Post-COVID predictions: Directional Europe
Over the last month I've been posting some of my thinking and predictions based on a post-COVID scenario I wrote and published in May. You can find the entire document here (tip: open to full screen by clicking on the icon in the lower right and then you can download as a PDF if you are interested). In previous posts, I've highlighted some of the predictions that come out of the scenario, including the rise of the Millennials as a leadership cohort in government and business, a restructuring of supply chains to build resiliency, the potential for repatriation of "Critical" companies and component manufacturing, and more. You can find those previous posts here, here and here.
Today I am interested in writing about another factor I think we'll see coming out of COVID, or perhaps simply exacerbated by COVID: the division of Europe.
The "new" world order
As I wrote in my last post, the world is no longer bi-polar, which was a fairly consistent phenomenon through the late 1990s. After the fall of the Soviet Union, we had a brief period where the EU could have been the second pole - balancing the power of the US, but the EU has proven less powerful and effective than previously thought. Now, China is striving to become the leading global power, seeking to eclipse the US in global reach and economic might.
While China may grow economically stronger, the relationships other countries will have with China will always be transactional or under duress. China does not want interference in its internal policies and for that reason does not seek to extend its political thinking or power beyond its economic necessities. Whether the US and Europe were right to try to spread capitalism, the rule of law and human rights more broadly remains to be seen, but for years these values were important if not always evenly practiced.
In a post-COVID world all bets are off. Past alliances and relationships seem arcane, or are called into question. The EU has proven less than effective and is actively disliked in many quarters. The Trump administration has extracted the US from the WHO and made disparaging remarks about previously unquestioned commitments like NATO. These global alliances, while important, have not proven effective and the governments that support them have not fully committed to their success. This calls into question existing and future trading programs and platforms, programs to advance human health and human rights and many other good goals, at a time when many nations will become more nationalistic and less likely to work effectively with their neighbors. Populism and nationalism could rise in response to COVID, and populism was already on the rise in a range of countries, from Brazil (Bolsinaro) to Hungary (Orban) to Russia (Putin) to the US (Trump).
Geographies and Regions
Further, even geographies or regions that have worked together in the past may face a rethinking or restructuring. In my last post I wrote about the possibility of a mid-east war, brought on by countries for the most part that have existed for less than a century, drawn up by the UK and France at the end of World War I with little regard to people or facts on the ground.
Even "stable" Europe exists only at the recognition of the treaty of Westphalia in 1648, which stipulated that countries recognized the existence of other countries. This didn't stop Napoleon, Hitler and others from trying to remake the structure of Europe, or from disparate German states forming a powerhouse of a country in Europe. The point is that Europe, like the Middle East, is not a permanent structure but has evolved before and will again. COVID may create the conditions to restructure Europe into three parts: Northern, Eastern and Southern.
The directional Europe
Europe is, to some extent, already aligned this way. Northern Europe is more capitalist in nature, more productive, more efficient and has more stable governments. Northern Europe contains the most powerful European economies - Germany and the UK, with strong but smaller economies in the Netherlands and Scandinavia. Northern Europe is more secular and has a more defensible borders. It has less memory of domination by others.
Southern Europe struggles with good governance. Italy has averaged more than one government per year since the end of the Second World War. Greece had to be rescued by the rest of the EU. When you include Spain and southern France in the Southern Europe camp, you have a less efficient, less well governed, less capitalist population more dependent on tourism and agriculture.
Eastern Europe, while perhaps less well governed in some aspects than Western Europe, has more vitality and more optimism and energy than Southern Europe. Eastern Europe is relatively new - many countries emerging or gaining strength out of the end of the Soviet Union. The Poles and the Czechs especially are thriving, and looking to the West for inspiration. They tend to reject the domination of the Northern Europeans in Europe and look with concern on Russia as an adversary.
Three important countries remain poorly defined in this analysis - all sitting in the middle: France, Switzerland and Austria. Each of these have different reasons for their positioning.
France wants to be part of the Northern Europe collection, but its economic policies and spending priorities align more with Southern Europe. Plus, France and Germany have both desired to lead Europe and France does not want to be in Germany's shadow. France has a larger agricultural industry and is less industrialized than the North, and shares many attributes with its Southern neighbors.
