Europe Is About to Get Very Poor, Very Quickly

Its prosperity was based on China and Russia - it can't last.

by Aaron Bastani

19 October 2022

Motorists queue for fuel in Paris
Motorists queue for fuel in Paris, October 2022. Samuel Boivin/NurPhoto

Last week Josep Borrell, a European Commission vice president, made one of the most important interventions of 2022. While Britain’s government attempts a bootleg Thatcherite revival, and water carriers for the opposition giddily talk of a return to 1997, it took a Eurocrat to acknowledge some unpalatable truths.

Borrell’s central claim is something which has been obvious for a decade, but is only now being comprehended by the political class. “Our prosperity has been based on cheap energy coming from Russia,” he said, adding: “Chinese workers with their low salaries have done much better […] to contain inflation than all the central banks together.” Borrell then pithily summarised the last 30 years of Europe’s model in a single sentence: “Our prosperity was based on China and Russia – energy and market.”

This is a startling statement of fact. Cheap fossil fuels are over, as are cheap consumer goods. While continental Europe has come to depend on Russian gas over the last three decades (fortunately Britain did not), it also imported low inflation as China became the workshop of the world – providing the world’s wealthier countries with gadgets. As with Russian gas, that period – when those on low incomes could at least access a panoply of consumer appliances – is rapidly disappearing.

In Britain, this phase, dating from 1990 to the Covid-19 pandemic, was critical for the political phenomenon of Blairism – which had more to do with historic luck than the talents of New Labour, or the wiles of the Bank of England. Low wage growth was mitigated by a sudden abundance of cheap goods, especially electronics, as well as the expansion of credit. In Marxist terminology, this was the economic base which made the superstructure for the ‘end of history’ possible. It is significant for think tanks or academics to acknowledge the end of this era – for a statesman at the pinnacle of the European Union, it is extraordinary.

The bad news didn’t end there as Borrell proceeded to highlight the continent’s dependence on the United States for its defence. That also has consequences for energy security, with Borrell eager to underscore how decoupling from Russian fossil fuels should not mean greater subordination to Washington. “What would happen tomorrow if the United States, with a new president, decided not to be so friendly with the Europeans?” he said. “You can imagine the situation in which our critical dependency on LNG (Liquid Natural Gas) coming from the United States could also be in crisis.” For Atlanticists it’s an important question: are you willing to put your fate in the hands of a figure like Donald Trump or Ron DeSantis? Do you want someone like Mike Pompeo to decide whether Europe can keep the heating on? Relying on a foreign power with such profound domestic divides is not without risk.

Borell also outlined how Europe faces both internal and external political challenges. At home, that means the continued rise of the radical right, from Giorgia Meloni in Italy to Viktor Orban in Hungary and Spain’s Vox party. Importantly he didn’t attribute this to perfidious foreign powers, stating such parties are “the choice of the people” and “not an imposition”. Those words were aimed at the increasingly conspiratorial tendencies of the centre. The far right is gaining traction because social and economic challenges are failing to be addressed, not because of troll farms in St Petersburg – however much the liberal intelligentsia would like to think otherwise. 

The external challenge is the rise of radical nationalism and forms of 19th-century imperialism involving annexation. This is not just limited to Russia, with its recent seizure of land across eastern Ukraine, as well as Crimea in 2014, but Turkey’s ongoing occupation in northern Syria too – land which Turkish minister Süleyman Soylu declared in 2019 was “part of the Turkish homeland”. Ankara has also threatened to invade Greek islands in the Aegean. The decline of American hyperpower means we are likely entering a new phase, where land grabs are the adjunct to a multipolar world. 

All this makes incredibly grim reading for the capitals of Europe – including London. The continent’s energy model is evaporating and, faced with the highest inflation in decades, it seems set to decouple from China – which will exacerbate the problem. When that happens it will be an economic earthquake for European consumers, however easy it is for politicians like Iain Duncan Smith to talk tough. Is the German automotive industry at a disadvantage as energy prices soar? Absolutely. The same is true for other countries, like France and Italy, which have already seen their manufacturing sectors ravaged this century. But add to that the disappearance of cheap consumer goods – a palliative for decades – and a massive upsurge in discontent is inevitable. Put simply, Europeans will feel very poor, very quickly. Cold winters would be just the start.

This is all before touching on other challenges for Europe, such as demographic ageing and low innovation. Not that the continent will suddenly collapse – of course, it remains extraordinarily rich – but it will become comparatively poorer. The status of its capitals will decline, except as tourist destinations, while the global allure of its culture and social model will likewise erode. The global entrepots of people, ideas and energy will be elsewhere – primarily in North America and Asia. It will become the Venice of continents: beautiful but antiquated, a museum more than an agent of history. 

For Britain, adrift of the union, this is all doubly true. We are a major net importer of both food and fossil fuels yet have a political class who – unlike at least some on the continent – refuses to take industrial policy seriously. For now, the reflex from the right is more tax cuts, while New Labour redux recite that globalisation is good. Ultimately neither will raise living standards: the markets are punishing the zealots of the former, while globalisation is coming apart at the seams. Confrontation with Russia is merely the start of a wider unravelling that neither party has the courage to acknowledge.

Inflation is here to stay and, as Borell acknowledges, serious questions need answering over energy, trade, growth and security. In each area, the common sense of the last thirty years has disintegrated. Will any major politician in the UK be brave enough to say so? Don’t bet on it. A two-party state, with a hierarchical whipping system that smashes dissent, means free-thinking in Westminster is in short supply. It has rarely been more necessary.

Aaron Bastani is a Novara Media contributing editor and co-founder.

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