How the EU can lead the way to sustainable recovery, beyond COVID-19

Policymakers and economic stakeholders have the opportunity to reimagine Europe’s future by making the right choices now.

It is broadly understood that business and government must find new common ground to generate transformed, innovative and resilient growth. In the midst of the COVID-19 crisis, we are at an important inflection point in the history of the EU. We now have the ideal opportunity to push the reset button on economic development.

The European Commission reacted immediately to the COVID-19 outbreak with a focus on upholding its goals for high living standards for its citizens, protection of human rights and the environment, as well as quality of welfare. European Commission President Ursula von Der Leyen has led an innovative and strong response to the COVID-19 crisis with a set of unprecedented crisis responses:

• In addition to national programs launched by the EU Member States, the European Commission recently launched Next Generation EU, a unique recovery instrument, aimed at ensuring that the recovery is sustainable and inclusive for all Member States 
• With the Coronavirus Global Response, the worldwide pledging marathon, Europe has demonstrated its ability to drive global efforts to respond to the crisis

Future focus

If the Commission has demonstrated leadership in its current response to the crisis, now is the time to plan for what’s next and beyond. Policymakers and economic stakeholders have the opportunity to reimagine Europe’s future: they need to make the right choices now to become and to remain resilient not only for the next two to three years, but also for the next decades to come. A major focus in the following domains can help Europe drive long-term sustainable growth.

Sustainable growth is, above all, green

The European Green Deal, which the European Recovery Fund has confirmed as the way forward, offers a new perspective. It represents the greatest opportunity for Europe to accelerate strategic investments that have long been delayed. This acceleration has the potential to act as a multiplier of local economic growth and includes initiatives that range from decarbonization of the energy system, transport and logistics infrastructure to scaling up investments in the circular economy.

In the latest EY Europe Attractiveness Survey 2020, it was found that in addition to the increased trend in regionalized supply chains, the COVID-19 pandemic enhanced consumer awareness of and demand for sustainability. Almost six in ten (57%) survey respondents indicated a renewed focus on climate change and sustainability within the next three years. Businesses that already have strong sustainability agendas may find Europe more attractive to invest in if the continent’s business, regulatory and societal climates reflect their own aspirations. Such an accelerated and coherent growth strategy for the EU could, therefore, represent a unique opportunity for governments to reshape a sustainable future world, and for private and institutional investors to access attractive investment propositions.

Growth in Europe can be driven by Europe

Nationalization and recapitalization are top agenda items as European governments engage with business to assist in the hardest hit sectors, such as Europe’s airlines and automotive industry. Some nationalizations are already happening across Europe, and governments are actively engaged in rescuing businesses and local economies. But the more important issue is how governments will ensure resiliency in the long-term. It is this resilience that will ensure Europe remains competitive and attractive to foreign investors, and which is critical to accelerate the recovery.

In the survey, it was highlighted  that foreign investment in Europe, by Europe, can drive economic recovery. In 2019 we found that seven of the top ten investor countries were within Europe. It is clear that Europe must support the drive for intra-continental trade to forge the path to economic recovery. If governments continue to provide the necessary support and investment in key sectors such as digitalization, the green and circular economies, and cure and care sector, Europe can become a leader in those engines of the future economy. And, even more so if it succeeds in linking the development of these engines to the COVID-19 response.

European businesses have a role to play

Most governments today are tackling short-term problems, but it’s even more important to address the long-term impacts of this crisis. The same applies to companies. The future attractiveness of Europe does not only depend on government plans and recovery strategy. It is also very much linked to businesses’ capacity to predict risks, anticipate scenarios and flex their models to stay competitive. In times of heightened uncertainty, it is vital to assess the economic impacts of disruptive events and corresponding shifts in business trajectories.

Driver-based forecasting models enable companies to better understand the impact of variances in key business and value drivers on financial, operational and commercial KPIs. These models focus specifically on drivers that impact business most and can help the leadership to shift strategies to maintain a business relevant. In contrast to existing tools and processes, value driver-based forecasting models are dynamic and deliver what-if answers in cycle times. Due to the volatile nature of the COVID-19 crisis, it’s key to identify and model risks that companies did not consider prior to the pandemic. Such an approach could also encourage private and institutional investors to invest in more purposeful projects, thanks to enhanced de-risking mechanisms offered by increased EU-backed guarantees.

Global companies headquartered in Europe, have an opportunity and also a responsibility to grasp what it means to be an attractive foreign direct investment (FDI) destination post-COVID-19.

This new environment calls for a new and more sustainable approach to growth. The European institutions, national governments and businesses now have a great opportunity to push the reset button for the EU economy and plan together for risk-aware, transformative, innovative and resilient growth scenarios.