Switzerland belongs with the Northern collection but likes its independence. It's position in the middle of Europe provides it with the ability to be a broker between all of the European factions and a banker to all of them. Plus, Switzerland likes its independence and is reasonably well governed and wealthy when compared to its neighbors.
Austria is an interesting case - a middle Europe country, bounded by energetic new Eastern countries but an older country never under Russian domination. It contains both a magnificent city - Vienna - home to many institutions, but is mostly rural and conservative, making it more like a Southern European country. I'm not quite sure where Austria will end up, but it may find partnering with Eastern Europe is in its favor.
OK, so what?
So far, a possibly interesting analysis of the facts of Europe, but what does all of this mean?
In the near future, we may see a real shift in Europe, not a full divide but subtle shifts based on interests and regions. Eastern Europe does not trust Russia and wants guarantees from the international community about Russian interference. These countries - and let's not leave out the Baltic states among them, are young, energetic and active, in a growth spurt and trying to carve out their role in Europe and on the global stage. They are interested in more international agreements, especially on trade, and concerned about Russia, now, and in the near future as Russia starts to degrade. These countries - the Baltics, Poland, the Czech Republic, Austria, even Bulgaria, Romania and Hungary - could from a vital bloc of countries that are more dynamic than Southern Europe and want more trade and security than Northern Europe is able to offer. They are likely to resist efforts by Russia and China for closer ties. They may not want to be tied to the issues that Southern Europe is facing, and may look more to the West for leadership.
Northern Europe will tire of supporting Southern Europe. Increasingly we are already seeing a bias for bonds and even euros printed in Northern Europe, even though all euros, regardless of where they are printed, are supposed to have the same value. Northern Europe is less militaristic, more willing to work with Russia and tolerate China. These countries want to get along, and for the most part be left alone. Their investment in their military continues to decline, as social programs and other policies grow. These countries won't intentionally sever relations with the East or South, but will continue to place economic goals and plans on the EU that put stress on the Southern European economies.
The South looks back to a mostly agricultural past, with economic benefits from tourism. There is not enough vitality and growth in this region and young people will start to migrate away from this region to the North, where immigration is tolerated, or to the US or other countries. As emigration continues, vitality and renewal become difficult and the countries could become older and more conservative. It will be increasingly difficult to provide the services necessary to support an older population with very slow economic growth. Neither Southern Europe or Eastern Europe wants immigrants which could offset the native born emigration, and both felt a bit overwhelmed by the refugee crisis brought on by the Syrian war. Neither the South nor the East want to repeat that experience.
Impact
If these predictions unfold, Europe will be even less of a monolith than it has been. Through Brexit the UK has already demonstrated that it's possible for countries to secede. We'll soon see the results of this experiment. If the UK is reasonably successful, the EU will find fewer countries desiring to join, and more planning to leave. The Euro will grow weaker as the countries bicker, consider other alternatives, and their economies struggle.
While I've painted these three regions with a large brush, there are pockets of "northern" sentiment in Southern Europe (for example, northern Italy is far more like Northern Europe than southern Italy) and we may see regions in countries clamoring for vastly different policies. Italy as we recognize it today formed in the late 1850s, so it too is a relatively recent formation, and could face stress to offer regional autonomy to sectors within the country.
As certain regions seek or gain autonomy, what does that mean to regions with some autonomy today - for example, the Catalan region in Spain? The area around Barcelona has a different history and dialect than much of the rest of Spain and is more industrialized, and has some autonomy. If these trends continue, could we see a fragmenting of Spain, Belgium, Northern Italy and other regions where the local population differs from the rest?
If Europe does divide up or break up, it will become less efficient, more bound by trade rules, overburdened with agreements between countries and may need to introduce new currencies. None of these concepts promote improved business or economic growth, but they may give many what they've wished for for years - more local control and autonomy.
Winners and Losers
The winners as this division of Europe occurs are Germany and the Netherlands, because their economies are already vital. These countries, the Scandinavian countries and the Baltics could form new trading blocks with the UK.
Switzerland will be a winner either way - it's geographic position and financial services capability position it exceptionally well for almost any scenario short of war.
In this analysis, France is likely to be a loser, because while France has punched above its weight for quite a while, a division in Europe will expose the French economy and spending policies to global challenges. The same is true for Italy, although Italy and its governance have already been exposed.
