What do global investors really think about Europe?

The positive elements that drive them towards increasing their investment commitment to Europe are the positives that we within Europe don't really recognize or are really talking about. The capital stands in front of the door, but Europe doesn't need to open the door now. Europe sometimes seems to attract bad headlines, not least in Europe itself, with questions about the continent's ability to compete in an increasingly fragmented geopolitical order. And yet despite the gloom, global business leaders are a lot more confident about Europe's prospects than you might think. A new Deutsche Bank survey identifies Europe as the most broadly attractive investment region among respondents, and more than 80 percent say it has become more important to their investment decisions in recent years. So what's driving that confidence? And what could still be holding Europe back? And how can the region translate its strengths into investment, growth, and greater competitiveness? I'm Michael Steen, and welcome to this is Deutsche Bank, the podcast for the news and trends shaping the world of banking and finance. In this episode, I'm speaking with Alexander von Suimoulin, management board member with responsibility for Germany, Europe, Asia, Pacific, and Middle East and Africa, about the service findings and Europe's economic prospects. Today is the 21st of September. Let's get started. Alex, a very well and welcome to you, and welcome back on the podcast. Good to see you. Good to see you, Michael. Just a word on the survey then first. So it's the Deutsche Bank global sentiment survey on Europe, and we spoke to 1,200 senior leaders and decision makers from companies in 13 non-European markets who've already invested in Europe or are planning to do so. The full set of those of that survey is available on our website and in the show notes. But let's start with that headline that I mentioned. Just at this time when Europe is seen as struggling with low growth and competitiveness, we're also hearing here it's emerging as a kind of an attractive investment location. So tell us about your interpretation of this result and what you're hearing from it. It's interesting, isn't it? When we started the study, we were not clear, obviously, on what's going to be the outcome of that. We ourselves as Deutsche Bank with meetings and gatherings with clients all around the globe. We had a lot of anecdotal evidence and I keep saying almost jokingly that if I want to hear something positive about Germany or Europe, I need to travel far. The far I go, the more positive the tone gets on Europe. But is that just anecdotal evidence or is there an intrinsic bias because people are already talking to a European or is this really statistically relevant? So this is why we ran the survey and the results are really positively surprising from the perspective of Europe. The respondents, the 1200 decision makers do tell us indeed that Europe is the single most important and strategically relevant arena of investment for them for the coming five years. Counter-intuitive indeed to how we in Europe in particular perceive ourselves. Yes, exactly and I think that 80 percent of them were saying that their decisions on investing into Europe had changed in just the last three years. So what is the element that's changed there that you think? I think there's an absolute and a relative element in Europe and I think the single most important is probably that Europe remained resilient and kind of the same ish relative to the rest of the world. So the point that everyone we decision-makers for institutions or investors, everybody looks for safe havens, safe pairs of hands, right? And Europe in that regard has clearly signaled a higher degree of stability than other parts of the world and new political friction has obviously ballooned significantly in the last three years and is expected to get worse, not better from here, but Europe has been the fortress in this regard. So it's not a great message in absolute terms or in terms of progress or economic stimulus that Europe has seen is rather than many other parts of the world have stepped back and Europe is now emerging as the safe pair of hands and that itself is a very important factor obviously to attract capital and to attract investment decisions by companies. Okay, so perceptions are one thing of course, investment is another one. We did ask the respondents about concrete plans for their businesses in Europe and what kinds of things were they saying? So what they were telling us 61% of the respondents did say that they plan very specific investments of the next couple of years into Europe. We can talk about the kind of the segments and the locations, but that in itself is a very high percentage. As a matter of fact, only 6% of those invested in Europe did say that they do not plan any expansion over the next four years. And the balance, the 30 something were essentially saying they are looking at Europe. This includes those that have never invested into Europe by the way, but let's signal that they do look at this obviously in terms of strategic relevance and would consider to make investments. Those are the ones probably most importantly that still need to be convinced and we can talk about kind of what needs to happen on the political side and in order to move them across the line. But it's a very high proportion and surprisingly high proportion of those willing to deploy more resources in Europe. Okay, and does that match up with the kind of client conversations that you have all the time? It does match up with the conversations we're having and we did get more questions on Europe and Germany over the last three years than we probably did in the 10 years before. Right. Now there's another way to look at it. You could say so foreign direct investments into Europe have been