[Word version of this speech]



Churchill-Symposium 1998:

EMU and beyond

 10 September 1998

"Zunfthaus zur Meisen", Munsterhof 20, Zurich

17.00  Welcome-Speech by the British Embassador in Berne
17.05  Introduction of the speakers by representative of the organizers
17.10  1. Statement: Europe's further integration - where to go?
       Edward Heath,
       MP, Former British Prime Minister, London
17.25  2. Statement: Switzerland's position in further integrated
       Pascal Couchepin,
       Swiss Federal Councillor for Economy, Bern
17.25  3. Statement: Scenarios for the Future of the EU
       Professor Prabhu Guptara,
       Group Director, Organisational Learning and Transformation,
       Wolfsberg Executive Development Centre of UBS AG
18.00  Round Table Diseussion
       Moderation: Peter Jay,
       Editor in chief of economic section, The BBC, London,
       former British ambassador to the USA
       - Edward Heath, MP, former British Prime Minister, London
       - Prof. Prabhu Guptara, group director, UBS AG
       - Gilles Bertrand, Charg  de mission, Cellule de prospective,
	European Commission,
       - Gerhard Schwarz, editor in chief of economic section, NZZ,
       - Georg Rich, director economic department, Swiss National
	Bank, Zurich
18.45  Reception
19.30     Dinner

TEXT of the speech of Prof. Guptara:

Mr Chairman, Mr. Heath, Mr. Couchepin, Ladies and Gentlemen

It is an honour to be among you though I ought to clarify that I speak here not as a representative of UBS AG, nor indeed in any other official capacity but in a purely and wholly personal capacity.

 My talk is titled "Scenarios for the Future of the EU following Monetary Union" and I perhaps need to explain the word "scenario" or at least to explain the sense in which I am using the word.

 In big commercial companies, the word comes from a particular approach which is called "Scenario Planning". In contrast to detailed Business Planning which focuses on actions and results in view of the most likely future, Scenario Planning c onsists in trying to get senior executives in a company to consider all possible future situations, no matter how unlikely. This exercise is done in order to get executives to discuss their reactions, approaches, feelings and indeed values so that the executives can develop an in-depth understanding of each other as well as of the differential impact of possible situations and actions on the various aspects of a company's operation, survivability and profitability.

 Scenario Planning is different too from Contingency Planning, in that Contingency Planning focuses on possible foreseeable contingencies in order to put in place rather specific plans for each such contingency. The focus, in Contin gency Planning, is on the development of specific and detailed actions. By contrast, the focus in Scenario Planning, is on developing a common mind so that any UNFORESEEN and even UNFORESEEABLE emergency or event will trigger a common, reco gnisable and valid pattern of response right through a company.

 You could argue that, in contrast to normal Business Planning as well as Contingency Planning, Scenario Planning is rather vague and "soft".

 Has it been of any use? Well, it is widely credited, both within and outside the company, for moving Shell from the bottom to the top of the league of large oil companies, and making Shell one of the largest companies in the world, specifically by helping it to cope with the unforeseen oil shocks in 1973 and 1979, which none of the other oil companies were able to do, since they had not developed any technique such as Scenario Planning to help them cope with such une xpected developments. Since that time, Scenario Planning has been used in an increasing number of companies, specially as it has become increasingly clear that we live in times of rapid, complex and discontinuous change. I do not have the figures, I believe they have never been researched, but I would be surprised if the overwhelming majority of large companies today do not use some form of Scenario Planning.

 I invite you today, then, to join me in an extremely brief scenario exercise, not to the extent of considering our responses to such scenarios, but with a view to considering at least what such scenarios might be.

 But let us first clarify the question: What are the Scenarios for the EU following the creation of the Euro? I do not want to discuss details such as how big or small Euroland will or will not become by a certain date. I do want to consider the consequences of Monetary Union for Euroland, whatever its size.

 Let me cast an eye over the timetable for and consequences of the introduction of the Euro, so that we have a common mind and approach to the subject.

 The timetable consists of three key dates.

