So… what about Europe?!

So… What about Europe?

Daniel Karpantschof, July 2009 ­­­ Excerpt from a 2002 dated scenario ­­­ By the end of 2003 a deal will be made, securing a significant enlargement of the European Union.

The historic event will take place just a few years before an economic collapse of the international economies, a collapse of unprecedented dimensions.

The astronomical oil prices and a series of financial scandals will create shockwaves throughout international financial institutions and businesses. China will emerge strong in the shadow of the recession.

As a result of the global economic climate and the recession, Fannie Mae and Freddy Mac will file for Chapter 11, along with Morgan Stanley, HSBC, and others.

The car industry will be struck particularly hard due to the burgeoning green initiatives and rising gas prices. Ford and General Motors will become insolvent by the middle of the new decade.

The willingness of China to extend credit will eventually save American companies.

The halfhearted European support of the campaign in Iraq (followed by either Saudi­Arabia or Iran) will gradually undermine the NATO­alliance. Intergovernmental institutions will begin to show weaknesses. The global transaction base and financial focus will gradually shift from the Atlantic to the Pacific.

Elections to the European Parliament will be held in 2009. The new parliament will ratify the European Constitutional Treaty together with most of the member states. Few countries will refuse and the European project will start to show cracks in the very foundation. Radical nationalists will most likely influence the new parliament the most.

Civil disobedience and unrest will be on the rise for the next five to seven years, and will eventually come to a head. The national guards and the militaries of European countries, China, and the Middle East will be utilized in order to contain the civilian masses. The European capitals will be exposed to violent confrontations between the marginalized immigrant groups, while China and the Middle East will be fighting supporters of free speech and democratic movements. The Internet will play a significant role in this theater of failing revolutions. Casualties will become everyday life.

The European project and collaboration will by 2010 have shown enough errors and defects for the general public to support it no longer. Especially the Eurozone, which is fighting astronomical unemployment and socioeconomical stagnation, will be struck by the international crisis. The cultural conflicts between armed forces and immigrants will eventually spill over and create a feedback effect amidst the general unemployed public. Native unemployed groups will support the unemployed immigrants and join forces. The constellation will be a social class structure that rapidly undermines the social and economic interests of the states. The demographics and the high level of welfare will – eventually – result in state bankruptcy, and several political leaders will be forced to resign.

Traditional strategies and tools are worthless in this scenario, which is influenced by far too many interests and too few qualified decision makers. Democracy will be a hindrance for effective rescue. It is unknown how a given conflict will end.

‐‐‐ oOo ‐‐‐

Daniel Karpantschof September 2002

The quote above was written in relation to the Danish presidency of the European Union, back in 2002, as a part of five scenarios. I have chosen to use it as introduction – not in order to claim that I foresaw the current crises (several other scenarios showed completely different paths), but to show how inevitable the future of Europe is – and has been for several years.

For the record; the term “crisis” has been used (and abused) the many past months. My definition of a crisis is “a sudden change of environment, that renders a previous otherwise stable condition impossible to sustain” – with thanks to the now late Michael Crichton.

Background After a speech for the Danish American Chamber of Commerce in New York, I was asked about my opinion on the future of Europe regarding the current crisis. I was asked if I could give a qualified estimate on when the European continent would once again arise from a recession.

I replied, “Europe? Europe is done.” The answer was received, well… with mixed feelings, and I’d like this opportunity to clarify why my answer was so definite, why I believe that Europe is headed for the biggest collapse in its history, and eventually why this barely qualifies as news.

By the end of 2002, the Dow Jones Industrial Average (DJIA) showed that the market and the production was much more fragile and far less sound than we had imagined. In 2001 alone, fluctuations equal to 20% of the total output – in the span of two months – was not uncommon.

It provided material for serious consideration to see that the former giants could maintain credit derivatives totaling the amounts of smaller states. The relationship between U.S. imports and exports was already starting to crumble.

In other words; insecurities in our assumptions on invulnerability and sustainability were starting to show their signs.

Changing the game It is worth keeping that in mind when we try looking further ahead. The underlying systems and structures, that we have taking for granted our entire lives, permutated to new constellations. The dynamics of Europe, in regards to both political systems and markets, have never proven to be significantly flexible.

It goes to show that Europe, during the current crisis, will be exposed to shocks, which leave deeper scars on the continent, then for example the Unites States or ASEAN.

Most developing nations have never, or only very recently, established these structures, which is why a shockwave can be averted more easily and foundations for new growth based on new criteria and parameters can be implemented. And even if the structures should fail, rebuilding would be fairly more doable. Europe, however, is stuck.

Many have tried, and failed, to come up with reasons and explanations on how the current crisis started. No matter which thoughts one might have on the introduction of this article, the scenario described comes awfully close to the conflicts that we have witnessed over the past two years. Real estate prices were neither mentioned nor forgotten: they just weren’t a factor only seven years ago.

The most interesting part of the scenario, in my point of view, is the prediction that “The global transaction base and financial focus will gradually shift from the Atlantic to the Pacific.”