everything but great in the last one, two, three years. So where's the contradiction? Why are we looking at a set of numbers that is quite sluggish and why are we talking about such a positive momentum in terms of what the respondents feed us? The answer is twofold. One is obviously FDI numbers are real mirror viewings and the fact is it's not being great. So lagging indicators is going to take a while, so yeah. Precisely. And the other one is the forward-looking statement where the decision-making individuals across various industries that we've asked do say no relevance of Europe is rising and we do want or at least consider putting more coins into Europe. Now that in itself is not a guarantee and I think this is a very important message in there, right. Many of them are considering they're having exact plans but we've also been getting concrete feedback in terms of what are the instruments, the catalysts that still need to improve and we're talking about the acceleration of decision-making process. We're talking about restrictive regulatory measures where Europe is clearly falling behind. Energy costs are an argument that have been made in terms of the weaknesses but of the weak spots identified. None of them is really surprising. We've talked about this many and many times in Europe. Our research colleagues have been saying this has been being tabloid also by politicians. It's always the same arguments and so far and that I think that's also an important message. What we say in Europe corresponds or correlates 100% with what foreigners outside of Europe look at and and witnesses. So they're listening, they're listening on the weak spots but the positive elements, those aspect that drives them towards increasing their investment commitment to Europe are the positives that we within Europe don't really recognize or are rarely talking about. Okay so on the one hand we have this pent-up demand, a lot of positive potential there and but just touching again one more time on those uncomfortable truths. So do you have a sort of personal ranking of what the priorities there are for Europe what I mean as you said we've been talking about it for years that I think it's also fair to say some things have changed particularly the European level but what are the sort of real things holding us back now? So the main features that were articulated were as follows. Labour cost is a disadvantage in Europe. Taxation that's also an evergreen argument clearly. Approval processes and bureaucracy are another factor and maybe overarchingly and this is not just for Europe but specifically the European Union as such. We just have not really seen the completion of or the formation of one large market not in terms of goods and services, no in terms of financial markets and so the ability to scale the European Union for all sorts of industries has still not happened and the feedback in particular on cross-border disruption even within the European Union has been listed as one of the key arguments why they find it difficult to we see European as open for business as they would like to support it in. Okay so you want to be able to come to a given country in Europe and actually have access to the whole EU whatever sector. Let's call it the past sporting system within the European Union is not there and they can And we've heard all these arguments. right? Taxation, jurisdictions, everything is different anywhere. There's always a finish by the individual jurisdictions. And therefore, the ability to scale and make the European Union, which in many arguments, could be a market as sizable and as relevant as the United States. It's just not there. But the good part of that is this is something that's in the hands of Europe, specifically within the European Union. Okay. Yeah. So the clear things that can be done there. You also mentioned though taxation and wages. It's not much to come into on about that. I mean, we're a high, we have big social security nets here in Europe and people who used to, you know, relatively high wages. What would the levers there be, if any? I think the argument that you look at what is happening in Germany and what the government has put on its own radar is what I recognize. We need to see a high degree of liberalization. But wages will be higher. That's okay. If you can still be competitive, even at a higher level of average wages, you need to have your productivity high. Therefore, liberalization of the labor market and a high degree of flexibility is important. In particular, for those industry, that are going through such a high degree of transformation. So moving resources from A to B is not just about capital, it's about labor, it's about all sorts of things. And the more you're kind of frozen within your system, the harder and the more slow it gets in terms of allowing this transition, whether it's on an industrial or on a societal level. And these are the items. I think it's being fully understood and recognized by many leading politicians in Europe. But the actual level behind that is still not sufficient to be honest. And I hope that this survey, which in to a large extent also supports messages identified for instance during the drug review report that we've had a year and a half, two years ago, should hopefully lead to an acceleration of activity on the political level in order to support changes. Yeah, and I believe there's actually been research showing that the relatively little of the drug review report has actually been implemented yet. So clear to do list there at the EU level, also on a national level for politics. Maybe if we turn the spotlight on ourselves a little bit as a major European bank, what's the role of Deutsche Bank here? So many roles obviously, right? We do want and need to support the transition of European organizations across industries that comes along with balance sheet commitment, which we