Reversing European Decline

Europe is in significant decline and has been for some time. The standard chart compares European GDP versus American but I won’t use it, because I don’t believe in GDP at this point, the numbers are both manipulated and unrepresentative of actuall national economic ability which matters. That Russia with its tiny GDP was able to massively ramp up weapon production and the US and the EU with much larger GDPs were not is a good example.

But what is clear is that European innovation has fallen far behind, as measured in patents, and that industry is leaving the EU, especially energy intensive industry. China and the US, both, are eating Europe’s lunch, and they are losing export customers, especially in the third world. Europe is not resource rich, they need imports and they aren’t going to be able to afford them. De-industrialization looms, and service industries aren’t going to carry the load, which will leave them with agricultural exports, which will also start declining.

So we’re going to do a thought exercise about what’s required to reverse the decline. As will quickly become evident, it’s theoretically possibly but politically impossible.

Europe needs to do one thing in order to maintain a high standard of living over the medium to long term: it must manufacture enough of what it needs and, more importantly, enough of what others will buy from it, to pay for the imports it needs of what it doesn’t make and raw resources it doesn’t have.

If it continues to de-industrializes it will inevitably slide down the value add chain, and into second, then perhaps even third world status.

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This means in needs cheap resources, the most important of which is cheap energy for its industries. In the short term, the next twenty years or so, that still means petrochemicals, and there’s only one place the EU can get them from: Russia. The US is willing to sell, oh yes, but at much higher prices. (If Europe was truly going to turbocharge to alternative energy, it’s going to need China, see below.)

Unfortunately, the EU has burnt their bridges and the pipelines have been sabotaged. To get back to Russia being willing to sell at discount prices the EU will have to make its bones: it has to give Russia ironclad security guarantees, and that means leaving NATO and creating its own armed forces. It probably means ditching the incurably anti-Russia eastern block nations like Poland (who are a drain anyway and should never have been let in.)

Forming their own military, with nukes, by the way, is not protection against Russia, it’s protection against the US and its allies.

Now, Russia might cut a deal anyway, without Europe leaving NATO, but the problem is that what Europe needs from China is a cartel deal: it needs China to agree to let it keep some high tech industries. Europe can only keep such industries if it either innovates far faster than China and engages in subsidies to keep prices lower or if China agrees: China is innovating far more quickly than Europe. and it has a lower cost structure. Foolish sanctions have sped up its progress in fields it had previously been willing to leave alone, like the lithography, required for creating chips.

If Europe is a lockstep US ally, China will not be willing to make cartel deals because in that case Europe is an enemy and sanctions can always be used against China in a time of crisis (as opposed to pre-emptively and stupidly) to try and hurt China. But if Europe is neutral or friendly, and a customer, well, smart people to don’t improverish their customers, they let them have some industry.

The last thing is that Europe has to significantly increase its rate of innovation, and the steps involved include bringing a lot more manufacturing back to Europe and some significant changes in law and custom, enough to be an entire other article.

However the point of this exercise is to show why Europe is going to continue its decline. It has a high cost structure and a slow rate of innovation, and it can’t fix either given its politics. (Be clear, innovation is related to the manufacturing floor, it can’t recover if you’re losing that.)

This is similar to climate change, where no major country can fix it, even if it is theoretically possible, because it is politically impossible. A bigger, global problem, but the same dynamic.

Anyway, Europe is in decline and will continue its decline. You can only live on legacy innovation for so long and Europe is running out.

Europe should, above all, avoid war with China at all costs. Germany essentially created the chemical industry in the 19th century. In WWI, when the US entered the war, they broke the German patents, and much of the industry moved to America. After WWI, well, the US didn’t reinstate those patents and the chunk of the industry now in America never moved back.

Do that and Europe might eke out an extra decade or two.

Oh, and now that they are nobodies, with no military and industry that barely matters and which they have sanctioned China on, they should shut their mouths and stop insulting China and interfering. The only major thing they have to offer now is consumers, and that’s going to keep going away.

Essentially, Europe needs to stop thinking they are the Europe that once ruled the world, or even that they are important American satrapies. Both Korea and Japan outproduce them in patents, and it’s not close. They’re just has-beens, and if they want to change that, they need to take radical steps.

They won’t.

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