Europe has become the sick man of the world

Dr. John C. Hulsman

European Commission President Jean-Claude Juncker arrives at a European Union summit in Brussels. (Reuters)

Political risk analysis is an endlessly fascinating process, assessing change that can be either historically dramatic (such as wars and revolutions) or the slowest of phenomena, as countries rise and fall glacially, year on year. Slow decline — much as occurred in the 19th-century Ottoman Empire, which was dubbed the “sick man of Europe” — is perhaps harder to identify, as it can occur at such an imperceptible pace that it takes a world-class political risk analyst to discern it at all. At present, such minute but decisive changes are happening in Europe.

This process has been going on for quite a while now. Twenty years ago, I wrote a series of controversial articles announcing that Europe was in absolute decline; they were met by a mixture of derision and scorn, as it was drily pointed out (and this is still entirely true) that Europe remains a wealthy, culturally wonderful place to live. How could such a paradise be in terminal decay? But a generation on, no one is laughing at this bold political risk assertion.

Why the change in intellectual fashion? Presently, Spain is about to hold its fifth election in five years. The populist Polish government is at permanent loggerheads with the EU. Shaky Italy finds itself one shock away from depression. German Chancellor Angela Merkel’s rule is in its twilight as her country slouches toward recession. The UK is headed for the door. Finally, French President Emmanuel Macron has just about survived months of rioting in Paris. As Bob Dylan put it so well, “You don’t need a weatherman to know which way the wind blows.”

The continent as a whole is becoming strategically and militarily peripheral, as defense spending slips to comically inadequate levels, presently 1.2 percent of gross domestic product (GDP) in lotus-eating Germany. In 2018, only seven of the 29 NATO allies met the minimal 2 percent of GDP target for military spending, including only three greater alliance powers (the US, UK and Poland). The rest of the continent seems to believe that it can take an endless holiday from history.

While the past two decades have seen China rise to great power status and the US maintain its position as the most important economy in the world, Europe has limped toward decline, unable to keep up with the fast pace of globalization. If we set a 2 percent increase in GDP per year as about the rate at which advanced industrial societies must grow in the modern era to be healthy, the story becomes clearer. In 2018, the US grew at a robust 2.9 percent, while Germany and France managed a lackluster 1.5 percent, with Italy limping in at 0.9 percent. Rome staggeringly finds itself with a smaller economy today than it possessed in 2008, before the start of the Great Recession.

The European demographic problem is especially stark. The worsening old age dependency ratio — the relationship between the number of pensioners in a society versus the size of the working-age population — cannot be wished away. The numbers are especially alarming in Germany, the undisputed economic motor of Europe. The old-age dependency ratio was 33 percent in 2018 and is expected to rise to a crippling 52 percent by 2030. Over this period of time, the number of German pensioners will skyrocket by 5 million, even as the number of workers declines by 6 million.

The broad policy responses to Europe’s demographic and economic challenges are as clear as they are unpalatable: Increase taxes (hardly possible), decrease benefits and raise the retirement age (hardly popular), or take in significantly greater numbers of immigrants (given the societal strains exposed in Germany by the recent refugee crisis, hardly likely).

The continent is becoming strategically and militarily peripheral, as defense spending slips to comically inadequate levels. Dr. John C. Hulsman

In the honest but telling wail of Jean-Claude Juncker, then-prime minister of Luxembourg and now outgoing European Commission president: “We all know what needs to be done, we just don’t know how to get re-elected once we’ve done it.” This European elite policy and political failure is what has set the populist cat among the establishment pigeons. Europe also finds itself intractably politically divided: East-west over migration issues and north-south over the endless euro zone crisis.

There is a common process at work here regarding all these military, economic and political problems: An arrogant, out-of-touch European elite — which has failed and is so far gone it barely recognizes this — making little effort at self-criticism, let alone self-renewal and policy reform. The problem isn’t that the illiberal populist barbarians are at the gate; it is that liberal elites are not even bothering to man the walls in its defense.

This is what the ancient Greeks meant by the term decadence — an unwillingness and an inability to recognize one’s own problems, let alone to set about devising answers for mastering them — and it lies at the root of Europe’s slow decline.

Getting the geopolitical trajectories of the major regions in world politics right is the essential first step to first-rate political risk analysis. In our present era, this means seeing Asia as rising, America as flatlining, and Europe as declining. Only then do the political mysteries of our beguiling new age begin to make sense.

Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also senior columnist for City AM, the newspaper of the City of London. He can be contacted via www.chartwellspeakers.com.

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