Blain’s Morning Porridge September 15th, 2026: What chance of European Growth?
“Europe was created by history. America is a product of philosophy.”
Europe is a diverse, culturally rich and fascinating continent but increasingly looks an economic basket case facing economic and demographic decline. Its suffering economic PTSD after successive shocks in Banking, Sovereign Debt and now Energy. Now it’s being squeezed between an unreliable USA and China’s proxy, Russia. Maybe that’s the challenge it needs?
Key Takeaways
- The Geopolitical fragmentation of the Western Alliance raises serious challenges for Europe.
- Europe should be economically significant, but its history and political fragmentation has held it back.
- It is scarred by economic crises – 2008, the Sovereign Debt Crisis, the Ukraine Oil Shock, and now the post-Nato era challenge to defence.
- The key economic weakness is the lack of depth to its capital markets. There is no single market to enable European businesses to thrive.
- Effective capital markets will require Unity (and probably the integration of the UK).
- Europe is not too small, poor or unskilled, but it lacks an effective capital market and political unity. In an increasingly fraxious world it must unify or be picked off one by one.
We live in a very changed World.
Europe is struggling with scale, growth and productivity. The future looks likely to be American or Chinese. Neither of them looks particularly attractive options from this side of the Pond. Yoorp will likely be left behind. Unless… something was to happen to galvanise European unity and growth.
Maybe.
10-years ago, who would have ever imagined Canada would be trying to secure a hybrid membership and trading relationship with the European Union? The 49th Parallel is now a contested border as MAGA podcasters try to detach Alberta from the Crown Dominion. Denmark’s territorial integrity has been threatened. British islands in the South Atlantic have been betrayed in the Oval Office. European far-right populist parties bask in dubious crypto-funding from convicted (and pardoned) US criminals. The Right benefits from the support of a foreign power that shows no qualms about interfering in elections. European allies which supported the American objectives of Freedom, Democracy and Capitalism are now the subject of random trade and tariff assaults –designed to remind them of their subservience to the President and family.
Europe no longer trusts America will honour its NATO commitments. A European state was invaded by Russia – and the US president attacks Ukraine for daring to push up Diesel prices by fighting back. Slava Ukraine!
Faced by threats from both sides – from the Steppes and from across the Pond, is Europe likely to wake? Can it unify to defend itself, and create scale in its capital markets that would enable European businesses to thrive?
I know I upset MAGA supporters – which includes right-wing Europeans. When I dare to write about the consequences of the rising kleptocratic tendencies the Trump regime has infected the US economy with they get angry. When I explain how there will be economic consequences from Trump unravelling the USA’s primary Geopolitical advantage – its trade and military alliances, particularly with Europe – I am accused of ignorance.
Given the economic weakness, and imminent collapse of Europe, why would the UK even think about undoing Brexit when such marvellous opportunities exist with the new ‘Merica?
Maybe it’s time to reconsider Europe. Maybe it’s time is coming.
Europe is a curious place. It is the smallest continent, but with an incredibly rich variety of diverse cultures, history, and heritage. But there is a clearly a growth and productivity problem. The Common market, The European Union, The Euro & Monetary Union and the power of the ECB have successively failed to ignite the spark of a European economic and commercial renaissance: over the past 30 years China has seen incredible growth of 1200%, the USA by 110%, while Yoorp has grown by less than 65%.
Year by year the European economy has gotten relatively smaller and less significant in terms of total global trade. It lags China and the USA – the two nations now competing to be global hegemon.
Europe is generally democratic – and the diversity of how its economies now perform highlights differing politics and chance. Some nations are rich. Some are relatively poor – largely a matter of geography and often proximity to the economic clusterf*ck that was the USSR and is now Russia. Some nations have evolved into successful welfare-based economies. Others are debt-riven political hand grenades. Yet, taken as whole, it’s sort of wealthy and together represents a significant chunk of global wealth and consumption. Yet it’s divided into some 40 odd states (discounting Russia, Turkey and some of the former Soviet republics) which have struggled to reach consensus on the kind of unity that would enable Europe to stand equal to China or the USA.