None of the Eastern European countries is large enough to stand on its own. These countries - the Baltics, Poland, Czech Republic and more - need to band together, either as an Eastern European bloc or part of the larger EU, in order to have strength. We can see this in that most of these countries are more enthusiastic members of NATO than Northern and Southern Europe.
Today I am interested in writing about another factor I think we'll see coming out of COVID, or perhaps simply exacerbated by COVID: the division of Europe.
The "new" world order
As I wrote in my last post, the world is no longer bi-polar, which was a fairly consistent phenomenon through the late 1990s. After the fall of the Soviet Union, we had a brief period where the EU could have been the second pole - balancing the power of the US, but the EU has proven less powerful and effective than previously thought. Now, China is striving to become the leading global power, seeking to eclipse the US in global reach and economic might.
While China may grow economically stronger, the relationships other countries will have with China will always be transactional or under duress. China does not want interference in its internal policies and for that reason does not seek to extend its political thinking or power beyond its economic necessities. Whether the US and Europe were right to try to spread capitalism, the rule of law and human rights more broadly remains to be seen, but for years these values were important if not always evenly practiced.
In a post-COVID world all bets are off. Past alliances and relationships seem arcane, or are called into question. The EU has proven less than effective and is actively disliked in many quarters. The Trump administration has extracted the US from the WHO and made disparaging remarks about previously unquestioned commitments like NATO. These global alliances, while important, have not proven effective and the governments that support them have not fully committed to their success. This calls into question existing and future trading programs and platforms, programs to advance human health and human rights and many other good goals, at a time when many nations will become more nationalistic and less likely to work effectively with their neighbors. Populism and nationalism could rise in response to COVID, and populism was already on the rise in a range of countries, from Brazil (Bolsinaro) to Hungary (Orban) to Russia (Putin) to the US (Trump).
Geographies and Regions
Further, even geographies or regions that have worked together in the past may face a rethinking or restructuring. In my last post I wrote about the possibility of a mid-east war, brought on by countries for the most part that have existed for less than a century, drawn up by the UK and France at the end of World War I with little regard to people or facts on the ground.
Even "stable" Europe exists only at the recognition of the treaty of Westphalia in 1648, which stipulated that countries recognized the existence of other countries. This didn't stop Napoleon, Hitler and others from trying to remake the structure of Europe, or from disparate German states forming a powerhouse of a country in Europe. The point is that Europe, like the Middle East, is not a permanent structure but has evolved before and will again. COVID may create the conditions to restructure Europe into three parts: Northern, Eastern and Southern.
The directional Europe
Europe is, to some extent, already aligned this way. Northern Europe is more capitalist in nature, more productive, more efficient and has more stable governments. Northern Europe contains the most powerful European economies - Germany and the UK, with strong but smaller economies in the Netherlands and Scandinavia. Northern Europe is more secular and has a more defensible borders. It has less memory of domination by others.
Southern Europe struggles with good governance. Italy has averaged more than one government per year since the end of the Second World War. Greece had to be rescued by the rest of the EU. When you include Spain and southern France in the Southern Europe camp, you have a less efficient, less well governed, less capitalist population more dependent on tourism and agriculture.
Eastern Europe, while perhaps less well governed in some aspects than Western Europe, has more vitality and more optimism and energy than Southern Europe. Eastern Europe is relatively new - many countries emerging or gaining strength out of the end of the Soviet Union. The Poles and the Czechs especially are thriving, and looking to the West for inspiration. They tend to reject the domination of the Northern Europeans in Europe and look with concern on Russia as an adversary.
Three important countries remain poorly defined in this analysis - all sitting in the middle: France, Switzerland and Austria. Each of these have different reasons for their positioning.
France wants to be part of the Northern Europe collection, but its economic policies and spending priorities align more with Southern Europe. Plus, France and Germany have both desired to lead Europe and France does not want to be in Germany's shadow. France has a larger agricultural industry and is less industrialized than the North, and shares many attributes with its Southern neighbors.
Switzerland belongs with the Northern collection but likes its independence. It's position in the middle of Europe provides it with the ability to be a broker between all of the European factions and a banker to all of them. Plus, Switzerland likes its independence and is reasonably well governed and wealthy when compared to its neighbors.
