On September 17, Mario Draghi, former president of the European Central Bank and former prime minister of Italy, presented the European Parliament in Brussels with a damning report on the sluggish economic state of Europe. In a nutshell, he is trying to deliver a wake-up call by showing how the EU is currently caught between the United States and China. The latter’s economic and military development is catching up with Europe’s and may ultimately threaten the continent itself. Meantime, the former is continuing to rack up technological, military, and financial innovations that are reducing Europe to the status of an amusement park for tourists. For example, Draghi’s report notes that per capita income in the U.S. has grown twice as fast as in Europe since 2000. This relative impoverishment has gone virtually unnoticed because the European population is shrinking. Each person’s slice of the economic pie is therefore more or less constant, but the pie itself is getting smaller. If Europe does not wake up soon, the next generation will be left with little more than crumbs.
Despite having been a hub of innovation for four centuries, Europe now seems to have squandered its ability to innovate and finds itself unable to keep up with the times. As such, Draghi believes that Europeans are madly focusing on leisure activities and obsolete industries such as transportation. When it comes to the new economy, Europe is an absent player. It has no significant IT, microprocessor, or artificial intelligence companies—at least none that can compete with those in the U.S., China, or even India. Europeans are cultivating their own beautiful garden, much to the delight of tourists and their own relative—but temporary—comfort. They appear oblivious to the hard truth that their daily existence, whether private or professional, depends entirely on Chinese microprocessors, American AI, and their disintegrating international trade. And while Russia threatens its security, Europe is incapable of standing on its own two feet. The U.S. produces and exports just one type of tank, whereas Europe has about a dozen, all mutually incompatible. The EU alone frightens neither Vladimir Putin nor Xi Jinping, and these imperialist-leaning dictators are understandably indifferent to European diplomacy. In fact, the main things that draw the Russians and the Chinese to Europe are vacations on the Costa Brava or the Côte d’Azur.
Should Europe complain? Life there is pretty good, after all. Pensions are generous, amid a generally accepted level of social solidarity. But, as Draghi asks: For how long?
Draghi’s observations are not new, but they have the advantage of combining the disparate aspects of Europe’s weakness into a coherent whole and explaining the extent to which this anemia—driven by a lack of innovation—is a truly collective malady. In theory, such a condition would require an equally collective European response. While the observation is undeniable, the solutions are less persuasive. Draghi, despite predicting an uncertain future, seems to be a man of the past, proposing public policies that have previously proved ineffective. In his view, we should invest massively in research, and especially in “decarbonization.” According to Draghi, herein lies Europe’s comparative advantage. Really? To achieve this, he urges European nations to borrow massively, to sink into collective debt, and to spend this money on waking up slumbering creativity. But since when has public funding awakened creativity? Draghi’s report ignores the fact that all European states are running deficits, and whatever the level of debt, growth rates are comparably low everywhere. Nor has any relationship between public spending and growth ever been verified anywhere. It may be true that the U.S. is more indebted than European countries, but it is impossible to draw the slightest correlation between the American budget deficit and innovation in Silicon Valley, for example, where start-ups are financed by private venture capital.
What’s more, as the dollar remains king, lenders know that they will get repaid. This is a luxury Europeans do not have; too much debt would threaten the euro. Draghi’s solutions, it seems to me, are old-fashioned, social-democratic dog whistles—“Keynesian” policies that lead, as ever, to wasted public money, or even inflation. It is worth noting that French economist Thomas Piketty, the maitre à penser of the old Left, has applauded Draghi’s report. This is a bad omen.
What the Draghi report fails to do is to examine the underlying reasons behind Europe’s lackluster entrepreneurial spirit. Across the continent, businesses are shackled above all by three factors: first, by the mass of national and European regulations; second, by the cost of redistribution of income and wealth; and third, by environmentalist ideology. This ideology blinkers companies and subsequently discourages innovation while driving up overall costs—particularly energy costs. Draghi rightly notes that the price of electricity is holding back growth, but he also advocates for “clean” energy, which makes electricity even more expensive. He fails to see the paradox, apparently preferring to toe a more fashionable line.
So what would wake Europe up? Certainly not more public intervention, but more free-market liberalism. And it needs more immigration to compensate for collapsing birth rates. Europe is not only caught between China and the United States but also caught between the temporary comfort of social democracy and the necessity of free-market liberalism. There was a time, in the 1980s, when true political leaders such as Ronald Reagan, Margaret Thatcher, Helmut Kohl, and José Maria Aznar were the standard-bearers of this school of thought. This generation has yet to be replaced. Today, there is no head of government or opposition leader capable of speaking the truth. They all seem to agree that Europeans should be lulled to sleep, as waking up would mean working more, instead of keeping an eye on our “carbon footprint.” Ecology and social democracy are recreational drugs that lead to prolonged addiction in the European collective mind and mainstream media. Waking up would require a detox—something that Draghi’s report fails to offer. It would seem that political courage does not pay enough, and economic truths are of little interest to most. Therein lies the true European sickness.
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