The horizon is not so far as we can see, but as far as we can imagine

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.



The Conditions For Peace In Ukraine


Open Thread


  1. GrimJim

    Nothing that needs be done and can be done will be done.

    Those who could do it are bought off, blackmailed, or both, and are not going to suffer from their people being immisserated and their state being turned into a Third World nation. We’ve already seen that in Greece and Italy, after all, and that’s par for course for most of the US already, too.

    Western Europe will remain in the US orbit for now, Eastern Europe will fall back into the Russian orbit… Kicking and screaming and shooting and frothing, but fall they will.

    Another generation, if we have it, and everything that can be looted will have been looted, and whatever remains will by default collapse into petty principalities when the Imperial Centers implode.

    The Spaniards, Italians, Greeks, and southern Slavs, well mixed with North Africans and West Asians, will be on the forefront of the immigrant wave ca. 2050, and those of mostly European heritage will curse the karma inherited from their ancestors who let so many drown in the Mediterranean…

    Some will be lucky enough to be resettled on farms where sweat and tears will take the place of gas and oil, founding fathers of a new breed of self for their landowning masters.

    Others will firm mercenary bands, hired to keep our the next wave of immigrants, known to future historians… If any… As the New Barbarians…

  2. Purple Library Guy

    I’m not convinced the problems are quite as intractable as all that. You only have to be the BEST in a situation of globalized free trade. That situation and the ideology underlying it are eroding. If you’re willing to do some protectionism, and the world is not in a mood to punish that in a unified way, fairly good is good enough to create prosperity. With current technology, it’s not really that hard to make most of what people need, certainly not if you’re a fair sized place and you’re not being actively blockaded. And you can do fairly good without having all the latest patents or the absolute cheapest inputs. Petrochemicals are soon going to enter a period of long term price decline anyway as people stop burning them. The question is whether the EU can contemplate a prosperous but more inward-focused economy.

    The problem for Europe is as far as I can tell more about banks. When the EU kicked into high gear around the turn of the millennium, it started a period where banks and financial institutions gained ascendancy; the EU central bank was staffed with financiers from the likes of Goldman Sachs, all the attention was on financialized looting of the Eastern European countries lining up to join. That screwed up those sucker countries, didn’t help the core EU countries any, masses of people emigrated from Balkan places to the core EU because now they could, but a wunch of bankers made plenty of dough and gained more political dominance. Then we got the financial crisis, which outside of Iceland mainly just consolidated financial control, with mainly-German bankers putting the screws to places like Greece. Now a banker is the president of France! And you end up with policies all over the place that favour financialism and at best ignore industry, like the weird pseudo-free-market energy thing that was screwing up EU natural gas prices well before any pipelines blew up. Industry wanted reliable long term contracts like Russia wanted to offer, but EU financialist authorities wanted the kind of situation that gave California Enron, so finance people could make bank on arbitrage. The EU has to a substantial extent been run as a vehicle for financialization of the economy, which is to say, in ways that screw up the productive economy.

    The thing is, local bankers are actually pretty easy to control if you have the political will. Foreign bankers are a quite different matter, but the problem for the EU isn’t foreign bankers, it’s largely EU bankers, and politically speaking you can kick bankers in the nuts and nobody would care because everybody hates them. If the EU were able to muster the political will to harshly rein in financiers, they could improve matters a lot.

  3. Feral Finster

    “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.”

    This last paragraph is the money quote. Europe needs leaders who aren’t overjoyed at being allowed to fellate their American Master. LOL, because Europeans like being slaves.

    The irony is that Germany and Russia (not so much China and Russia) are natural allies, in that each has what the other wants and can best get by cooperating. The United States has worked long and hard to make sure its German lackey is never allowed to figure this out.

  4. In the Cold War America did treat Europe as important and considered their interests. One of the best examples I can think of is how the overthrow of Iran’s government in the 50’s kept Iran’s oil in British hands for a while.
    It has only really been in the last 20 years or so that American foreign policy has discarded any considerations for European prosperity. Iraq was invaded in part to keep Iraq from adopting the Euro as a currency of trade. Likewise destroying Libya, Yemen and Syria resulted can’t be said to have done anything but harm Europe.
    Europe’s problem is that they are stuck in the Cold war and have not adapted to the new age. Which explains why they decide to destroy their industry to wage a war against Russia.

  5. Gaianne

    Short and to the point.

    This was strangely sad to read.

    It is almost over already, but tourism will keep up Europe’s image. The image will be the only thing that is kept up. Tourists will visit the architecture and art, while tour guides defend them from the encompassing squalor.

    That is it.

    It is already fated.


  6. different clue

    Europe will become a cultural petting zoo for Chinese tourists.

    America will become a plantation and a strip mine for Chinese industry.

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