
-30
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Industrial production (annual growth rate; Source: IMF)
World Advanced economies Emerging economies Emerging Asia
Conclusions
• The crisis has turned a page in the economic
world order.
• The EU Member States will have to work as a
team to stay in the race.
9
• 4 rules for team EU:
• No doping nor cheating
• Fit team mates
• Motivation to work hard
• Solidarity
10
Policies to cope with the challenges
of public finances, growth and
our ageing population?
11
Primary balance (as a percentage of GDP)
Inte
rest
rate
s (a
s a
pe
rce
nta
geo
f G
DP
) 40 years of public finances…
Inte
rest
rate
s (a
s a
pe
rce
nta
geo
f G
DP
)
40 years of public finances…
Primary balance (as a percentage of GDP)
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rate
s (a
s a
pe
rce
nta
geo
f G
DP
) 40 years of public finances
Primary balance (as a percentage of GDP)
Intr
est
rate
s (a
s a
pe
rce
nta
geo
f G
DP
)
1970
40 years of public finances…
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rate
s (a
s a
pe
rce
nta
geo
f G
DP
)
1970
1981
1970-1981
oil crisis + growth of
government apparatus
(various Martens
governments)
40 years of public finances
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rat
es
(as
a p
erc
en
tage
of
GD
P)
1970
1981
1982: devaluation of the
Belgian franc (Martens – Gol)
1990
1970-1981oil crisis + growth of
government apparatus(various Martens
governments)
40 years of public finances
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rat
es
(as
a p
erc
en
tage
of
GD
P)
1970
1981
1982: devaluation of the
Belgian franc (Martens – Gol)
1990
1993: Global Plan
1992-1999: Dehaenegovernments
1998
1970-1981oil crisis + growth of
government apparatus (various Martens
governments)
40 years of public finances
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rat
es
(as
a p
erc
en
tage
of
GD
P)
1970
1981
1982: devaluation of the
Belgian franc (Martens – Gol)
1990
1993: Global Plan
1992-1999: Dehaenegovernments
1998
2008
1970-1981oil crisis + growth of
government apparatus(various Martens
governments)
1999-2008:Verhofstadt governments
40 years of public finances
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10
Primary balance (as a percentage of GDP)
Inte
rest
rat
es
(as
a p
erc
en
tage
of
GD
P)
1970
1981
1982: devaluation of the
Belgian franc (Martens – Gol)
1990
1993: Global Plan
1992-1999: Dehaenegovernments
1998
20082008-2015: unchanging policy
1970-1981oil crisis + growth of
government apparatus(various Martens
governments)
1999-2008 :Verhofstadt governments
40 years of public finances
Primary balance (as a percentage of GDP)
Inte
rest
rat
es
(as
a p
erc
en
tage
of
GD
P)
2008-2015: unchanging policy 2009-2015: towards a balanced budget
Scenario of the Belgian High Council of
Finance (CSF/HRF)
How to finance the ageing and foster growth?
A few ideas:
1. Pensions and activation
2. Combining State reform with better organised,
more efficient government
3. Competitiveness, a political priority
4. Abolish nonsensical automatic mechanisms
1. Pensions and activation:
Phase 1: Raise the effective age of retirement by
drastically reviewing early retirement schemes.
The statutory age of retirement must then be
raised.
Adapt the Generation Pact law.
First pillar: differentiated weighting of years worked
Second pillar: choice between cash or a delayed
payout and the introduction of an optional
supplementary pension for working people
Third pillar: maintain the incentives for savers!