Austria is an interesting case - a middle Europe country, bounded by energetic new Eastern countries but an older country never under Russian domination. It contains both a magnificent city - Vienna - home to many institutions, but is mostly rural and conservative, making it more like a Southern European country. I'm not quite sure where Austria will end up, but it may find partnering with Eastern Europe is in its favor.
OK, so what?
So far, a possibly interesting analysis of the facts of Europe, but what does all of this mean?
In the near future, we may see a real shift in Europe, not a full divide but subtle shifts based on interests and regions. Eastern Europe does not trust Russia and wants guarantees from the international community about Russian interference. These countries - and let's not leave out the Baltic states among them, are young, energetic and active, in a growth spurt and trying to carve out their role in Europe and on the global stage. They are interested in more international agreements, especially on trade, and concerned about Russia, now, and in the near future as Russia starts to degrade. These countries - the Baltics, Poland, the Czech Republic, Austria, even Bulgaria, Romania and Hungary - could from a vital bloc of countries that are more dynamic than Southern Europe and want more trade and security than Northern Europe is able to offer. They are likely to resist efforts by Russia and China for closer ties. They may not want to be tied to the issues that Southern Europe is facing, and may look more to the West for leadership.
Northern Europe will tire of supporting Southern Europe. Increasingly we are already seeing a bias for bonds and even euros printed in Northern Europe, even though all euros, regardless of where they are printed, are supposed to have the same value. Northern Europe is less militaristic, more willing to work with Russia and tolerate China. These countries want to get along, and for the most part be left alone. Their investment in their military continues to decline, as social programs and other policies grow. These countries won't intentionally sever relations with the East or South, but will continue to place economic goals and plans on the EU that put stress on the Southern European economies.
The South looks back to a mostly agricultural past, with economic benefits from tourism. There is not enough vitality and growth in this region and young people will start to migrate away from this region to the North, where immigration is tolerated, or to the US or other countries. As emigration continues, vitality and renewal become difficult and the countries could become older and more conservative. It will be increasingly difficult to provide the services necessary to support an older population with very slow economic growth. Neither Southern Europe or Eastern Europe wants immigrants which could offset the native born emigration, and both felt a bit overwhelmed by the refugee crisis brought on by the Syrian war. Neither the South nor the East want to repeat that experience.
Impact
If these predictions unfold, Europe will be even less of a monolith than it has been. Through Brexit the UK has already demonstrated that it's possible for countries to secede. We'll soon see the results of this experiment. If the UK is reasonably successful, the EU will find fewer countries desiring to join, and more planning to leave. The Euro will grow weaker as the countries bicker, consider other alternatives, and their economies struggle.
While I've painted these three regions with a large brush, there are pockets of "northern" sentiment in Southern Europe (for example, northern Italy is far more like Northern Europe than southern Italy) and we may see regions in countries clamoring for vastly different policies. Italy as we recognize it today formed in the late 1850s, so it too is a relatively recent formation, and could face stress to offer regional autonomy to sectors within the country.
As certain regions seek or gain autonomy, what does that mean to regions with some autonomy today - for example, the Catalan region in Spain? The area around Barcelona has a different history and dialect than much of the rest of Spain and is more industrialized, and has some autonomy. If these trends continue, could we see a fragmenting of Spain, Belgium, Northern Italy and other regions where the local population differs from the rest?
If Europe does divide up or break up, it will become less efficient, more bound by trade rules, overburdened with agreements between countries and may need to introduce new currencies. None of these concepts promote improved business or economic growth, but they may give many what they've wished for for years - more local control and autonomy.
Winners and Losers
The winners as this division of Europe occurs are Germany and the Netherlands, because their economies are already vital. These countries, the Scandinavian countries and the Baltics could form new trading blocks with the UK.
Switzerland will be a winner either way - it's geographic position and financial services capability position it exceptionally well for almost any scenario short of war.
In this analysis, France is likely to be a loser, because while France has punched above its weight for quite a while, a division in Europe will expose the French economy and spending policies to global challenges. The same is true for Italy, although Italy and its governance have already been exposed.
None of the Eastern European countries is large enough to stand on its own. These countries - the Baltics, Poland, Czech Republic and more - need to band together, either as an Eastern European bloc or part of the larger EU, in order to have strength. We can see this in that most of these countries are more enthusiastic members of NATO than Northern and Southern Europe.
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