have. We will always have. But there's also the element of importing capital, if you will. So the anecdotal mention of many, many global investors and institutions asking questions in a positive way about Europe and Germany in particular post the 500 billion stimulus package to the German government had passed last year lead to the fact that we want to bring these people across the line, want to help them to navigate within Europe, European Union or in one of the specific countries within Europe. And that's a very important role that we can play, that we have to play. I think it's an obligation also because there are very few global financial institutions that have such a big reach and operate in 60 plus markets all around the globe with a deep knowledge and access, not just to clients, to regulators understanding the different legalistic systems and the like. And in a world that is undoubtedly more complex nowadays because of geopolitics, etc. The world is looking for new safe harbours in terms of how to invest the money. Europe emerges again as a relative strong set. And therefore we can help to build the bridge for those that maybe historically have rather moved money out of Europe into the rest of the world. And now this money is coming back not because they are anticipating a higher degree of the people within Europe than in some other markets in the world. That's not the point they're making or that our respondents are articulating. It's the relative strengths and the resilience that Europe does bring to the table. And we can be a good partner for the people sitting outside of Europe, looking into Europe and in Europe. And in the press conference this morning I tried to summarize the survey in a way that the capital stands in front of the door. But Europe doesn't need to open the door now. And this is where we can certainly kind of play our role. We can't change the regulatory and the legal framework that is worth the politicians. But we can certainly help to articulate and also quantify. And this is why the survey is very powerful. We have drug reports and other elements that kind of identified and articulated some weaknesses. But here we have kind of black and white responses from those that really make decisions that write checks can create jobs that can move production capabilities. Those that can bring capital into a country, saying, look, we like Europe. As a matter of fact, we like Europe more than any other region today. But here are the things that need to happen. Okay. And that's something that you're seeing, I mean, also with your Asia Pacific hat on and Middle East, that you're actually hearing from people who come to Deutsche Bank and then say, you know, Germany, you know, Europe helped me because I didn't know how to action this, I guess. Totally. And as much as we obviously as European organizations, deep roots in Europe, we've been in Asia for over 150 years and have good ties with various bodies, clients. We want to be obviously the organization that gets the first call and can also discreetly help our clients to navigate and help them, you know, were possible to get through all the difficulties of hurdles, hindrances, lack of understanding when you enter certain markets in Europe or elsewhere. Or we can operate a bit of it as a translator and a guide to make sure that, you know, they do not lose their interest in Europe and ultimately succeed in locating resources here. Okay. Now, of course, where we're talking, you know, Frankfurt headquarters sitting in Germany, and within Europe, Germany remains the key investment story, I guess you mentioned already, the big stimulus that the government announced. And the finding ball that out, it showed that Germany was the number one destination in Europe for non-European investors. Headed interestingly of both the UK and France. So, I mean, we're biased, obviously, but what would you say makes Germany so important? It's funny. You say we're biased. We want to make sure that this survey is completely unbiased. One of the responders, now the people that have been asked knew who triggered the survey. It could have been anybody from around the world asking the questions. And so far, it's a completely agnostic approach that we've closed and yet we did come to and we didn't know that it would end there. We did not know that they would rank Europe higher than any other region. And within Europe, rank Germany most north. What it tells us is, again, to the point of relative stability and consistency and the high level of trust, by the way, an element that speaks very much for Europe and Germany, having been a very export-oriented economy for the longest time, the strong ties to various parts of the world. As you know, the European Union is economically much more connected to the rest of the world than, for instance, the U.S. is. That's being seen as an advantage. You know how to navigate in various parts, whether that's in the West or in the East. And in a world that is undoubtedly more fragmented and more complicated. If you know how to do it, that's an advantage. There's also an advantage, you know, I keep tying our own people within Deutsche Bank, right? Operating in so many jurisdictions, knowing so many markets inside out is a big advantage. Now the reality is also life is getting more complicated. With geopolitics all around us, sanctions being used as a political tool followed by counter sanctions and the like, navigating is much harder and more costly. But if you get it right, the advantage is very meaningful because there's not going to be that many organizations that will get it right. Thank you very much, Alex. Very clear. And thank you for tuning into this is Deutsche Bank. If you enjoyed this episode, please subscribe or leave us a comment. And let us know what you'd like to cover in any future ones. We'll be back soon. In the meantime, take care and bis bald.