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Internet Reshaping Europe
The fall of the wall and the rise of the web are truly reshaping Europe. At the Planet 2000 conference in Vienna, I spoke about how the Internet and the political changes are now reshaping Europe.

Carl Bildt
Senior Advisor IT-Provider

How the Internet is reshaping Europe.
Wien, May 11, 2000

There are few places better suited to reflecting about the past, present and future of Europe than the city of Vienna.

Once the capital of one of the multi-national empires dominating Europe for centuries. Then suddenly at the very margins of a divided Europe.

Now at the centre of a controversy concerning the nature of European integration. And tomorrow with certainty much more in the geographic centre of the Europe that is gradually starting to emerge.

It is very much a new Europe that is starting to emerge.

A decade ago, everything was very different. But it was then that the process of change started.

In Berlin, the wall that had been dividing Berlin, Germany and Europe for more than a generation had just come down.

Not much more than a year had passed since the Foreign Ministers of Austria and Hungary had made history by cutting the barbed wire of the Iron Curtain not very far from were we are meeting today.

And in Geneva, at the huge laboratories where we are searching for the nature of matter by the smashing of atoms, the World Wide Web was just about to be created.

It was in late 1989 that the wall came down. And it was in late 1990 that the web was born.

And it was these two momentous events – the fall of the wall and the rise of the web – as well as the combination of them that was to transform the politics, the economics and the social life of all of Europe.

This is a transformation that is just beginning. And slowly, the realisation of the tasks ahead is starting to sink in throughout the continent.

The 1990’s saw important changes throughout Europe.

Economic policy moved slowly towards a new consensus as 11 of the 15 member countries of the European Union made themselves ready for the common currency – the Euro.

The Union was extended from 12 to 15 members as the political changes made it possible for Finland, Sweden and Austria to become members.

And the common currency did in fact happen, although most observers had predicted that this was a task well beyond the capabilities of the governments of Europe.

There was one market and one money covering a large part of the European continent.

These are significant developments. But the most significant developments are yet to come.

It is only now that the issues opened up by the fall of the wall and the rise of the web are beginning to come to the centre.

At the last of the meetings of the European Council – the summit meeting of the heads of state and government of the European Union – during the last century, in Helsinki in December of last year, agreement was reached on an ambitious opening up of the Union to new member states.

The day before yesterday there was celebrated the 50th year anniversary of the so-called Schuman Declaration.

It was five years after the end of World War 2 that French Foreign Minister Schuman proposed the pooling of the coal and steel industries of France and Germany under a supranational High Authority.

Then, it was a question of trying to achieve reconciliation between Germany and France through a policy of integration. This was the start of the process of European integration and unification.

The twin goals of peace and prosperity were to be achieved through a new attempt at the integration of the old nation states of Europe.

The two countries immediately become six. And these six over the coming centuries developed into the present fifteen.

But these fifteen are already in advanced negotiations with a further six on membership, has after Helsinki opened up negotiations with a further six, gave to Turkey the option of joining as well and indicated that the conflict-ridden countries south of Slovenia and north of Greece would one day also be welcome as members in this ambitious effort at peace and prosperity through integration.

Ten years ago, Austria was not a member of the European Union. But in far less than ten years from now, all the neighbours of Austria will be full members of the same union.

Step by step over the coming decade or two we will see the framework for peace and prosperity that is the European Union widen to stretch one day from the shores of the Artic Ocean in the north to the edges of the plains of Mesopotamia in the south.

This will certainly not be an easy undertaking. We will see numerous problems along the road. And it will in the process change the nature of the European Union itself. Within the common framework, there will have to be more of diversity than there is today.

But I am convinced it will happen. And that this process will profoundly increase the possibilities for peace and the potential for prosperity of all of Europe.

This is a development driven by the fall of the wall. With the division of Europe gone, the task of bringing Europe together is there.

But the rise of the web is already starting to have as profound an effect on Europe as the fall of the wall.

The Internet was an American invention. But it was only after the interface that is the World Wide Web was developed in Geneva that the Internet started the revolution now associated with it.

Before the Web, the Internet was little more than an academic mode of communication. After the Web, the Internet developed into a revolutionary force with impact across our societies.

But although the Web was born in Europe, it rose to fame, and to create fortunes, first on the other side of the Atlantic. It was the Netscape Mosaic browser in 1994 that made the Web available to a wider public.

And it is since then we have seen the dramatic rise of what is now referred to as the New Economy.

In 1995, there was only one publicly listed company in the US that could be associated with the Internet. And there was, to my knowledge, none on this side of the Atlantic. Now, there are more than 400 in the US, and probably at least the same number in Europe.

In early 1994, when I as Prime Minister of my country Sweden tried to get attention to these issues and their importance, there were hardly 500 sites on the Web throughout the world.