 On New Year's Day 1999 (that is, almost exactly sixteen weeks from today), the Euro becomes a currency. Exchange rates between the participating currencies, as well as between those currencies and the Euro, will be irrevocably fixe d, and one Euro will equal one Ecu. National currencies will continue in circulation, though all stock exchange and interbank trading will take place in Euros only. Responsibility for monetary policy throughout Euroland will be transfe rred to the European Central Bank.

 And then, I come to the second key date. At the latest on the 1st of January 2002, the new European currency will enter into circulation as notes and coins. This is the key date for EU citizens. For the first time, they will receiv e in their hands and be able to use the new notes and coins for ordinary purchases, payments and commercial purposes. However, the conversion from national currencies to the Euro will not be concentrated on a specific date - German Marks an d French Francs and other currencies will continue to circulate alongside Euro notes and coins, and the Euro will replace the existing national currencies gradually over a period of six months. This will be the "critical familiarisatio n phase" for citizens, as both old and new money will be in use simultaneously till the third key date of 1st of July 2002, when the currency conversion will be completed and the Euro will become the only legal tender.

 So much for the timetable.

 Let us also be clear about what the creation of the Euro does!

 It does at least two things:

 First it creates, immediately, one of the largest capital markets in the world - and, in the long run, as internal inefficiencies in Europe are eliminated, I believe that it will make for THE largest capital market in the world, ir respective of whether any other countries join. Second, it provides transparency of costs and prices, the ability to compare much more clearly the cost/benefit and the price/earnings ratios across products, services, industries and countrie s. It is not only keener competition and increased efficiency that should result, alongside the elimination of currency-related costs. The key possibility is greater industrial and commercial consolidation across Euroland. This is of c ourse the culmination of a 50-year history of integration across Europe which will lead to a genuinely single market across these nations.

 What then, are the possible scenarios regarding the future of the EU, following the launch of the Euro? I can see five scenarios.

 In my first scenario, Scenario A, corporate restructuring and consolidation take place rapidly, over a one- to five-year period. The advantages of such a development are: rapid realisation of all the economic benefits of integratio n for consumers and companies; and the emergence of European multinationals as the leading companies in the world, due to their tradition of stability and "long-termism", which has given them unrivalled in-depth managerial, commercial and m arket knowledge of the whole of the world. But, at the same time as all these wonderful things are taking place, the disadvantages of this scenario will be: maximum socio-political consequences in terms of unemployment, higher social c osts to government budgets possibly threatening the Stability and Growth Pact, shifts of significant numbers of the best- quality working population from one country to another, mass psychological uncertainty, political tension and social c haos. The key question is whether we have European institutions which are sufficiently developed to be able to foresee, and sufficiently effective to be able to manage, such issues. Personally, I have my doubts, principally because of the unresolved tension at the political level between the goals and compulsions and systems of the participating countries. (Just as the introduction of the Euro synchronises all participating economies' movements in the economic and b usiness cycle, I feel that, at the very least, the timings of the general elections of the EU countries should be synchronised, in order to give us some togetherness on the political cycle.) In any case, I hope this first scenario does not materialise, because if there is rapid economic integration parallelling socio-political disintegration the consequences of that in terms of crime and violence within and between countries will not be pretty. In my view, given the rapid&nbs p;consolidation which has been taking place in industry and commerce worldwide, rapid consolidation within Europe cannot be ruled out in spite of the volatile conditions in the market at present.

 In the second scenario, Scenario B, there is not just economic success, but socio-political success as well, even in the short term of one- to five-years. If this happens, we will see not just the benefits to consumers and companie s which I have enumerated under Scenario A; we will see also the undoubted emergence of Europe as the leading economic world power , of the Euro as the leading world currency replacing the dollar and of Europe as the model society for the w orld.

 On the other hand, in the third scenario, Scenario C, let us take seriously the fact that the creation of the Euro is an unprecedented historical experiment. The main previous such experiment was the creation of the dollar by the U nited States of America, but that was not only a long time ago, it was also at an altogether different stage of development. Let us also take seriously that the creation of the Euro is an unprecedentedly large experiment. Never before have so large a number of people been subject to so astonishing an economic experiment. This scenario is I think unlikely, but it must be faced: if, for whatever reason, the experiment is an economic as well as political failure, the conseq uences are too terrible to ponder, not just for Europe but for the world. Europe will of course decline into another dark age, but it will also drag the US and Japanese economies further down with it and the rest of the world will be even p oorer off. In my view, this is the unlikeliest of the scenarios, yet in the spirit of a scenario exercise, it must be put on the table for discussion.

