Econ Depression Watch: the Crash of the EU/EEC, Coming to Your Neighbourhood in 2022/23

4 macro trends to watch for in the next years as Europeans enter the twilight zone of energy shortages and the consequences of foreign adventurism next door

I think at this point in time it’s possible to forecast the near future with a reasonable amount of certainty: it’s going to be pretty ugly in Europe for the foreseeable future. This is a follow-up article to yesterday’s post in which I discussed the energy situation. While this is all a rather long-standing topic in these pages, today I’d like to relate the Norwegian travails to the ‘bigger picture’, so here goes.

The Economic Suicide of the EU/EEC

As compiled helpfully by friend of these pages and independent journalist Thomas Oysmüller in an article dated 27 Aug. 2022, ‘the deindustrialisation of the EU has begun a while ago’. If you read German, do check out his piece, if you don’t, here’s a super-helpful visual summary:

Source: I found it in Thomas Oysmüller’s excellent piece over at https://tkp.at/2022/08/27/die-deindustrialisierung-der-eu-hat-laengst-begonnen/

The above graphic indicates the places in EUrope where the soaring cost of energy has already caused problems in manufacturing: heavy industries, esp. energy-intensive production of e.g. aluminium, steel, but also chemicals, and a wide variety of other production is already affected considerably.

On top of this, high value-added products, such as cars, trucks, and the like, will be on the chopping bloc next as the EU Commission is hell-bent on outlawing combustion engine-propelled vehicles sometime between 2030 and 2035.

One may, of course, debate the merits thereof, but to think that the European auto industry is an island (of sorts) is lunacy: there’s so many machine parts and other connected industries—ranging from cables to special auto parts to electronics and software, among other things—that will be affected by the (assisted) suicide of manufacturing that here’s a rather epic question to ponder:

Who in his or her right mind would actually be in favour of an economic depression?

It appears that these people include the lunatics who run the EU Commission.

Now, one may also be in favour of reducing CO2 emissions, but the stone-cold truth of the matter is that if you and I reduce our consumption of ‘energy’, somebody else’s will increase. So, energy-saving light bulbs, new insulation, and a host of other things individuals can do will not do anything about this entire mess.

Nor will increased subsidies for consumers struggling with high utility prices and rising interest rates (the ECB will quite certainly increase their rates by .5% in early September, as announced last week at Jackson Hole). Over here in Norway, banks are indicating that mortgage rates will be as high as 5% next spring, which is the highest rate in more than a decade.

Inflation currently stands at 6.8% compared to a year ago, according to official data, with prices of many items having increased well above that composite CPI: all things considered, since 2015—that is less than a decade ago—all prices have risen by 19.6%.

If one factors in rising utility prices (although, almost ironically, gas prices at the pump have gone down a bit lately), these index numbers all scream: economic crisis, mainly due to rising cost of living, stagnating wages, and the flooding of national economies with central bank credit.

For extensive background, here are two pieces I highly recommend to everyone:

• ‘America Defeats Germany for the Third Time in a Century’, by Michael Hudson (Prof. U Missouri Kansas City), posted in late February 2022 (and it has aged pretty well, I’d daresay).

• ‘Will Europe Go Down to Defeat Before Ukraine?, by Yves Smith, posted just yesterday.

The Crash of 2022/23

Now, though, we’re near the breaking point: there is no way that people will be able to withstand much longer the multipronged assault on their livelihoods: with costs spiralling out of control, consumption of goods and services will inevitably go down, which means:

• Reduced consumer spending = constraints on demand, which will inevitably result in lower sales and, consequently, decreased supply

• Increased interest rates = force multiplier in terms of the above, as a declining share of anyone’s income will be available for discretionary spending (e.g., eating out, feeding pets)

• Higher utility prices = another force multiplier that decreases anyone’s ability to spend into the economy, but the more insidious consequences may actually be felt via higher food prices (which almost no one can avoid)

So, the question is what gives first?

We’re already seeing a race to the intellectual and macroeconomic bottom with governments and institutions such as the EU Commission racing to ‘active emergency plans’ or drawing up new fanciful support measures to ‘help’…well: who, really?

Many Covid support measures actually turned out to be a major boondoggle for bib business, high finance, and transnational capital.

Many a ‘help’ package ostentatiously dedicated to ‘help Ukraine’ actually went into the coffers of arms manufactures (merchants of death) at home, i.e., it’s a prime example of what Seymour Melman and others call ‘military Keynesianism’, i.e., stimulation of protected industries.

Many a social emergency support measure—such as Norway’s ‘strømstøtte’ (price subsidy for consumers)—are also wrong. Subsidising consumers, while at first sight a justifiable measure that also makes political sense is actually a bad idea as it merely incentivises the continuation of an obviously broken business model.

The cure for high prices is higher prices, which spur both conservation of energy and innovation into auspicious fields. In the Norwegian context, that would be new transmission lines that connect Central and Northern Norway to the areas in the country’s south (of the Sognefjord, that is).

It makes sense both politically as well as otherwise: the alternative is a massive relocation of production and population to the sparsely populated Northern parts, which will put immense pressure on small communities up North, to say nothing about the potentially catastrophic exacerbation of already-existing problems there, such as the lack of qualified healthcare personnel. In addition, added costs will accrue from the required upgrading of infrastructure to a wide array of other items.

