Column by the President of Hitachi Research Institute, Mizoguchi
In June, I visited Zurich, Brussels, and London, where I had the opportunity to discuss with many experts in different fields. Europe is turbuling. Needless to say, this is caused by the war between Russia and Ukraine. But it's not just this war that has shocked Europe in recent years. Because of Brexit, the Trump Administration’s policies, the pandemic, and so on, Europe has been in upheaval over the past few years. Inflation in the euro zone is currently at a high level, forcing the ECB to continue raising interest rates, with economic recovery not expected to happen until after 2024, when the inflation hopefully settles down. Dining out in Brussels and London is expensive. And better not convert the prices into yen, or you’ll be in for a shock. With the high inflation pushing down consumers' purchasing power, economic growth is not likely to happen soon. The increase in environment-related investments and defense spending may drive economic recovery, albeit narrowly.
The EU is currently aiming to establish an independent international route under the banner of “Strategic Autonomy.” Although there is a lack of clear consensus within the EU on what this entails, there is no doubt it implicates that not everything can be a shared destiny with the U.S. In response to the economic policies that the U.S. has been pushing as national priorities through the Inflation Reduction Act (IRA) and the semiconductor industry policy (CHIPS Act), the EU has no choice but to introduce policies that give priority to its member states as well. It could be said that it had no choice but to call its being forced to pursue “autonomy” a “strategic” approach. For the EU, the U.S. is an indispensable ally in countering Russia and continuing to support Ukraine, even though the EU’s revulsion at the U.S. economic policies. Depending on the outcome of the U.S. presidential election next year, relations between Europe and the U.S. could be hit by yet another shockwave. To withstand such risks, Europe is seeing the need to ensure its independence.
In Zurich, I met an old friend whom I have known for 30 years. I used to work with him when I was stationed in New York. He also lived in Japan for about a year. In Japan, we went to watch sumo wrestlers in their morning practice sessions, and when we were in the U.S., we went barhopping together on Eighth Avenue in Manhattan. For the past few years, he has been running a company that provides a wide range of media and customer communication and training services to several Swiss pharmaceutical companies. When lockdowns were imposed due to the COVID-19 pandemic, he anticipated a significant decline in business. But on the contrary, his business grew as more clients sought online services. Moreover, their client base spread beyond the Atlantic. Now, IT giants and startups in the Silicon Valley have become good customers for him. Based on his experience, it appears you can have easy access to anywhere in the world from Europe.
Europe is ahead at standardizing new technologies and creating frameworks for the major themes that mankind should tackle. While it is easily accessible from anywhere in the world, Europe is an aggregate of countries with diverse cultural and historical backgrounds, so creating new rules seems to be part of the natural course of things for the region. Europe is also leading the way in pursuing carbon neutrality to address climate change issues, and the region is seeing an acceleration in the implementation of circular economic policies. EU member states have set specific targets with regard to critical raw materials, such as 10% of regional consumption for extraction, 40% for processing, and 15% for recycling, all within the EU. The expansion of renewable energy use to achieve a decarbonized society sometimes, in fact, increases the burden on nature through the increased mining of rare metals and other resources. Therefore, extending and thoroughly implementing the circular economy might be the most ideal solution to this problem.
The energy problem is, in fact, one of the major challenges facing Europe. To cope with the rising fuel prices caused by the war in Ukraine, European governments have increased utility subsidies for their citizens. More than 500 billion euros have been allocated to consumers. Along with the rapid shift to remove Russian gas from its energy pool, overall demand for natural gas in Europe fell by nearly 20%. On the other hand, despite the continuous drop in the unit price of renewable energy, this is not reflected in what the consumers pay for. They have therefore not reached the stage where people feel the benefits of the energy transition. The impact of the war has disrupted the balance of global energy procurement and regional distribution. Developed countries, meanwhile, have not made progress in supporting the Global South, making it increasingly difficult to achieve global greenhouse gas reduction targets. Many companies in different countries have presented their own targets, but the process for achieving them is not entirely clear. The 1.5°C target of the Paris Agreement cannot be achieved. That has become the consensus. Even the 2.5°C target is becoming increasingly tough. I look forward to seeing trembling Europe once again demonstrating strong leadership.
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