Today, there is added to the Web app 1,9 million new pages every day. The number of domain names registered is approaching ten million. Growth is relentless – whichever one of the different ways of measuring it we are using.

There is no doubt that the United States is ahead of Europe in more general terms when it comes to the New Economy. With growth rates approaching perhaps five per cent this year, more than a third of growth is coming from the information technology and information services sector.

Corresponding figures from Europe are more uncertain. But growth rates are picking up in Europe, with growth rates in the Euro area this year likely to be well above three per cent. And the share of growth coming from the MTM sector – mobility, technology, media – is bound to continue to increase.

I believe there are solid reasons to believe that growth in these sectors will be stronger in Europe than in the United States in the years ahead.

First, there is what is referred to as the catch-up factor. Technologies and business models proven in the US, more often than not after numerous failures, can be readily applied to the different European economies.

Second, I believe that the inter-action between all these new technologies and business models on the one hand and the introduction of the Euro on the other will turbo charge this development.

The United States has had the advantage of a large and largely homogeneous market with a uniform currency in the form of the dollar. This has also made it natural to have a very integrated capital market.

In Europe, the situation has been different, but is now changing very rapidly.

The Euro is gradually coming into effect. It dramatically eases business transactions across the old borders inside the Euro zone.

Newsweek magazine in a recent survey of the New Economy in Europe noted that the Internet and the Euro was like a marriage made in heaven.

Just think what would have been the development of e-commerce in the US if there had been different currencies in California, Texas and Massachusetts. There is no doubt it would have been slower and more costly.

The fact that the New Economy is starting to take off at the same time as the Euro is turning into reality will thus in all probability accelerate a development which is already very fast.

Third, we now see rapid moves on the political stage to integrate markets and create better conditions for the rapid development of the MTM sectors of the economy.

If the last European summit of the last century was devoted to the widening of the European Union, the first European summit of the new century come to be called the dotcom summit.

Held in Lisbon, it set the goal of making Europe into the most competitive economy in the world by the end of this decade by radically embracing the agenda of the New Economy.

There is reason to question to which all the leaders gathered in Lisbon understood the magnitude of the task they set for themselves. With different red-green constellations and coalitions in place throughout Europe, words like liberalisation, free markets, entrepreneurship and deregulation does not always come easily to many of them. And we have seen them hither and dither over the measures which sooner or later will have to be taken.

But with the goal set, the policy process will start and gather its own momentum.

This we are already beginning to see. The old European Commission was already an aggressive force on these issues, pressing the case of liberalisation of telecoms all over the continent, among other issues.

The new European Commission has this as one of their priorities. And Commissioner Liikanen has set the ambitious targets of getting agreement already this year on a set regulations for deregulation and rules which will go a long way towards creating a much better climate for the MTM sector.

Early this month, the European Parliament disproved its reputation for being slow by adopting immediately the proposed Electronic Commerce Directive, which thus clears the way for this to be turned into law in all of the countries within 18 months at the most.

This directive – as the term is – was identified at the Lisbon meeting as one of the top priorities. It will ensure the internal market principles of free movement of services and freedom of establishment. It includes definition of where operators are established, transparence requirements for commercial communications, conclusion and validity of electronic contracts, liability of Internet intermediaries, on-line dispute settlement and the role also of national authorities. It opens up the Euro market for electronic commerce in a much more profound way.

One sometimes hears the question why it is necessary to have regulations in an area where freedom and entrepreneurship, not regulation and planning, is rightly seen as the key to success.

But rules on the European level are necessary in order to prevent a Babel’s Tower of competing rules on the national level. Every rule on the European level takes away the risk of 15 rules on the national level. And the new rules set are rules which seek to open up markets for European and global competition.

Important as the efforts of the European Commission and the European Parliament to set the free framework for the New Economy are, they must be supported by national measures to create better conditions for entrepreneurship across Europe.

A recent survey by the OECD concluded, that on the average it took twelve times as long time to set up a new company in Europe as in the United States.

This is unacceptable. And all governments have now undertaken to take measures to significantly easy all the problems associated with start-ups.

I believe the gap with the United States will start to close rapidly. The United Kingdom has set itself to be the best base in the world for new e-companies within only two years. And their government understands that this will require changes.

As a result of the changes on the political level towards freer and far less regulated markets, we see a very rapid development of the capital markets in Europe. The goals set in Lisbon for the further integration of the capital markets might well be the most important of all the goals set there.

The recent decision to integrate the London and Frankfurt stock exchanges is only one example of the dramatic developments we are seeing. This would have been literally unthinkable only a couple of years ago. Now, it is seen as little more than a logical step in the dramatic changes underway as Europe embraces the New Economy.

In my own country Sweden the concept of venture capital was literally unknown a couple of years ago. There were as many venture capitalists in Sweden as there were pink elephants in Greenland.

