This is a topic I wrote about a couple years back. In that time, we have seen things get progressibely worse fo the Europian Union. This is in line with the forecast of it being a dead animal by the middle of the 2030s.
There are a number of headwinds regarding the EU. We will cover these in this article. Individually, each of these could take the entire continent down. Collectively, it will sink it like the Titanic.
So let's dive in.
For the sake of this article, we will focus upon 3 areas where the EU is screwed. Please observe, none of this has to do with Putin, Ukraine, or anything that makes the headlines.
We have to start with the major force in the world: technology.
There is a saying: the US creates it, China steals it, the Europeans regulate it.
The media is filled with stories about Deepseek. This is supposedly an open source model that was trained on a fraction (number) of the GPUs as compared to Big Tech LLMs.
We will have to see the in-depth research into what truly is behind Deepseek and if it evolved as stated. That said, it does show the Chinese are pushing to get into the game in a manner that is sufficient to compete on a global scale.
This is very important. We have the Chinese looking to counter Meta, xAI, Anthropic, OpenAI, and Google. Notice something about these companies? They are all from the United States.
Here is the main question: where are the Europeans? There is Mistral, which is a French start up which, in my view, still lags ChatGPT and Anthropic.
Being known for regulation means that one is likely sacrificing innovation.
This is a death sentence.
To be fair, the EU is not the only one faced with this. While Germany and Spain are in a dire situation, they are no worse than Japan, Russia, or China. All are facing a different future based upon the democraphic situation.
Nobody has solved this problem.
At the core of it is the fact that older people produce less. They also pull back on their consumption. With low fertility rates, the biggest driver of consumption, kids, is removed. Anyone who had them knows theny are expensive beings. They go through a few pairs of shoes each year, even though the older ones are still good. Alas, can't stop those feet growing.
Productioin loss can be offset by automation. In fact, this is a likely outcome for most of these countries. The problem with this is the fact that consumption doesn't increase dramatically. This means excess production, which could be growing, has to be exported.
What happens when other countries start to adopt the same process. Automation is going to come to the consumption based economies also. This means that less countries will be after the goods from other countries.
Economically, this is fatal. The upside pyramid results with a smaller pool of workers supporting a growing number of retirees. While consumption dwindles, social service costs explode. Things such as healthcare come with a massive bill.
This might be the granddad of them all.
It is time to the demographics. When we look at countries like Spain, the obligations they promised are utterly mindblowing. The reitrement package they have is beyond Cadillac plan...it is Rolls Royce.
While it is nice to offer this, at some point, the money comes due. When a country can sell its debt, there are no problems. The issue arises when the spigot gets turned off.
This is the case for the EU. ECB debt is ending up primarly on the balance sheets of European banks. New York is not touching that. To many, it looks like junk, not worth the return being provided.
Here again, we have a situation that is not unique. Many (if not most) find themselves in something similar. That said, others have somethings going for it.
Japan started to deal with this 30 years ago. While they have not mastered it, they are adjusting to a lower standard of living.
China is China. When crisis arise, the CCP has the power to direct money where it wants. It also can send tens of millions of people back into the rural areas. This is naturally upsetting to the population but the CCP pulls it off as long as it avoids revolution.
As for the United States, it is the safe haven...for now. When things get bad around the world, capital flow is into the United States.
Another way of looking at this is the United Staes has postive capital flows. This is shown repeatedly by the net international investment position of the country. It now stands over -$23 trillion. This means that foreigners own $23 trillion more of US assets as compared to foreign assets that are owned by Americans.
Where does this captial come from? In large part, the EU. Capital flows out of that economic zone and into American assets.
This is one of the reasons why American markets, in spite of economic headinds, can keep going up.
It is not a pass on the economic situation the Americans created for themselves. What it does do, however, is buy some time.
There is a lot going on with the EU. Germany's economy is in the toilet, driven by the collpase of the auto industry. It is possible that much of this industry, which accounts for about 17% of the German GDP could be eradicated.
Of course, Germany is the largest economy in the EU.
As we go forward, watch the major technological arenas. Where is the EU with AI, robotics, space, and bio-tech? Are they producing companies that will be global leaders in any of these fields.
In most of these areas, we see the same players: the United States and China. Where is the EU?
