Less Tense, More Upbeat at Davos

While the World Economic Forum sure has some thorny issues to tackle, the mood is lighter than in 2003

Leading business executives, academics, and policymakers from around the world gathered in Davos, the picturesque Swiss skiing resort, on Jan. 21 to discuss the state of the global economy and the main problems facing business around the world. Top of the agenda at the World Economic Forum (WEF): the strong euro, corporate-governance shortfalls in Europe and the U.S., and how to reinvigorate stalled global trade talks.

Among the 2,100 attendees at the five-day, high-level shindig are CEOs or chairmen from a third of the world's 1,000 largest companies, U.S. Vice-President Dick Cheney, U.N. General Secretary Kofi Annan, and a large delegation of Iraqi Governing Council members led by American Administrator Paul Bremer.


  The mood in the conference center is more upbeat than it was last year, when the meeting -- which came just weeks before the start of the Iraq war -- was dominated by the gulf between Europeans and the U.S. over how to tackle Saddam Hussein, and fears that the U.S. and Europe could follow Japan into prolonged recession and deflation. Saddam has now been ousted, and the world economy as a whole is expanding briskly, with growth expected to top 4% this year.

"People are more optimistic, they're more confident," says Karl Schwab, the WEF's founder and executive chairman. One sign of the improved mood: Attendees will be wearing black-tie for the traditional Saturday night gala this year. In 2003, they were asked to leave their tuxedos at home because it was considered inappropriate to party just 15 months after the terrorist attacks on the U.S.

Still, the global economic and political landscape have plenty of blots to occupy minds at Davos. The euro has risen more than 20% over the past year, threatening to undermine the euro zone's fragile economic recovery. The crisis at Italian dairy giant Parmalat has exposed shortcomings in European corporate governance. The Middle East "road map" to peace seems to be going nowhere. Reconstruction of Iraq is being held back by continuing terrorist attacks. Says Schwab: "Despite the more positive mood, people feel as if they're walking on thin ice, that there are big risks out there."


  Samuel DiPiazza, global CEO of PricewaterhouseCoopers, says the euro's continuing rise will be one of the main concerns for European attendees. After losing ground last week in the wake of strong U.S. economic data and efforts by European Central Bank officials to talk it down, the single currency surged on Jan. 21 to $1.26.

The word here is that the euro's strength -- and the dollar's weakness -- will feature high on the agenda of behind-the-scenes talks between attending Continental financial officials (including European Central Bank President Jean-Claude Trichet and German Economy Minister Wolfgang Clement) and their U.S. counterparts. But the Europeans don't expect to get much comfort from Washington. As DiPiazza points out, the ailing greenback may be hurting Europe, but it's a powerful aid to U.S. exporters in an election year. "The weak dollar might not be good for some countries," notes DiPiazza, "but it is good for the global economy."

Also behind the scenes: Expect talks between the U.N.'s Annan and Turkish Prime Minister Recip Tayip Erdogan, and a bid on the part of trade representatives from the world's major countries to restart the global trade talks that collapsed in Cancun, Mexico, last September.


  The best-attended sessions are expected to be those focusing on China and, to a lesser extent, India. As China emerges as a global economic locomotive -- it's now the world's sixth-largest economy, after the U.S., Japan, Germany, Britain, and France -- just about every business executive in Davos says he or she is keen to know more about its fast-changing economy and growth prospects. Still, the Chinese delegation will be small -- partly, says one member, because Davos coincides with Chinese New Year.

The real business here isn't done in the conference center but at the receptions and "nightcaps" where delegates meet informally and schmooze. That's where the more optimistic mood is likely to be most evident and to have most effect, possibly generating business deals, partnerships, and even mergers.

By David Fairlamb in Davos

Edited by Patricia O'Connell

Before it's here, it's on the Bloomberg Terminal.