I had the pleasure to spend the day at the Industrial Competitiveness Conference in Brussels today, which featured as a highlight a panel with Professor Paul Krugman from Princeton.

Krugman, who had just lambasted the EU in a New York Times article the day before that they are not doing enough to spend their way out of the crisis, said he was particularly concerned about the huge discrepancies in current account balances which pose “terrible adjustment problems for countries which ran high deficits” such as Spain, which are facing unpleasant policy choices, since they cannot devaluate their currencies any more. While GDP will stabilize early next year we will globally not see a real recovery “before the second Palin administration” :-).

Just before Krugman joined, there was an interesting panel discussion on factors for companies’ location decisions. Ernst & Young highlighted some first conclusions from their European Attractiveness Survey 2009, which were supported by statements from key company representatives (Phillips, Dow Chemical).

The main point here was that cost matters, but first and foremost companies look for markets and growth potential. In this respect the EU’s single market, the biggest market in the world, is a key draw. However, the most serious attractiveness factor was innovation, which, according to E&Y was getting Europe back on investors’ radar.

40 percent of the surveyed companies want to be in Europe, although currently investment plans are on hold. Europe has an excellent University situation. Innovation-based policies, particularly education, growing and retaining talent and investing in clusters are key as are local and regional initiatives and creativity. The final results of this survey are to be presented in June. I am planning to invite E&Y to an ERRIN event after the summer to present their findings. I keep you posted.

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