The fall of the Empires It can come as a shock to many but the fall of Europe did not begin in June 2007. The European history of development over the past 600 years paints some very clear images of the

socioeconomic stagnation that all regions follow a cyclical experience.

For many, the European Union is a symbol of a peaceful and prosperous Europe. A beacon of knowledge, research, international collaboration, human rights, freedom, liberty, and democracy. A new cradle for a new civilization.

But if we, objectively and without wandering too far from the original topic, take a look at the societal evolution that Europe has experienced in just the past 150 years, it is hard not to acknowledge that the grand days of Europe, culturally, economically, and socially, started to disintegrate when the great empires started showing fatigue.

As Europe entered the 20th century small distinctions became more visible across the aforementioned three societal elements. Had one been a strategist exactly one hundred years ago, it would seem reasonable to expect a great conflict was eminent, due to the collapse of the national structures across the continent. World War I was an unavoidable result of these collapses.

Although Germany expected a different outcome, and perhaps even expected to achieve a similar victory to 1871, the underlying conflicts were the natural consequences of the obliteration of the Great Empires.

Looking back, we also have many indications that World War II was forewarned as early as 1927 – and especially after 1929 – ten years before the storm troopers of darkness marched through the countryside of Poland. This article is, by the way, written on the sixtieth year of the beginning of the darkest chapter in European history.

Much can and should be said about the future of Europe. Many contributing factors indicate that Europe will continue to be a significant player in the global economy as well as in the international community and its diplomacy. But, disturbingly, even more factors point in another direction.

And therein, as the bard would tell us, lies the rub.

One brain in research is better than ten in a chamber The countries of Europe have shown an extraordinary talent in disregarding and bypassing individual citizens’ rights in favor of the rights of the nation states. The European Union is a direct byproduct of exactly that (agricultural subsidies, regional subsidies, toll barriers, and common currency can be mentioned indiscriminately). It lies in the history and culture of Europe. It is not necessarily a bad thing – merely an observation.

With the financial focal point shifting from the Atlantic to the Pacific, Europe is forced to acknowledge that it is bound to a spot outside the epicenter of global transactions.

However, Europe still has a tremendous problem. Prior to 1939, universal standards for universities and educational institutions were set in Europe. Particularly Germany, France, and Austria had some of the best schools in the known universe, not to mention flourishing culture and research. This was the legacy of Europe.

After the eruption of World War II, Nazi Germany banished and slaughtered doctors, researchers, musicians, scientist, poets, authors, and artists – not just from the Reich, but from the entire continent. The ones who miraculously escaped the SS and gas chambers or the mobs and hatchets settled down elsewhere – for the most part, in the United States.

And there they continued their work. The universities were revalued and reinvented, from the

bottom up. “Give us your tired, your poor…” paid off.

To this day, should you talk to a random German born European, you will still hear about the intellectual vacuum that was left by the war. Even sixty years afterwards.

It began 100 years ago The fall of Europe did not begin in 2007. It began a hundred years before. Interestingly enough, the first International Congress of Anarchists was held that exact year in Amsterdam, a not entirely unimportant event when talking about the decay of nation states. The growing discontent with the national and governmental structures and monopolies of power and violence culminated in the largest conference of antigovernmentalists of the time. Anarchists from the entire continent gathered and proclaimed that they had had it with governmental interferences in their personal lives.

Of course, none of this indicates that Europe has gotten poorer since World War I. Rather, the rest of the world has experienced and maintained a higher and more sustainable growth – both in total and per capita.

Europe, over a period of 250 years, has gone through a magnificent development. But if we compare Europe to the United States, which didn’t exist 250 years ago, or China, which 25 years ago wasn’t anything but a production facility, we have to recognize that the continent has been unable to keep up.

But, we’re able to…!

It is far easier to believe in positive messages than negative ones. So, if you will, one could point out that I am wrong and point to all the great accomplishments of the European citizens and what they are good at: culture, exploration, technology? Wind mills?

The number of Chinese patents alone that reach the international market every year exceeds the total of European patents in half a decade. And that is still only one third of the Americans’ patents. The total transactions across the Atlantic Ocean constitute, as I am writing this, 1/1000 of the transactions across the Pacific. The number of tickets sold to feature films produced in Hollywood is approximately 50% of the tickets sold to Chinese and Indian films, which is roughly 1,700 times the tickets sold to movies produced by Europeans.

Again, notice how the Space Race was a competition between the former Soviet Union and United States. Europe wasn’t even a participant.

These are the conditions – the new rules of the game.

The Return Game of History We have yet to discover how deep the scars of the current crisis will be and how great its consequences will be, in Europe as well as the rest of the world. The current crisis is at best just a reinforcing factor that will escalate an inevitable course (especially east of Iceland and west of Turkey) that was already under way, but is now put under pressure.

With China’s and India’s new memberships in the nice society of industrialized nations and in the society of the world’s largest economies, the perceptive and shrewd reader may see that it is actually a return to the distribution of wealth from before industrialization, as it was (and still is) believed that over half of the trade and financial activity, pre‐18th century, took place in China – and the region that is today known as India.