Europe’s Nobel wake-up call

In a decision criticized and praised in equal measure, the Norwegian Nobel Committee awarded this year’s Peace Prize to the European Union in recognition of its contributions “to the advancement of peace and reconciliation, democracy and human rights in Europe” over the past six decades.

But, to what extent is Europe preoccupied with “perpetual peace” at the expense of its current, vastly different ailments? Is this award a swan song - confirmation of the moribund state of the European project, as the 2001 Nobel Prize was for the United Nations? In announcing the prize, the committee explained how “the work of the EU represents fraternity between nations.” While it acknowledged that “the EU is currently undergoing grave economic difficulties and considerable social unrest,” it highlighted the EU’s role as a beacon of hope - a democratic anchor, particularly meaningful for peoples who have lived through the horrors of dictatorships. But it is precisely the mismatch between the EU’s past achievements and its current distress that has fueled anger and led to its rejection by many Europeans. That is why the prize has invited comparisons to an Oscar Lifetime Achievement Award that comes only when the recipient is nearing death.

The decision to establish the EU was an ingenious response to the biggest challenge of the day - war and conflict. And, of course, the resurgence of nationalism and extremism of all kinds around the world is a potent reminder, as if any were needed, that peace is not to be taken for granted. But the prospect of war in Europe now seems like a remote threat, and the varnish of the EU’s past success seems to have faded, even to those who have not forgotten the bloodstains beneath.

Instead, it is Europe’s lack of a vision and narrative for the future - with which it could address issues like chronic unemployment, capital flight and the ever-tightening grip of austerity - that keeps people awake at night, and that fosters populism, dismay and internal disarray.

The EU’s ability to capitalize on - or even justify - the award hinges on its prospects for overcoming the sovereign-debt crisis and reestablishing trust among its member countries. But, more important, the EU needs to restore its allure, an integral part of which has always been economic prosperity. Aside from the euro zone’s design flaws, the pressing items on Europe’s agenda concern competitiveness, jobs, innovation and technology.

Europe’s first order of business should be to accept reality: The emerging economies are catching up in terms of innovation while the EU is losing traction, with China on the cusp of surpassing Europe as the second-largest hub for venture capital globally, behind only the United States.

In fact, a 2012 study by Ernst & Young reveals that one U.S. hub (Silicon Valley) alone boasts almost $12.6 billion in cumulative venture capital, while the United Kingdom, first among European countries, accounts for roughly $1.75 billion and Germany for $665 million.

A similar study, conducted in 2012 by Javier Santiso, a professor at the ESADE Business School in Barcelona and a managing director at Telefonica, found that Europe’s per capita investment in venture capital in 2011 was a meager $7, compared to $142 in Israel and $72 in the U.S. An equally telling statistic is that only one company in the euro zone, Spain’s Inditex, has been in the FT Global 500 since 1996.

Research and development offers little consolation. Although European research has given rise to many new technologies used in industries worldwide, its recent record is wobbly at best, owing mainly to the difficulty in translating basic science into industrial advantage. Europe is losing its technological edge, whether in telecoms, technology or the Internet, with its companies being displaced by those from emerging markets, while the U.S. remains dominant. The NASDAQ index confirms this disturbing trend: only 15 European companies are listed, compared to 498 for the U.S., 43 for China, and 23 for Israel.

Looking to the future, Europe should take note of the potential consequences revealed by the latest Program for International Student Assessment (PISA, a worldwide comparison of student performance. In mathematics and science, PISA’s latest report card puts Asia at the head of the class, with China, Singapore and South Korea on top. Meanwhile, with some exceptions - most notably Finland - Europe has slipped into riding in the peloton.

The EU is, at last, beginning to understand that betting its future on services will not be enough to safeguard the European socioeconomic model. Member states’ governments and the European Commission’s last communication, “A Stronger European Industry for Growth and Economic Recovery,” display an awareness of the need to revive Europe’s industrial policy. Such efforts should promptly translate into legislative changes in areas ranging from insolvency to patents, from CO2 emission-reduction schemes to “smart” electricity grids.

Europe urgently needs to devote its energy to revitalizing the building blocks of its economy - industry, human capital and a policy framework that enables healthy growth and future prosperity.

One hopes that this year’s Nobel Peace Prize provides a boost in pride that allows Europeans to look beyond their immediate financial problems, consolidate the Union’s strengths, and establish a coherent vision of the future. Otherwise, the EU’s finest achievements will remain in the past.

* The author, a former Spanish foreign minister and former Senior Vice President of the World Bank, is a member of the Spanish Council of State.

by Ana Palacio