A deeply pessimistic view on the future of Europe, penned by “Gaius Baltar” on the Sonar21 blog. It is worth reading the whole thing:
WHY IS THE EUROPEAN UNION DESTROYING ITS OWN ECONOMY? (sonar21.com)
Europe is already struggling under two self-imposed shocks – high energy prices from their sanctions on Russia, and a massive increase in regulatory burdens. But the worst is yet to come:
The third shock will be the “externally forced” devaluation of the euro and a massive drop in European living standards. To explain how this works let’s use the United States as an example. The US trade deficit in 2022 was nearly a trillion dollars. This means that every American got $3,000 worth of stuff from the outside world which he didn’t have to work or pay for. In addition the US Government is printing trillions of free dollars annually to keep things going, including keeping up living standards. The US can do this because the dollar is the world’s reserve currency and can be sold in exchange for real stuff like a commodity. The outside world is keeping up US living standards through its labor and raw materials, essentially for free.
This also applies to Europe because the euro is basically a retail outlet of the dollar and Europe therefore indirectly enjoys the US’s exorbitant privilege. If the West is properly isolated and the dollar loses its reserve status, the euro will go down with it. It is even possible that the euro might go down before the dollar does because Europe can’t print money to the extent the US can. In other words, when the “global south” – most likely in the form of the BRICS – manages to ringfence itself off from the dollar, the West will lose all the free stuff. For Europe this will mean the crash of the euro and a drop in living standards by perhaps a third – or more.