In the bars, hotels and windowless conference rooms of the World Economic Forum in Davos, two themes dominated the conversations: America’s ascendancy and Europe’s decline.
If the scale of the continent’s problems was unclear before politicians and business leaders descended on the Swiss ski resort, there was no ambiguity when Donald Trump finished speaking.
The 47th president of the United States teleported by video into a crowded conference room to denounce stifling European regulations, the flood of car exports to the United States and the fines and sanctions imposed on Apple, Google and Facebook .
NATO members will no longer be able to do without the American security guarantee, he added, demanding that they increase their defense spending to 5% of GDP – a dig directly at Europe.
“From America’s point of view, the EU is treating us very, very unfairly, very badly,” he said. “We have very big complaints against the EU. »
Soul search
Trump’s return to the White House has sparked a wave of soul-searching across Europe. His “America First” doctrine and the threat of tariffs on European goods left Europe’s elite wondering how they could bridge the growing economic gap with the United States – and find the billions needed to additional military spending.
During countless conversations in Davos, business leaders and politicians highlighted the problems facing the EU: from the stagnation of the major economies of France and Germany to the inability to competing with America’s tech titans, with rising populism and the war in Ukraine on its doorstep.
Well before Trump arrived in the White House, the European Commission raised concerns about low productivity and sluggish growth across the 27 members by charging the former president of the European Central Bank (ECB) , Mario Draghi, to recommend solutions.
In his 393-page report, Draghi warned that Europe’s productivity was “low, very low” and called for deeper integration and massive coordinated investment.
Since then, things have gotten worse. The International Monetary Fund forecasts growth of 2.7% for the US economy in 2025, compared to just 1% in the euro zone. German GDP has contracted for two years in a row.
Karen Harris, managing director of macroeconomic trends at consultancy Bain and Co, described Draghi’s pessimistic report as “like a punch in the face”, but added: “one way or another , he did not penetrate.
“This is a European gathering,” Harris said. “People come from all over the world, but we are in Europe, and there is a feeling that Europe is far from being at the forefront of global leadership in business and innovation.”
She suggested that EU leaders were progressing through the seven stages of grief over their global economic situation. “It feels like we are now in a deep negotiation and depression. And there’s a feeling of this kind of calm, almost as people absorb it.
European Commission President Ursula von der Leyen attempted to chart the path to the next step – acceptance and hope – with a powerful speech.
“Over the past 25 years, Europe has relied on rising global trade to drive its growth. It relied on cheap energy from Russia and Europe has too often outsourced its security. But those days are over,” she told the assembled economic and political leaders.
Von der Leyen said the Commission would present its five-year roadmap next week, based on Draghi’s recommendations, including plans for a “savings and investment union” so that more of the 300 million euros (£253 million) of cash from European families, she said. flows leaving the continent each year could be invested in the country. A capital markets union, to try to stem the flow of money and businesses from the continent, is also planned.
“To sustain our growth over the next quarter century, Europe must shift gears,” she said.
America first
Up and down the Promenade, the main street of the Alpine resort, American technological power was omnipresent.
Meta was demonstrating his smart glasses designed by Ray-Ban; Google introduced its new AI-powered personal assistant, Project Astra; Uber presented its delivery robots. But it was hard to find a buzzworthy European company – apart from Zurich Insurance, which was generously handing out free bobble hats.
Draghi’s report highlights this disparity: the EU has not built a single €100 billion company from scratch in the last 50 years, while the US has built six worth more to 1,000 billion euros during this period.
In the Uber pavilion, Dara Khosrowshahi had just returned from Washington and the inauguration celebration.
“It’s an exciting time,” said the chief executive of the taxi and delivery app, which donated $1 million to Trump’s inaugural fund. “The gathering of business leaders was quite extraordinary and the atmosphere was rather positive. You can see, whether you agree with the words or not, that there is a window. There is permission to move forward quickly.
“The feeling of optimism and action was palpable. Now it’s execution time. »
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But few leaders were convinced that the EU could match this energy. “I’ve heard the EU talk about wanting to make changes,” said the CEO of a European bank. “The truth is that every time they do something, they create more bureaucracy and complexity. They need a huge reset.
Nicolai Tangen, the head of the Norwegian sovereign wealth fund, the largest in the world, recently returned from a month in New York with no doubt about the strength of American “animal spirits”.
“There’s less regulation, less red tape, more speed, more enthusiasm,” he said. “At the same time, we don’t see the same thing in Europe. I love Europe, but there’s not much to show there.
If Europe does not act quickly, its social fabric risks collapsing, warned Tangen, whose $1.6 trillion fund owns about 1.5% of all listed companies in the world.
“It depends on how gloomy you want to be,” said Tangen, a former hedge fund boss. “But you know, the whole social fabric, I mean, it costs money, right?
“We must therefore have a competitive economy for society to continue to function as it currently does. »
Frayed at the seams
For politicians trying to hold the continent’s economy together, Trump’s demand that European automakers build factories and create jobs in the United States underscores the challenges they face at home.
Germany’s largest automaker Volkswagen, which is trying to close three factories in its domestic market, said in Davos it plans to increase its investments in the United States.
VW will double its market share in the United States from around 4% currently, its financial director, Arno Antlitz, told Reuters. “We need additional initiatives… to double market share, we need to be even more local. »
Robert Habeck, Germany’s vice chancellor and finance minister, said Germany needs to build more cheap electric cars and, to do so, needs cheap electricity.
“I hope that everyone has heard it and that all German politicians have understood it. “It’s a structural crisis,” he said.
“Our economy has not grown since 2018. Our growth potential has been declining for a decade and a half.
“This means that we have to reinvent our economic model, because our economic model was mainly based on two factors: cheap gas from Russia or cheap fossil energy from Russia. But it’s over and I guess it won’t come back again.
Whatever von der Leyen’s hopes for a shift in gears, domestic political pressures risk hampering plans for closer economic integration.
The far-right Alternative für Deutschland party is expected to make significant progress in Germany’s February 28 elections, without entering government. French President Emmanuel Macron is under intense pressure from Marine Le Pen’s National Rally. Neither party favors greater European integration and both set a vehement nationalist tone for the political debate.
And the harmonious vision of a pan-European capital market described by von der Leyen appears difficult to achieve as individual member states continue to fight for their own national banks and stock exchanges. The German government has vehemently opposed the recent takeover bid for Commerzbank by Italian bank Unicredit.
However, some believe that Europe’s self-flagellation has gone too far. Larry Fink, chief executive of US asset management giant BlackRock, said pessimism had “never been greater and deeper”.
But this may be the wake-up call the continent needs – if it can learn the lessons of US innovation and entrepreneurship. Additionally, markets may be underestimating the risks of a wave of inflation, Fink warned – something Trump’s tariffs could trigger.
“I think it’s probably time to reinvest in Europe and focus on it.”