Now, everything is different. IT-Provider, where I serve as one of the Senior Advisors, is only one of the largest in a growing sector of VC firms financing the new wave of entrepreneurship. Prohibitive taxes are still forcing them to have their money in other countries, but they do operate on the Swedish market.

Also here, we will see that changes in Europe will lead to a more rapid development in Europe than in the United States in the next few years. When Europe gets what the US already has, development will by definition be faster.

As a fourth factor, one can not fail to mention the imminent move towards mobile Internet and the possibility that this represents for and in Europe.

If there is one area where Europe is ahead of the United States it is in all forms of mobile systems. And if there is one area which every observer of the scene considers key to the future it is the step towards the mobile Internet.

Here, Sweden and Finland are at the forefront. The Silicon Valleys of Europe are, so far, to be found in the North.

Here, the Internet penetration is higher than even in the United States. Here, the penetration of mobile telephones is higher than anywhere else. Here, we find the homes of two of the leading companies in the world in these fields, with Nokia of Finland number one in mobile terminals and Ericsson of Sweden number one in the mobile networks. Here, we see flow of investments from other countries to tap the talent in mobile Internet that is already there.

But we see rapid developments also in other areas. A country as addicted to the mobile telephone as Italy is already starting to see a very rapid development. A small country like Estonia is already starting to look as a new tiger of the new economy.

Developments in Europe are not – much like in the United States – uniform in all areas and all countries. But those areas of Europe at the forefront of these developments are today ahead of anything anywhere in the world.

This by no means says that this will remain the case. There are a number of reasons for the present state of affairs.

Sweden and Finland undertook a radical deregulation and liberalisation of telecom in the very early 1990’s at the same time as the previous analog Nordic standard for mobile communications was replaced by the digital European GSM standard.

Now, this deregulation and liberalisation is happening everywhere. And now we are on the verge of the introduction of new global standards for the third generation of mobile services.

There will be two profoundly revolutionary developments in this field in the next year or two.

The first is the introduction of the so-called Bluetooth technology for seamless and wireless communication between different devices. All our devices will suddenly be able to be on line with each other.

This will open up for new developments of different sorts. We will see a web of networks linking all sorts of activities and thus transforming our living environments. The intelligent home will start to take shape. We will gradually move into living our lives in an environment of networked intelligence.

The second development is the introduction of the 3G standard for mobile communication. We will very soon get what amounts to wireless broadband.

The economic potential is judged to be very large. The recent auction of five licenses in the United Kingdom resulted in prices more than five times higher than anticipated. The coming auction in Germany is expected to show a similar amount. And the mega-mergers we have seen in the mobile telephone sector – Vodafone and Mannesmann as the most prominent – shows that the battle for starting positions in the coming battle of mobile Internet is reshaping the corporate landscape of Europe.

But competition will be fierce.

Japan will be the first country to launch a true 3G service later this year. Its DoCoMo service has already demonstrated a tremendous market potential. Its skills in consumer electronics should never be forgotten.

And although United States is behind Europe so far, the ability of its entrepreneurs, its venture capitalists and its innovators should never, never be underestimated.

As we are beginning to enter the transition to the age of the mobile Internet, we will enter a truly global battle where Europe has the best starting position and where European developments are accelerating but where the outcome is by no means given.

These are four factors that I believe speaks for a faster development in Europe than in the United States during the next few years.

We are catching up. We will get the turbo effects of the Europe. We are changing the politics of Europe. We have the best starting position as the age of the mobile Internet is about to start.

But this is just the beginning.

It was ten years since the wall came down and the web was born. But these are still early days when it comes to the impact of the new technologies and the Internet.

Since the 1960’s, what has come to be referred to as Moore’s Law has applied. The capacity of the microprocessors have doubled, or their price has halved, every 18 months or so.

During the 1960’s and the 1970’s and the 1980’s this did not mean that much. It is during the 1990’s we have started to see what it really means. The New Economy has been born.

But it is in the years ahead that it will really bring the radical changes.

On present technology and evolutions of it, scientists believe that Moore’s Law can apply for at the least another ten years. And on the horizon might be new technologies that will carry it another twenty or so years into the future.

Within ten years, everything will then change by a factor hundred. I believe we all have difficulties grasping what that really means.

But within thirty years – when the young boys and girls of the start-ups of today are starting to reach the mature ago of myself – everything will have changed by a factor a million.

This is like compressing a millennium into mere nine hours. It is beyond our comprehension what this will really mean.

We can be certain that there will be massive problems. The digital divide. The security problems highlighted last week. The mounting concerns about privacy. There will be others as well.

But the potential will be vastly more significant than the problems. And I firmly believe that a Europe that has gotten rid of the wall and that has embraced the web will have a greater potential for development in these areas than most other parts of the world.

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