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FRANKFURT – Europe needs to promote greater political stability, cut red tape and reduce energy price volatility to reverse declining foreign direct investment, according to a survey of business leaders by EY.
More than 500 business executives surveyed by the consulting firm ranked political instability, including upcoming elections, populism and polarization as the second biggest risk to Europe, after increasing regulatory burden.
Europe has struggled economically for years due to soaring prices and Russia’s war in Ukraine, and rising populist sentiment has led to the rise of far-right forces in European Parliament elections and prompted French President Emmanuel Macron to call for early general elections.
Opinion polls show the euroskeptic, anti-immigration National Rally party in the lead ahead of France’s two-round vote, which ends on July 7, casting a pall over the economic direction of a country that topped EY’s European FDI rankings last year.
“Certain investments may be at risk,” Marc Lhermitte, a partner at EY consulting, told Reuters.
“International investors are watching very closely and many of them are starting to speak out publicly and through back channels,” he said, warning that it could be months before it becomes clear what policy course France will take.
The French elections add another dimension to the big challenges facing Europe, amid Britain’s departure from the European Union and ongoing strife within Germany’s ruling coalition.
That has rattled financial markets in recent days, pushing up France’s borrowing costs on concerns that a populist government would strain France’s already limited financial resources and hinder broader efforts to give the euro zone economy a boost.
Slowing growth, volatile energy costs and political uncertainty have all undermined the European Union’s competitiveness, especially compared with a booming United States, and led the world’s two largest economies to follow different paths.
Lhermitte said investment in Europe by U.S. companies fell 15% last year, a sign that incentives from President Joe Biden’s Fight Inflation Act are encouraging many U.S. companies to invest domestically.
“As geopolitical and global trade tensions escalate, European policymakers need to act swiftly and decisively,” EY said in a comment on the survey.
“Member states need to align on key areas, such as which industries need to be protected and where the threats lie.”
Given Europe’s overdependence on Russia for decades, investing in more connected infrastructure and facilitating a green transition could reduce energy price volatility.
But bureaucracy is the biggest threat, executives said.
“European policymakers can alleviate these concerns by harmonising regulations, reconsidering the pace of introducing new regulations and repealing outdated laws where possible,” EY said.
This article has been generated from an automated news agency feed without any modifications to the text.
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