Europe in Crisis: Part 6- Final Reflections

I have reviewed my 5 prior entries on the crisis facing contemporary Europe and noted I have failed to identify two  “existential” issues which I personally observed during my extended stays in Rome. I will “clean up” those omissions in this concluding essay. Thanks for your patience. 

Issue Number One is the undeniable reality that Europe is experiencing a severe demographic decline- a demographic time bomb threatens the entire European experiment and project. Simply stated- not enough babies. The fertility rates are well below replacement level across the continent (1.5 children per woman versus the 2.1 needed to maintain population levels.)  At this rate, most European countries, including the most powerful states will be 30% smaller in 2050 than they are now. This will create a very problematic profile of rapidly aging populations. By 2050, one third of Europeans will be over 65. A shrinking working age population will need to support a growing number of retirees. A shrinking population is less productive and economic resources decrease. This means that the universal pension and healthcare systems will face benefit cutbacks or insolvency. The numbers don’t lie!! One obvious solution is increased immigration to make up for the native births shortfall, but even discussing increased immigration has become politically toxic. The rise of right wing parties is driven largely by migration fears. Europe needs immigrant workers to maintain economic vitality but politically can’t admit them in the necessary numbers. This inherent tension is likely to intensify and political leadership appears to be absent. Most EU governments are weak with polarisation and gridlock similar to what is occurring in the United States. The reduced influence of the Catholic Church also has an impact. I don’t have the answer, but pride myself on issue identification. 

Issue Number Two is the technology gap growing between Europe and its main competitors, the United States and China. In 2000, the GDP of greater Europe was 90% of the United States and twice as large as China’s.  Today, the European economy is 65% of the United States and orders of magnitude behind an exploding China. The primary reason (other than the demographic shortfall) is that Europe has fallen dangerously behind in the technologies that will define 21st century. The scale of the problem is intimidating. Europe has no equivalent to Apple, Google, Amazon, Microsoft, Meta or Nvidia.  It has nothing comparable to China’s Alibaba, Tencent or Huawei. The world’s ten largest tech companies are American or Chinese- zero are European. In artificial intelligence, the leading models come from the United States with China coming up fast. European AI is non existent with no significant capability or investment. This technology gap isn’t just economic- it’s a sovereignty issue. If Europe depends on American cloud services, Chinese hardware and foreign AI systems, it lacks digital control over its own infrastructure. This reality will undermine Europe’s need to control its own security and destiny.  

European leaders explicitly recognise these challenges. Marco Drag’s recent report on European competitiveness identifies the technology gap as the central threat to Europe’s future prosperity. The diagnosis is largely agreed upon. Europe’s markets remain fragmented and European venture capital sources are risk adverse. European tech entrepreneurs can’t access the necessary funding.  There is then a brain drain with top European researchers and engineers migrating to the United States to access the best jobs and salaries. Oxford trains talent that Google and Meta recruit. There is underinvestment in research and development. There are charges of regulatory overreach. Europe leads the world in well crafted tech regulation - the GDPR for data privacy, the Digital Markets Act and the AI Act. While the legislation is well intentioned and designed for consumer protection and privacy, the tech bros have responded by declaring war on Europe. They aggressively argue the regulatory approach is stifling innovation. Critics assert that Europe specialises in regulating American and Chinese tech, but fails miserably at creating its own. Food for thought! The AI weakness is particularly worrisome because it may become economically transformative and militarily decisive.  Europe is not a player and there will be consequences.  These obstacles cast a shadow over Europe’s future. Unless they compete in the tech space, they will struggle economically and these struggles will mean they may not be equipped to protect themselves or maintain their social programs. The political stresses created by this scenario are   scary. 

The poignant reality for those of us who love Europe is that the magnificent civilisation built after WWII may lack the dynamism and tools to sustain itself through 21st century challenges. We will observe with interest.