Europe, Heading for Inevitable Decline?

Criticism of the European model has become commonplace. There is no longer any doubt, except for idealists, that Europe as it was built is in a state of decay. The Europe of peace has failed, while the war in Ukraine (in which European countries are most involved) rages at its borders. The Europe of economic growth has collapsed since the 2008 financial crisis, which affected the Old Continent more than the United States. The Europe of diplomacy has weakened, as its spokespersons are listened to less and less in the face of the emergence of new powers and the growing power of the private sector. 

As a result, Europe is moving backwards on many fronts, again and again due to the striking divergences between its member states. As the European project can only function by respecting the independence of each country, or conversely by embodying a single nation-state (which is widely contested), the in-between position in which it finds itself condemns it to a decline that now seems inescapable.

The facts are stubborn. In the 2000s, Europe accounted for 30% of global GDP; today, it's barely 20%. But after all, how can we hope to succeed when we don't have the means to match our ambitions? How can Europe expect to become a superpower when its structure is so inadequate? First and foremost, we have to come to terms with the fact that Europe does not have the hegemony of the dollar, and therefore cannot constantly finance growing deficits and debts. It wasn't Keynes and Pierre Mendès France who decided on the international financial system in 1944, but the American Harry White.

The Lisbon Strategy of 2000 has failed. This strategy, which aimed to make the European Union, after the signing of the venerated Maastricht Treaty, “to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth”, has come up against the wall of reality. Not only is economic growth stagnating (for reasons as diverse as monetary policy being ill-suited to the twenty states, insufficient budgeting, blatant dependence on outside powers on strategic issues, etc.), but the knowledge economy remains a pious hope, with research spending representing less than 2% of GDP on a continental scale. 

Europe, lagging behind in its search for growth drivers, is therefore forced to depend on foreign powers. In artificial intelligence, for example, it relies on American companies such as Nvidia and Google to become a major player. And even though it has prestigious schools in several countries, it often lets its talents escape because it can't pay them enough. It has to be said: Europe also prefers regulation to innovation. Its institutional model makes it more of a bureaucratic machine than a land of invention. Since 2008, almost 30% of European unicorns (startups with a value in excess of one billion dollars) have transferred their headquarters abroad... And Europe's five biggest technology companies have a stock market value of just $300 billion, compared with over $9 trillion for the five biggest American companies.

Because of its geography and diplomatic positions, Europe also finds itself at the heart of a world in transition, where protectionism is gaining ground, the Chinese economy is slowing down, interest rates are undergoing a revolution, and energy prices are rising. Having delegated all sovereignty to foreign powers, be it foreign trade to China or energy to Russia (even though some European countries have nuclear power...), the consequences of de-globalization are now being fully felt. 

What's more, Europe's loyal and historic ally, the United States, often acts as an enemy. An enemy when it makes the euro a vassal of the dollar by making European banks dependent on the American currency. An enemy when its financial institutions intervene in European countries to impose programs that downgrade them. An enemy when it weakens European competitiveness by buying up European companies (such as Alstom) thanks to American budgetary strength. An enemy when it turns its back on Europe on strategic issues, such as nuclear-powered submarines. An enemy when it forces European countries to buy American shale gas, in the wake of the war in Ukraine, at extremely high prices compared with other suppliers. An enemy when it gets involved in wars whose migratory flows directly affect European countries and put downward pressure on wages. Finally, an enemy when it does everything it can to ensure Europe's continued existence while its member states remain divided.

Against this backdrop, the recent report by Mario Draghi, faithful architect of the European project, has the bold quality of reminding European nations of the economic decline they have been experiencing for over twenty years. But the problem arises when the former ECB President presents the measures to be adopted, particularly those concerning financing. For these measures, part of a European federalism (i.e., turning Europe into a single state where European cultures are dissolved), naturally run up against certain boundaries. The 170 recommendations he makes will cost a total of almost 800 billion euros a year by 2030, or around 4.5% of European GDP, at a time when many European countries are close to a solvency crisis. By way of comparison, the Marshall Plan, which enabled the reconstruction of Europe in the aftermath of the Second World War, cost 1.5% of GDP at the time. And the world has changed. Europe after 1945 was truly the Europe of peace, as it entered a new cycle, with strong growth, relatively low inequality and, above all, extremely low levels of debt... So there was a lot of room for manoeuvre.

Today's age is different, and so nihilistic that it won't care about the future of the millennia-old Old Continent. Finally, it should be remembered that the Marshall Plan included debt cancellation programs for many European countries (notably France and Germany). Today, however, any debt cancellation is deemed inadmissible, even if it concerns a debt that a state pays back to itself via its central bank.

With regard to financing these measures, the Draghi report proposes several avenues. Firstly, it puts forward the idea of creating mutualized debts, or Eurobonds, along the lines of what was done during the health crisis. But how can European countries finance these European loans without triggering a debt crisis? Interest rates are rising, member states are over-indebted, and the ECB no longer has the leeway to support them (despite the slight fall in interest rates!). In addition to embodying a utopian budgetary union, pooled debts could lead to repeated attacks on the debt of many European countries (including France), and soaring interest rates. If this type of financing is possible in the short term, it's only because the countries of the North, including Germany, have demonstrated budgetary rigor (they are, it's true, the winners of the euro) in recent years. The interest rate on these Eurobonds would thus be lowered thanks to their indebtedness, deemed “reasonable” by the markets. 

But that's not all. The report also proposes, more than half a century after the Treaty of Rome, a reform of the European budget so that it is better targeted to support private investment. The insidious aim is, once again, to turn Europe into a single state, by increasing the budget from almost 1% of GDP today to much more (20%, 30%?), in the manner of a single state. How can we imagine that this will be acceptable to European countries tomorrow, or by 2030? The balance of power is shifting...

The report also proposes the relaunch of securitization and the completion of the Banking Union. But the countries of Northern Europe are unanimous in their rejection, and rightly so. For they all want to retain their financial sovereignty, at a time when banking consolidation is accelerating on the Old Continent. The Italian bank UniCredit has just strengthened its position by increasing its stake in the German bank Commerzbank, and the planned takeover of Société Générale by the Spanish bank Santander (Europe's leading bank) continues.

The report also puts forward the idea of a true Union of capital markets. It points out that private capital, made possible by abundant savings, remains under-utilized in Europe, despite the fact that household savings amount to almost 1.5 trillion euros, compared with 850 billion euros in the United States. In other words, this would mean looking for one of the last possible means of financing to use up all resources, after successive European governments have spent lavishly.

In the end, this report comes on top of the previous ones, each time pointing out, ever more severely, the decaying state of the Old Continent. But if criticism is rife, it's also because Europe has the capacity to take back the reins of its destiny. It has the potential to be a great continent (not a great union) not only thanks to its cultural and intellectual assets, but also thanks to the strength of its welfare states, which make it the most prized continent, even today. But those days are almost gone. And at this rate, Europe will be definitively swallowed up in the world that is taking shape. Europe doesn't have a minute to lose. It urgently needs to respect the independence of each nation, to remain true to its history, and guarantee a future that matches its ambitions.