View from London: The signs that Europe really is doomed – and taking Britain down with it

The European Continent is stuck on a path of disastrous decline. Only a full-blown crisis can save it now, writes ‘The Telegraph’.

When Tom Crotty joined Ineos in 2001, the petrochemicals giant was in the middle of a European buying spree.

Back then, Europe was booming. “There was a lot of expansion,” recalls Crotty, who has been in the chemicals industry since graduating in 1979 and is now a senior director at Ineos.

“A lot of the new developments, in terms of processes and products, were being made there and were resulting in manufacturing being built in Europe.”

But fast-forward two decades, and companies like Ineos are struggling in Europe.

The bloc’s high energy costs and what founder Ratcliffe has described as “bonkers” rules that threaten to punish the company for going green are also crippling industry.

The dynamism that Crotty recalled at the turn of the century is long gone, and not just in the chemicals sector.

Across investment, company creation, research and development (R&D) and more, Europe is lagging behind the world’s superpowers – China and the US.

Stark decline in European innovation

Too many of the Continent’s best and brightest are fleeing abroad. In many cases, Brussels is responding to this crisis in the only way it knows how: regulation.

A “decaying” group of nations led by “weak” people. Donald Trump’s denunciation of Europe last week was withering.

“If it keeps going the way it’s going... many of those countries will not be viable countries any longer,” the US president told Politico.

Trump was referring to an EU leader’s approach to immigration – but to some observers his comments rang true economically too.

“When you look at the US, most of their top companies didn’t exist 30 years ago,” says Xavier Niel, a French telecoms billionaire. “When you look at France, all of ours already existed back then.”

He believes the Continent has become stuck, just as others have pulled ahead. A bloc that at its peak drove more than a quarter of world output now drives roughly a sixth.

Europe's slow decline

Emmanuel Macron would like to blame China. The French president used a visit to Beijing to brand its economic policy “unbearable” for the EU, after the world’s second-largest economy posted its first ever $1tn trade surplus with the rest of the world.

The French president warned that Europe now faced a “life or death” moment as he accused Beijing of “hitting the heart of Europe’s innovation and industrial model”.

But Europe’s decline is also of its own making.

Once the second-most innovative region behind the US, with 27pc of global patent applications in 2000, the eurozone had slipped back to fourth place by 2021.

“You’ve now got a situation where China is filing more patents than Western Europe and the US put together,” says Crotty. “That’s a massive change over a period of 20 years.”

The EU undoubtedly missed the last great wave of innovation in the rise of the internet. Leaders in Brussels now claim to be looking forward into the industries of the future – AI, robotics, digital services and defence.

But when Mario Draghi, the former prime minister of Italy and ex-head of the European Central Bank, wrote his landmark report on EU competitiveness last year, he painted a bleak picture of the bloc’s prospects in these areas.

“Europe is stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines,” he warned.

Companies in Europe struggled to rival the size of those in the US or China because of a barrage of red tape and sky-high energy prices, his report warned.

Draghi recommended the bloc increase spending by €800bn (£703bn) per year or face being left behind by the US and China.

He called for policymakers to invest in innovation, make European mergers easier, cut red tape and make it easier to do cross-border business, particularly in financial services.

Europe’s spending has remained stuck in the automotive sector – eking out marginal productivity gains instead of chasing high-growth frontiers.

The crown is also slipping from Europe’s pharmaceutical sector. Of the top 10 best-selling biological medicines in Europe in 2022, just two were marketed by EU companies. Six came from US-based companies.

Europe’s drugmakers aren’t spending enough on R&D, and they’re not alone. European companies spend a collective 2.2pc of the bloc’s GDP on R&D. The US figure is 3.5pc, and South Korea is touching 5pc.

Red tape nightmare

But problems run deeper than big businesses resting on their laurels.

The start-up culture is struggling too. No company has been set up in the EU in the past half-century that now has a market capitalisation of more than €100bn. In that period, six US companies have been established that now have a valuation of more than €1tn.

“We don’t have enough entrepreneurs in Europe,” says French billionaire Niel. “The issue isn’t talent – we have plenty. The issue is that not enough European young people wake up one morning thinking, ‘I’m going to build this massive company that’s going to change the world’.”

Tech companies are grappling with the Digital Services Act, the Digital Markets Act, the AI Act, the Data Act and the Cyber Resilience Act.

In the tech space alone, the Bruegel Institute has tallied up more than 100 laws and regulations administered by more than 80 different agencies.

“Europe doesn’t have an innovation problem, it has a regulation problem,” Niel says. “If I want to build an AI company today, I’ll go where it’s easier in terms of regulation. And right now, that’s not Europe.

“Europe always over-regulates, while in China regulation is virtually non-existent and the US is trying to lighten theirs. Innovation is unpredictable by nature. If we regulate too soon, we risk slowing everything down.”

But the damage is already done. Between 2008 and 2021, almost one third of the “unicorns” founded in Europe – start-ups that went on to be valued at over $1bn – relocated abroad, mostly to the US.

It’s not just technology either. The EU has been busily padding out its rulebook elsewhere too – with directives aimed at enforcing environmental, social and governance (ESG) norms on companies.

Britain on the edge of the maelstrom

Whether Europe’s future is slow-motion stagnation or cathartic crisis, even a post-Brexit Britain will struggle to avoid the consequences.

More than half of Britain’s goods trade is still with the EU. The UK is the bloc’s third-biggest customer after the US and China.

It’s part of the reason why David Lammy signalled that rejoining the customs union would be good for Britain’s economy, claiming it was “self-evident” that Brexit had inflicted damage.

Labour was forced to deny it was pursuing such a plan, though Sander Tordoir, chief economist at the Centre for European Economic Reform, says Britain is likely to continue pegging its fortunes to its nearest neighbour.

The UK has been trying to go beyond the EU with its “Global Britain” strategy, but in a world where global markets are under pressure, “the prospects for that look a bit more dim to me”, he says.

read more in our Telegram-channel https://t.me/The_International_Affairs