Align civil servants’ pensions with the principles
governing private sector pensions
2. Combining State reform with better
organised, more efficient government
• Compared with 3 neighbouring countries:
70,000 excess civil servants and expenditure
totalling €5 billion
• Responsibility at all levels of power
• The next few years will provide a historic
opportunity to replace only some of the civil
servants who retire
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0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
NL DE Weighted average in Belgium‘s three
neighbours
FR BE
1995
2007
2008
EMPLOYMENT IN THE PUBLIC ADMINISTRATION IN
ITS STRICT SENSE: BENCHMARKING WITH
BELGIUM‘S THREE NEIGHBOURS
Source: Eurostat – NACE activity “Public administration“
Number of employees in the public administration in a strict narrow sense of the term per 100 inhabitants
(including the Army, but excluding teachers and carers)
Change in absolute terms between 2007 and 2008:
NL -1,900 people
DE -14,000 people
FR -14,000 people
BE + 4,040 people
Show the discipline required to continue to reduce the
wage cost handicap
The example to follow is the German model designed
to safeguard competitiveness
3. Competitiveness, a political priority
0
100
200
300
400
500
600
700
800
900
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
€M
illio
ns
ESTIMATED COST OF CABLES AND GREEN CERTIFICATES FOR OFFSHORE WIND FARMS
(GENERATING 2,300 MW OF POWER)
Source: Elia and estimated timing and capacities
For competitive energy, but also security of supply and
respect for the environment
Need for an open, detailed debate on the federal
electricity levy and the costly and old-fashioned
mechanism for supporting new offshore wind turbines
Extending the working life of nuclear power stations can
help to finance the major expense of offshore wind
farms in the North Sea
Re-establish stability and confidence by maintaining the
notional interest deduction system
R&D is crucial and must be boosted by greater tax
incentives (France has a 30% R&D tax credit)
A green fiscal instrument? Yes, but:
1. based on the European model
2. double neutrality: tax burden and index
3. intelligent green taxation will finance competitiveness
New recipes?
Don’t undermine growth!
No wealth tax
Towards more beneficial taxation for businesses
Towards a more efficient labour market
Intensify the follow-up on job-seeking by unemployed
people aged over 50
Make labour law more flexible
Curb the proliferation of leave systems
Gradually phase out early retirement schemes
Review the system of waiting allowances to enhance
young people’s employability
4. Abolish nonsensical automatic mechanisms
80% of cost-cutting is indispensable!
Implement the reforms essential for making savings on
the labour market and on our social security system
(e.g. standard 4.5% increase in healthcare costs)
Make sure that indexation is no longer a taboo subject
Climate change and natural resources: change
the way we live and see opportunities
33
From an economic to an environmental crisis?
• If China continues to grow at 8% per annum, by
2030 it will have a GDP similar to that of the
USA today (and a population of 1.46 billion).
• Assuming that lifestyle and efficiency remain the
same as today, this will mean:
• 1.1 billion cars (compared to a current worldwide total
of 860 million)
• double the amount of paper being manufactured
today
• 98 million barrels of oil produced per day (as opposed
to 85 million today)
34
The answer: A ‘resource-efficient Europe’
GROWTH
of the economy &
trade
35
ECONOMISING
on raw
materials, water
& energy
→ intelligent more through less policy
≠
without obligations
Climate change: all hands on deck!
36Source: IEA, 2008
Offshore wind farms? Yes, but...
0
100
200
300
400
500
600
700
800
900
1.000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
€m
illio
ns
Estimated cost of cables and green certificates for an offshore wind farm generating 2,500 MW
3200 h/a 3500 h/a
39
The good news: clean technologies, a new
growth sector for Europe
EU51%Japan
29%
USA16%
others4%
Country share of motor vehicle abatement patents
Source: Insead
EU45%
Japan18%
USA18%
others19%
Country share of renewable energy patents
Source: Insead
• PUSH (nice to have)
• - e.g. electronic banking,
text messaging, mobile
internet
• Gradual
• Moderate government
support on the demand
side
• PULL (need to have)
• - Oil price
• - CO2 targets
• On a massive scale
• - G7 + BRIC + next eleven
• Massive support from
media and politicians on
the demand side
The next boom after ICT?
ICT Clean
technology
43
But who will provide the risk capital?
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009 2010 (3Q)
$ b
illio
ns
Clean technology venture capital investments
Europe&Israël North America Source: cleantech.com
Thank you for your attention
44