Bloomberg: Europe never recovered from the fall of the Berlin wall

The Berlin Wall collapsed.
Photo: archives

The high point of 1989 kickstarted a prolonged crisis that left the continent vulnerable to Donald Trump and Vladimir Putin – the fall of the Berlin Wall was a moment of triumph but also of catharsis, an outpouring of pent-up energy that signified a break with the past but failed to define a clear future, Bloomberg stresses.

Europe had a supreme chance to take a path toward stability, peace and prosperity. Instead leaders took what is now clear were many wrong turns. In the four decades leading up to 1989, Europe got the big questions mainly right — on defense, fiscal economics, money, trade and social cohesion. In the almost four decades since, it’s gotten many of them wrong.

The ending of the Cold War signaled by the events of 1989-91 ushered in what we can now see as the fifth great crisis in the European balance of power since the end of the 18th century, after the upsets wrought by Napoleon’s France, Kaiser Wilhelm II and Adolf Hitler in Germany.

The first reaction to the fall of the Wall was, without doubt, joy and relief — mixed with some of the predicted foreboding about the prospect of a larger, united Germany that might be tempted once again to throw its weight around. In the end the US profited more than any other nation (including Germany) from the ebbing of east-west tensions and the equally unexpected collapse of the Soviet Union in 1991. For all Western nations, the fall of the Berlin Wall signified both triumph and tribulation.

Yet the post-1989 tumult placed on trial a world order that was never fully settled; that’s now giving way to a far more diffuse and unpredictable set of structures. The “old continent” is singularly ill-prepared for the onslaught of two presidents — Donald Trump and Vladimir Putin — on fundamental precepts of the post-1945 order.

Today’s reality is painful and paradoxical. In 40 years of recovery after World War II, Europe, together with the US, won most arguments over the supremacy of capitalism and the failures of communism. Since 1989 it has lost many of the new arguments, lost its leadership and lost its way. The results can be seen in four vital spheres of political economy: energy, defense, industry and money. In each area, Europe’s relative weakness against and dependence on the US have increased significantly. Europeans end up facing most of the fallout.

Epic Shortcomings

Europe and the US have been unable to find an acceptable common denominator in key strategic areas, particularly over defense. They’ve made numerous miscalculations in handling a renascent Russia. Understanding between Germany and France has unraveled. Europeans and Americans have been unsteady and irresolute in dealing with China, whose globalization drive added to economic competition at just the time when eastern European nations emerged on to world markets. China has now started a new phase of industrial expansion — combined with a Russia-leaning stance on the war in Ukraine and in geopolitics more generally — that confronts the West with important threats to security as well as economic well-being.

Germany has displayed epic shortcomings over energy policies, especially the buildup of dependence on Russia — one of the reasons for the German economic slump in 2023 and ’24 that has cast a pall over the continent. At the time of the full-scale invasion of Ukraine in February 2022, Germany imported 55% of its overseas gas from Russia; back in 1969-70 the West German government regarded 20% as the absolute maximum. After February 2022, Germany needed to negotiate new and much more expensive gas deals with other countries (including the US), deals that they’d cold-shouldered during years of apparent Russian abundance.

All sides also made mistakes that led, via contorted routes, to the UK’s vote for Brexit in 2016 and its eventual exit from the European Union in 2020. Prime Minister David Cameron’s six-year premiership ended with the biggest failed gamble in modern UK political history. Whatever the precise long-term effects on Britain, this break has deepened and accelerated the stream of bad news for Europe.

Closely linked is the flagship project of European Economic and Monetary Union. It’s taken a series of wrong turns since it was introduced in 1999 — earlier and with a greater number of higher-risk early joiners than was advisable. The project was accelerated because of German unification, and West Germany’s currency — both the prize and instrument of the country’s post-1945 revival — was sacrificed in the process. The aim was to prevent a Franco-German rupture, reinforce trade and investment links among member nations, counterbalance US monetary supremacy and nurture a European zone of prosperity and stability. Although there’s always hope of future improvement, none of these objectives has been satisfactorily accomplished.

From Monnet to Draghi

Economic and monetary union has imparted an overall deflationary bias. Successive measures to prevent the euro from collapsing have generally sapped demand and not generated growth for both creditor and debtor countries. The European countries that have grown fastest over the past 30 years have been those that did not join the euro. North-south fault lines have hampered Europe’s ability to present a united front against the US and China. In May 2013, then-European Central Bank President Mario Draghi lamented that “no one ever imagined” a division between “permanent creditors and permanent debtors” within the union.

The pattern is repeating today. Draghi gave a bleak, sweeping appraisal of the continent’s prospects in his report on European competitiveness for the European Commission in September 2024: “Over time we will inexorably become less prosperous, less equal, less secure and, as a result, less free to choose our destiny.”

According to the dictum of French statesman Jean Monnet, “Europe will be forged in crisis.” Crisis is indeed where we find ourselves today. So can Europe harness the adrenaline burst to advance further on the path to unity? Hardly. The succession of economic crises over the past 20 years has built in progressively higher obstacles toward any kind of state-like European structure. Stable political unions require mutual confidence among their members; crises, especially if their root causes remain unresolved, generate suspicion, not trust. Far from giving Europe a new lease on life, the present upsets and unrest appear to be unleashing debilitating centrifugal forces.

Europe faces a series of era-defining challenges: deglobalization, demographics, decarbonization, digitalization, defense and, ominously, debt. The continued French political instability, raising memories of the pre-1958 Fourth Republic, is just the latest sign of the continent’s widening fissures.

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