It’s not even a non-starter. It’s a pipe-dream of lunatics.

Problem is, the EU as a whole is run (ahem) by individuals who fail to even grasp any of these realities, to say nothing about its implications. Yet, the EU Commission is currently pushing for ‘emergency reforms of a structural manner’, which is about as insane an idea as any.

In the end, the current push will result, and inevitably so, in the following four major trends:

1. More centralisation, which also means enormously increasing administrative overhead costs. This is something most people don’t understand (or remain wilfully ignorant of it): everything that is centralised well beyond its utility is a cost-negative endeavour as the people who render decisions about anything are not only (far) removed from where the action is, but they are also insulated from suffering any consequences. Case in point: the morons in the EU Commission (and their bureaucracy) have caused the energy crisis by merging and subsequently pseudo-deregulating energy markets: while they grant themselves generous COLA (cost-of-living-adjustment) conditions—such as an 8.5% increase of wages as the Brussels staff contracts, unlike yours or mine, are actually tied to inflation—they won’t have any of the worries everybody else has.

2. Bigger, and fewer, mega corporations running everything. Covid-19 is the template, e.g., small and medium-sized enterprises will go belly-up all over the place, and their business will be gobbled up by the global behemoths that are directed from behind the curtains by the likes of BlackRock, Vanguard, and State Street. Don’t think, though, that this will only pertain to retail. We’re well beyond that point, for those high utility prices will also lead to esp. small electricity producers into troubled waters—and they will inevitably be bought for pennies on the dollar by the bigger fish, whose executives will then jack up prices because they can (and they, too, are insulated from the consequences). In the end, we’ll see the Walmartization, or Amazonification, of everything.

3. Supply shocks are coming, and we’ll see them in terms of high prices for everything, which will also no longer be available in local stores. This trend is actually both a contributing factor of the above as well as a fascinating item in and of itself: I suspect that supermarkets and hardware stores will go the same way of local banks, which is to say that they will be replaced by intermittent services. At some point, simply operating chain stores will become uneconomical and/or impossible due to decreasing profit margins, hence: where there used to be a local bank or savings union, there once was an ATM (and now there’s online banking…). We’re perhaps not talking individual delivery (fuel is too expensive), but a supply truck or two coming once or twice a week to the parking lot, with the driver then handing out parcels of food and other stuff in exchange for QR codes and the like. Also, keep in mind that even a one-day blackout or brownout will throw the equivalent of a gigantic monkey wrench into supply lines, food storage, and delivery systems that might last up to a week…hence the maintenance of a supply stash for 5-10 days might be a brilliant idea. I don’t expect this situation to become permanent, but I do see one more macro trend:

4. Services, widely understood, will contract spatially. By this, I mean that while the past decades (esp. since 1945) were marked by the ever-quickening expansion of human affairs into even the remotest corners of any country, we’re about to embark on the reversal of these processes. Part of this dynamic will result from higher costs of investment and maintenance of existing infrastructure, and in this macro sense the equivalent consideration explored above in terms of a household budget may prove helpful in understanding this: sure, the state will not reduce its activities all at-once, but certain outlying areas will see less and less attention as we move forward in time. Some of this can and will be offset by digital inter-connectedness, but the main issue here is that these complex systems are very fragile and, if there’s no electricity for even a day, for example, that means no internet (banking), communication (as landlines are no longer in use), and the like, which will further reinforce the negative feedback loops of the economy by further curtailing spending (consumption), which will therefore deepen and widen the economic troubles.

Bottom Lines

All told: we do live in interesting times, and the next couple of months will be both an abject lesson in human stupidity (it’s an endless topic) combined with a number of teachable moments in terms of emergence phenomena, such as self-help groups that will operate in neighbourhoods, spontaneous re-organisation, in particular in outlying areas where the ‘restoration’ (of sorts) of state and corporate authority will take longer.

Of course, the road ahead is bumpy, perhaps not even paved (as the below example from my Sunday evening walk with our dog shows), and there will be stragglers who elect to fall behind rather than become more self-aware and self-reliant.

Picture taken last Sunday while I was out walking with our dog.

And while that is a sad outcome, it’s also inevitable to certain degrees. I’m specifically not calling for more individualism and the refusal, as a community, to help those in need. What I’m saying is that some are beyond help and some won’t take it even if offered in good faith—and I’m fairly convinced at this point in time that we’re not all going to make it.

Yet, to conclude on a less gloomy note: it’s always been that way, and of all civilisations that ever existed, the ‘West’ in its present configuration is perhaps unique in both its leaders’ rejection of reality and the (so far) absence of any consequences.

Once this changes, we will also put better people in charge, perhaps by means of elections, but I could also imagine that future leaders will ‘emerge’ by virtue of their skills, character, or accomplishments again. Once consequences will return to politics and life in general, the morons who are currently pretending to be in charge will quietly recede from view as they have neither the intellectual capacities to govern nor the endurance required (to say nothing about a sense of shame).

So, how is the road ahead going to be? Bumpy, probably unpaved, and without many of the guardrails we’ve since taken for granted.

Yet, we all know what’s going to be required: if the going gets tough, the tough keep going.

Walk with me for a bit, won’t you?