Europe, On The Brink Again

“There is a dynamism about nineteenth-century Europe that far exceeds anything previously known.  Europe vibrated with power as never before: with technical power, economic power, cultural power, intercontinental power.”  — Norman Davis
 Europe. (2024, September 24). In Wikipedia. 
Rob984, Public domain, via Wikimedia Commons At the beginning of the 20th century, there were very few signs that this century might become perhaps one of the most tragic in European history. At that time, the economies of Europe’s leading countries were still on top of the world following the Industrial Revolution. Countries like the UK, France, and Portugal sat on top of extraordinary colonial empires.

War and Depression
From 1914 to 1945, Europe went to war with itself on two occasions and was also torn apart by economic depression.  It would take heroic efforts by the Soviet Union, the US, and the UK to end the Second World War.  But war arguably continued until 1989 through the Cold War, as much of central and eastern Europe was occupied by the Soviet Union as the spoils of war.As Tony Judt analyses in his book Postwar, the US played a significant role in ending war and rehabilitating Western Europe. The Marshall Plan significantly contributed to Europe’s economic recovery and culture of cooperation. Most importantly, the Plan lifted Western Europe’s psychological spirits and helped restore hope. This cooperation among European countries laid a foundation for creating the European Union, whose ultimate objective was to ensure that “never again” would there be such wars.

The European Union
The EU progressively expanded from the six countries that founded the European Coal and Steel Community in 1951, namely Belgium, Germany, France, Italy, Luxembourg, and the Netherlands.  A further 22 countries have since joined the EU, including a historic expansion in 2004 to a number of central and eastern European countries (and others), marking the re-unification of Europe after decades of division.Members of the EU enjoyed rapid economic growth – often referred to as the Thirty Glorious Years – until the oil shocks of the 1970s.  Europe would never fully catch up to the US in terms of productivity and GDP per capita.  However, most new EU members benefited greatly, with countries like Ireland, Poland, and Portugal being great success stories.
The Rise of Social Welfare StatesAs John Maynard Keynes argued, in Europe, there would be a craving for social and personal security after 30-plus years of war, revolution, civil war, violence, depression, political extremism, war, ethnic cleansing, occupation, liberation, reoccupation, and genocide.  Indeed, Europeans wanted security more than anything else, fearing a return of fascism more than communism or Americanisation.Thus, in virtually all European countries, a social welfare state and rule of law were established, with the state committed to providing security, stability, protection, and guarantees. However, with the passage of time and especially population ageing, Europe’s security has imposed a large burden on European governments, sapping economic dynamism and contributing to large public debts. Economic and Monetary UnionIn addition to enlarging its membership, the Union has been deepened, notably through the Economic and Monetary Union.  Nevertheless, the EU is a long way from achieving the aspiration of a single market.  This is one of the reasons why European productivity lags that of the US, which has a much deeper single market.The EU’s intense processes of enlarging and deepening mean that the international political energies of its member states are substantially devoted to EU issues, including its common trade, agriculture, and competition policies, more than to the outside world. In addition, divergent political interests of EU members have prevented the EU from developing a serious common foreign policy.

NATO
The creation of the North Atlantic Treaty Organisation (NATO) in 1949 gave Western Europe a sense of security vis-a-vis Central and Eastern Europe, then controlled by the Soviet Union.  Western Europe was also supported by the basing of large numbers of American troops following the lessons of the Korean War (1950-53).  This starkly contrasted to the end of World War 1, after which American troops went home, leaving Europe’s security challenges unresolved.At the same time, NATO and the positioning of American troops fostered Europe’s culture of security dependence on the US.  In light of pressure from President Obama’s administration, in 2014, NATO members pledged to commit to defence spending at least 2% of their GDP, something most members were not doing.  Most Europeans had cashed in on a large “peace dividend,” in sharp contrast to Russia.As president, Donald Trump was even more critical of Europe’s low defence spending. He castigated German Chancellor Merkel for signing a 2015 agreement for Nord Stream 2, a natural gas pipeline from Russia to Germany, as she believed Putin was a “reliable supplier.”Trump even threatened to withdraw the United States from NATO or not apply Article 5 to countries that spend less than 2% of their GDP on defence. The folly of Europe’s demilitarisation was evident when Russia invaded Ukraine in 2022. NATO’s military assistance to Ukraine has been highly reliant on the US.

Ukraine
Changes in US politics and the Russian invasion of Ukraine have woken Europe up to the necessity to assume greater responsibility for its national security.  Now, out of the 32 NATO allies, this year 23 will meet the agreed target of spending 2% of GDP on national defence. Only three NATO members were spending over 2% in 2014.  But it now seems clear that NATO’s European members will need to spend a lot more than 2% of GDP, and a lot more will need to be done to build up military capabilities – especially if the US reduces its support for NATO and the Ukraine war after the upcoming US presidential elections.

Europe at an Inflection Point
According to a recent report by Mario Draghi, former Prime Minister of Italy and President of the European Central Bank, Europe stands at an inflection point in 2024.The Report notes that, since the early 2000s, Europe has struggled with slow growth, resulting in a widening GDP gap with the US. US real disposable income grew almost twice as much as in the EU. In the EU, income per person, one of the primary gauges of living standards, is, on average, one-third less than in the US, primarily because of lower productivity.The Report highlights three key areas to boost sustainable growth:

Political ChallengesThe reaction to Draghi’s report has been broadly positive.  But most realistic commentators doubt that Europe will be able to rise to the challenge.  The EU’s fragmented Single Market needs to be deepened to achieve economies of scale and maximise efficiency.  Trade intensity between EU countries is less than half the level between US states.Draghi argues that Europe needs an annual investment of €750-€800 billion, about 4-5 percent of EU GDP, at the same time as ramping up defense spending. Few believe that EU leaders are capable of the leadership necessary to realise such ambitions.But Europe faces many more intertwined challenges. The far right has gained much ground in recent years, especially but not only in Germany and France. This is partly driven by anti-immigration sentiments in this continent, whose economy is, in reality, very reliant on immigrants in light of its ageing population. Another factor is nationalism at a time when, ironically, the EU needs to deepen the Single Market and economic integration.

Conclusion
Today, we live in a geopolitical context dominated by the great powers of the US, China, and perhaps India. Europe has the opportunity to be a real great power and thus shape the world around it rather than being shaped by it. Indeed, Europe has much going for it and much to defend in terms of democracy and human rights.This may be an old story.  But in light of Russia’s invasion of Ukraine, the war in Gaza, the US/China great power rivalry, and the US pivot to a more protectionist and isolationist posture, the context is both new and urgent.  Europe must decide whether it wants to take its future seriously or be a passive traveler in the global system.  This means economic revitalisation, becoming a military power, and strengthening the EU project.  Today, Europe is on the brink.  But it is difficult to be optimistic about its future.More By This Author:EIA August Monthly Energy Report – September 1, 2024
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