Reality Check

Europe harbors an increasingly unrealistic perception of economic reality. It’s time to face the facts, and to reconsider your investment portfolio accordingly.

European policymakers, economists, and politicians are long overdue for a reality check. A wake-up call that plants their feet firmly back on the ground and compels them to finally start making effective, objective, and intelligent decisions. This kind of leadership has been conspicuously absent for years.

A Sideshow

Take a moment to study Bloomberg’s chart and let the numbers truly sink in.

The chart depicts the projected contribution to global economic growth by a group of countries. Unsurprisingly, China tops the list.

The rest of the top six are rounded out by India, the United States, Indonesia, Russia, and Turkey.

Europe appears only in the form of Germany, which, despite being the world’s third-largest economy (according to Bloomberg data), is expected to account for less than 2% of global growth over the coming years. Other major European economies, such as the UK and France, don’t even make the list.

Still Relevant?

Yet, if you live on the “old” continent, you may continue to believe that we remain highly relevant. We have many issues, including competitiveness, defense, energy, immigration, innovation, climate change, war, regulation, technology, and demographics, but you risk being labeled a pessimist simply for pointing them out.

Based on hard numbers, it is simply irrational to assume Europe is still very much in the game. It is no coincidence that economic think tanks, international summits, and peace negotiations are increasingly bypassing Europe. You don’t need overwrought political narratives to understand a basic truth: if you don’t grow, you stop mattering.

That may sound negative, and whenever I write this, I attract no shortage of criticism, if not outright ridicule, but these are just the facts. Why should China concern itself with Europe, when it can penetrate these markets effortlessly with products that are equally good but far more affordable? If you doubt it, just compare Chinese EVs lined up next to Volkswagens and BMWs.

A Little Humility

One more telling detail: four of the top six economies are precisely those that the Federal Reserve, under the almost comical label of “a small number of countries,” admits are actively working to reduce their reliance on the U.S. dollar. The fifth, Indonesia, has made it clear more than once that less dependence on the dollar would suit it just fine.

In my opinion, Europe would benefit from turning its focus inward. The regulatory burden I encounter firsthand in running my investment fund is a pinnacle of bureaucratic overreach. In many EU countries, it is no longer feasible to build sufficient housing for their own citizens, and I won’t even begin to touch on energy security.

Then there’s Draghi, who filled hundreds of pages diagnosing Europe’s chronic lack of competitiveness and innovation. I can still hear him groaning: “You can’t say no to everything. Do something!”

And when I see charts of China’s CO₂ emissions, I can’t help but question where any sense of proportion has gone. Is it really smart policy to keep shooting ourselves in the foot?

Think Realistically

While I can appreciate, in the spirit of thinking big, that Lagarde and the ECB have devoted time to pondering whether the euro could one day become the world’s next reserve currency, perhaps it is time we held up a mirror.

We still enjoy a high quality of life here, but it is an illusion to believe we won’t be overtaken left and right in the coming decades, even by countries whose ideas about how an economy, or even a society, should function are fundamentally different from “ours”. Rather than denying reality, it would be far more constructive and realistic to develop a coherent strategy for responding.

Interested in the Blokland Smart Multi-Asset Fund?

Contact me at jeroen@bloklandfund.com or visit the website.

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Kind regards,

Jeroen