I’ve heard multiple reasons as to why Europe underperforms. One is regional geopolitics and the failure to unify. Core Europe has some 700 million inhabitants and a $GDP of around $32 trillion, compared to 340 million Americans with a $32 trillion GDP. China has a population of 1.4 billion but GDP of $21 trillion. As a whole Europe should be more significant, but the 27 EU nations struggle to agree on much.
I suspect the major problem underlying scale, growth, productivity, and unity boils down to Shell Shock, the Economic PTSD that followed the European Sovereign Debt Crisis of 2010-12 that came so soon after the Global Financial Crisis of 2007-2008, and again in 2022 when the mistake of becoming reliant on Russian energy pummelled Europe. Europe has struggled to cope and move forward with the unification project.
In 2012, the bail-out of failing banks meant some peripheral Euro states looked likely to default – they were using the wrong currency, the Euro, and had borrowed heavily using what was a currency effectively set to the German economy, which left smaller nations chronically struggling to repay. Yet, ECB president Mario Draghi did what it took and fudged a QE solution around persuading banks to borrow trillions of Euros to buy sovereign debt to repo with Europe’s central bank.
Crisis averted – but at a very heavy cost.
Until 2007 Europe and the US were not that different in terms of growth or market performance. But following the GFC, the debt crisis, and increasing political friction as German voters realised, they might get saddled with the cost of French pension obligations, meant there was an enormous demand to regulate the financial sector to avoid it happening again.
The consequences of regulation have been catastrophic for Europe. It stalled unification – which triggered enormous long-term economic consequences.
While US financial institutions were quickly liberated from onerous post GFC regulations and freed up to start lending and investing again – spawning a massive parabolic rise in private capital markets – the vision of a unified European Capital Market that might have funded the depth and risk-appetite of US markets to drive European growth withered as banks were told to scale back risk. While the USA used the cheap interest rates and zero inflation of the post-GFC QE era to stage a massive inflation of financial assets – resulting in the illusion that rising stock prices were an economic boom (which fuelled speculative investment), Europe effectively stalled.
From a market perspective Europe is an anomaly. Its nations are mature economies with well-educated populations in possession of critical technical skills. Yet it suffers a chronic dearth of productivity and growth. That’s often blamed on hefty state intervention, over-regulation, and the rising sense of demographic crisis asthe population ages.
However, the big problem is probably Europe’s fractured and sub scale capital markets. The concept of a single market died. Brexit removed London (the driving force of European finance) from the equation. There is no shortage of great universities and smart, clever students with actionable ideas to monetise. But once they’ve exhausted their first seed capital, there is a dearth of venture and growth capital available. Unicorns have to go to the USA to achieve higher valuations.
As a result, the national economies of Europe are relatively small and uncompetitive compared to the USA or China. Therefore, older, greyer, bureaucratic firms across traditional “older” sectors tend to hold tenure for decades and characterise each economy. Europe has multiple sub-scale manufacturers and businesses competing in Europe rather than globally. There are not novel Tech firms that have achieved global reach and significance. While there has been a smattering of colourful, imaginative European entrepreneurs, it’s improbable to imagine a European Elon Musk or Europe leading a tech revolution.
The primary difference between the US and European economies – the depth of the USA’s capital markets, and the paucity of private capital in Europe – will likely only be fully addressed if Europe can solve the unification and single market problem. But as the degree to which Europe has now separated from the USA and is now vulnerable to Russia (which is played by China) means there is a rising imperative to act.
The problem is… will Europe’s inward-looking politicians notice?
Out of time and got to rush for a train..
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Meanwhile, don’t forget about my new book: The Battle for Hamble
You can read a review on the Society of Professional Economist’s website here.