 In contrast to the first three scenarios, in the fourth scenario, Scenario D, not much changes either economically or politically: for whatever reason, the captains of industry are reluctant to do much to actualise the competition, efficiency, restructuring and consolidation which are available in principle as business opportunities; and, as there will be no unusual social and political pressures in this scenario, the political institutions we have will weather the s ituation well. The disadvantage of this scenario is that few of the expected economic benefits for consumers or companies will materialise at anything like the expected rate. But the advantage is that we don't have to cope with more ch ange, yet more uncertainty regarding employment and wealth prospects, and possible political tension and social chaos. Given current volatility in markets, it is certainly possible that captains of industry will be disinclined to take radic al actions to consolidate industries across Europe, unless they are forced into situations where they have no choice.

 In the fifth scenario, Scenario E, restructuring and consolidation take place rather slowly, basically over a five- to twenty-five year time- frame. All the advantages of economic efficiency, restructuring and consolidation would e ventually be realised; but people would experience few of the socio-political disadvantages of integration. This is of course the most desirable of the scenarios. Let me put this another way: in Scenario E, the socio-political consequences of consolidation will not be escaped (because of course they cannot be escaped) but we will have the time to be able to manage them, we hope, with at least somewhat greater wisdom and success.

 Mr. Chairman, in my lack of wisdom, I have not had any success in foreseeing any other scenarios, however unlikely. But perhaps these five give us something to discuss.

 Now, I am sure to be asked at least one question before our time together ends, and I should like to take the opportunity to answer this question before it is asked. My hypothetical enquirer may address me in the following way: "Yo u have already said what you consider to be the least likely scenario, but what do you see as the most likely scenario?". That is of course not a valid question in a "normal" scenario planning exercise, since any attempt to answer this ques tion begins to take us in the direction of contingency planning.

 But this is not a "normal" scenario planning exercise; it is a symposium and that too a Churchill Symposium, so let me conclude by attempting to answer that most difficult of questions.

 In order to do so, let me refer you to the sort of categorisation used by marketing experts when they launch a new product. Some consumers respond to a new product immediately, because these consumers are what is called "early adop ters". But the bulk of consumers wait to see how the early adopters fare, and if these early adopters are happy with the product, then the bulk of consumers too jump on the bandwagon. There are of course a considerable number of people who don't jump on the bandwagon with the majority and they are called "late adopters". The question, for the success of a product launch is neither the early nor the late adopters. It is the length of time before the bulk of people jump on the bandwagon.

 Now I believe that there will be some, at least a few, early shocks as at least a few leaders in commerce and industry make moves in Europe. Everyone will hold their breath to see what happens. Not much will happen in the marketpla ce, as the energy of these first movers will be wholly absorbed, for at least a year, probably two, in trying to make these acquisitions or mergers work. The people made redundant will somehow cope, and their pain will be absorbed by the po litico-economic system in one way or another.

 Now comes the question to which there can be no answer in advance: how swiftly will the others, the bulk of industrial and commercial players, move?

 My guess is that it will be somewhere between three and five years following the launch of the Euro. In other words between 2002 and 2004. Between now and then, remember, we will be coping not only with the present volatility in th e market, which will probably worsen, but also the psychological issues around the end of the millennium and the technical issues around the Y2K problem, as it is being called at least in the world of computing and IT.

 In short, in many ways, this is the worst possible time, from a social and political point of view for the launch of the Euro. At the same time, it is probably the best possible time for the launch of the Euro from an economic poin t of view - at least, there was and is only a narrow window of time in which it could best be launched and this is it, even if it turns out to be less propitious than those most favourably inclined to the Euro had hoped.

 I do not underestimate the issues and dangers ahead, especially from extreme right wing at present, though the extreme left could easily revive too - and I realise that I am being unfashionable when I say so. But I hope that I am n ot merely being unfashionable when I say that I am hopeful that Europe with its tradition of caution, conservatism, consensus and reviving Christian values, faced as it is with all of these major issues and very real dangers, will neverthel ess be able  to work its way through them.

 Thank you.