Facts Are Stubborn Things

The following is an adaptation of an article written by Ákos Péter Mernyei, a research fellow at the Europe Strategy Institute of the University of Public Service, originally published on the Five Minutes Europe blog of Ludovika.hu.

August is coming to an end. Although it has not been an easy summer for the European Union, there is now greater hope that European decision-makers will be more relaxed, take a step back, remain calm, and take a more balanced approach to shaping events in the coming period. A useful tool for this is the recently published report by Eurostat, the statistical office of the European Union, which reviews the most important social and economic indicators characterizing the EU’s position in the world.

If we want to take European cooperation and collaboration seriously, we need to analyse situations and conditions with both feet firmly on the ground and without ideology. Eurostat’s publication presents the most important social and economic indicators describing the situation of the Union in nearly 100 pages. To assist decision-makers in their work, I will examine some of these indicators below.

The first such key indicator is the fertility rate. The relevant data are devastating. The EU average (the average number of children per woman) has been declining steadily since the mid-1960s, and by 2022, it did not even reach one and a half (the exact figure is 1.46). In short, this means that the EU’s internal population growth has been declining for decades and is far from sufficient to maintain the population. The rate of decline in the European population appears to be improving, as the average life expectancy in the EU is high (81.5 years) and has even increased by four years over the past decade. However, this undoubtedly welcome figure, when read in conjunction with the above, actually paints a picture of a rapidly ageing society. From a social security perspective, this situation places an increasing burden on the expenditure side of EU Member States’ budgets. Social processes and their resulting economic effects are therefore highly unfavourable for Europe.

The second key indicator relates to the EU’s economic performance. According to Eurostat data, in 2023 the EU accounted for 14.7 per cent of global GDP, roughly on a par with the United States (14.8 per cent), but already significantly behind China (18.8 per cent). Before we find this data satisfactory, it is worth adding the corresponding dynamic indicator: the annual change in GDP, that is, how the EU economy is developing, especially in comparison with its competitors. In this respect, it is clear that the EU unfortunately fell behind in the competition in the 2010s. The global average GDP growth during this period was 3–3.5 per cent per year, while the EU remained below this throughout the decade, with values of 0.5–1 per cent. The post-COVID economic rebound in 2020 seemed to be a breakthrough moment, when the EU was on par with the world as a whole in terms of annual growth (6.3 per cent, but no more). Unfortunately, the Community then fell back into decline: based on 2023 data, while the world’s economies grew by an average of 2.7 per cent, the EU was only able to achieve 0.4 per cent. It is also worth looking at Eurostat’s aggregate growth indicator for the last ten years. Unfortunately, the situation is even more depressing: while the average economic growth of the world was around 31 per cent over ten years, the EU managed to achieve just over 18 per cent (18.2), which is not even 60 per cent of the world’s average! The decline in European competitiveness is more than obvious. These figures no longer indicate a lag, but a clear decline. Although Europe remains one of the best places in the world in terms of GDP per capita, the above data clearly show the continuing weakening of Europe’s economic capacity and the Union’s loss of geopolitical space.

‘Social processes and their resulting economic effects are…highly unfavourable for Europe’

Research and development (R&D) is an area that can significantly influence competitiveness. Unfortunately, the figures published by Eurostat are not reassuring in this regard either. The world’s best-performing countries (Israel, South Korea, and the United States) spent 3.6–6 per cent on research, development, and innovation in 2022, while the EU spent only 2.27 per cent in the same year. What is more, this figure has barely increased in the EU over the past ten years (the same indicator was just over 2 per cent in 2012). It therefore appears that in an area where it could have made great strides with intensive and well-thought-out resource allocation, the EU has unfortunately opted for a ‘lukewarm’ strategy instead—if inaction can be considered a strategy at all…Meanwhile, unsurprisingly, the world’s leaders have further increased their advantage.

Finally, it is also worth paying attention to the energy situation, as the availability of energy is crucial to the functioning and development of the modern economy. According to the data in the recently published report, in 2022, the EU imported a total of 54 billion GJ of energy, while it was only able to export 18 billion GJ. In other words, the EU’s energy import needs are roughly three times greater than its export capacity. This represents a level of dependence that is unique in the world. No other major country is as exposed to energy imports as the EU. In fact, the situation is reversed in the case of the United States and Russia, for example, where energy exports exceed import needs. The difference is smaller in the case of the US, but significant in the case of Russia. It is worth noting that China is also a net energy importer. It therefore stands to reason that Europe, which has traditionally relied on Russian energy sources, is not in a position to exert pressure, but rather, on the contrary, is in a vulnerable position: the surplus of Russian energy sources lost due to EU sanctions can easily find a market in China, while Europe has to meet its energy needs from elsewhere. It is not difficult to see that American export capacity will easily find its way into the EU market at the same time, even at prices much higher than those in Russia, due to political constraints and economic necessity (supply-side constraint).

And lo and behold, one element of the US–EU trade agreement recently made public is precisely the following: over the next three years, the EU plans to purchase €700 billion worth of LNG, oil, and nuclear raw materials and products from the United States—and the announcement makes no secret of the fact that the aim is to contribute to replacing Russian crude oil and natural gas imports. The US has struck the best deal with a Europe that is completely dependent on it. From its own point of view, at least. Once again, it has been proven that Brussels’s political and ideological constraints create vulnerability, which every player in world politics will ruthlessly exploit.

‘No other major country is as exposed to energy imports as the EU’

The situation is, therefore, that Europe is unfortunately not competitive in terms of society, economy, innovation, or energy. These are the harsh realities that European decision-makers must take into account when shaping political relations; otherwise, we will find ourselves in more and more ‘homeroom classes’, not only in Washington but also in Beijing. A useful step in this direction would be to rethink the EU budget and shape and strengthen it in the interests of the Member States, as well as to rethink financial support for Ukraine.

According to an old, wise saying attributed to Italian-born professional soldier Montecuccoli, three things are needed for war: money, money, and money. Money can only come from two sources: either economic performance or credit. Since Europe’s own economic performance does not allow it to finance Ukraine, it is credit that remains the only theoretical possibility. The big question is whether European decision-makers are considering this option and what their answer will be to the question of whether this is a viable path for Europe, or whether the Sun King’s idea of ‘no matter the consequences’ has taken hold in Brussels for good.

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