Economic imbalances and the Sovietization
of Europe

Stock markets have dropped. This is not too concerning, as it comes after two years of rallying. The big tech stocks especially, such as Apple, Alphabet, Amazon and Tesla, were highly overvalued. The market works and corrects excesses.

Other news might have a larger impact: a possible weakening of the United States dollar. It is the classic reserve currency and the overwhelming majority of global central bank reserves are kept in dollars. The White House considers the American currency as overvalued and sees this as a competitive disadvantage for the U.S. in international trade.

Therefore, a fee might be levied by the U.S. on these holdings to discourage the practice. The resulting unloading of dollars would then, however, mean a dollar devaluation and large losses for foreign central banks. A final decision has not yet been made.

Damaging centralization of economic planning

But worse news – and not only for markets and the economy − comes from the European Commission. Ursula von der Leyen, the commission’s president, posted on X: “Europe has all it needs to take the lead in the competitiveness race. This month, the @EU_Commission will unveil the Savings & Investments Union. We’ll turn private savings into much needed investment. And we’ll work with our institutional partners to get it off the ground.”

With the Savings and Investment Union, private savings amounting to a total of 10 trillion euros (!) should be channeled into the commission’s projects. At first this might seem like nonsense, but unfortunately there is likely more behind it: the “Sovietization” of Europe’s society and economy. To give Ms. von der Leyen the benefit of the doubt, we can assume that she did not fully think this activity through, which would not be surprising considering her track record.

Brussels has not yet realized that its regulatory zeal has led to the decline of Europe’s global competitiveness.

Let us address the consequences. It would lead to even more damaging centralization on the way to a European planned economy. This goes wholly against the European integration concept that was originally built on privatization and competition. However, socialists, who at the start of the European integration process were in opposition to such ideas, gradually realized that integration could be hijacked for the purposes of centralization; a socialist dream with certain success.

Socialist ideas – some of which are shared by other political parties, such as Christian democrats – also consider increasing debt as a tool. This explains why socialists, who traditionally were averse to military spending, now favor it; less for the legitimate reason of defending freedom, but rather as an incubator for more debt and government reach. The plans would be Brussels-centric, merely providing member states and regions with information.

What actually needs more supranational involvement in Europe − though not managed by Brussels − is defense.

Hard realities

The worst thing about Ms. von der Leyen’s post is the unabashed and shameless attempt to claim private money for centralized planning. It is hard to believe that Brussels has not yet realized that its regulatory zeal (regulations have become a new tool for centralized planning) has led to the decline of Europe’s global competitiveness over the last 20 years. This new plan goes toward expropriation.

It is outrageous to assert that a race in competitiveness can be won by central planning and regulation. It sounds like words used by Lenin and Stalin explaining the future of the Soviet society and economy.

In 2008, the European Union (excluding the United Kingdom) had a gross domestic product (GDP) of $14.2 trillion, nearly equivalent to the U.S. with $14.8 trillion. Fast forward to 2023, and American GDP had grown to $26.9 trillion, while the economy of the EU (and the eurozone in particular) stagnated, resulting in GDP at just above $17 trillion. China in the same period grew from some $6 trillion to nearly $18 trillion.

Europe’s poor performance was a result of government overreach and regulation. Now the commission wants to enhance this disastrous policy.

Goodbye freedom, goodbye prosperity, goodbye self-determination.

Nevertheless, thanks to the strength of its regional variety and educated workforce, Europe can become competitive and strong again, but only by less centralization, a strongly reduced government share in the economy, drastic regulatory cuts and a new, responsible political class.

This comment was originally published here: https://www.gisreportsonline.com/r/sovietization-of-europe/