Good morning, Peter Vanham here back in Geneva, filling in for Alan.
Vacations are a good time for reflection, and during mine, I realized Europe is facing both a transition and a decline, and managing neither very well.
The decline, as historian Adam Tooze noted in Foreign Policy, means the European economy, even including the U.K., is shrinking compared to the U.S.
It wasn’t always so. For most of the post-war era, the two were roughly the same size, with Europe often ahead in purchasing power. But since the financial crisis, and especially since COVID and Russia’s war on Ukraine, the gap has widened in favor of the U.S. The U.S. economy is now 50% larger than the EU without the U.K., economists Jeremy Shapiro and Jana Puglierin noted last month. The reasons are plenty; among them, the U.S. has more and cheaper energy supplies, a younger population, and a more powerful military.
The transition, of course, is all about decarbonizing the economy. From a U.S. perspective, Europe may have looked like it was ahead in greening its economy, having adopted more aggressive climate goals earlier than the U.S. The latest example is the adoption of the European Sustainability Reporting Standards (ESRS) for companies, approved just yesterday by the European Commission. They follow the decision to phase out new fossil fuel combustion engines by 2035 and the early adoption of the Paris Climate Accord.
But below the surface, the transition, too, is sputtering. Germany, known for its engineering and innovation, but also for its love of cars, is backtracking on the EU’s internal combustion targets following popular discontent. France, of course, had its yellow vests movement, which was all about preserving its petrol car culture, and the aforementioned ESRS was watered down at the last minute. Those setbacks, plus the incentives laid out in President Joe Biden’s Inflation Reduction Act and other climate-friendly laws mean that the U.S. may have an edge on this front too.
Still, don’t expect any major news on the transition and decline in the coming weeks. It’s August, thus vacation time in Europe, yet even Europe's holidays are in a moment of flux. Europeans are now traveling less to the hot south of the continent and more to the cooler north due to global warming. It’s a trend that the European Commission expects to continue with potentially great economic losses for Spain, Italy, Greece and Portugal.
More news below.
Peter Vanham
peter.vanham@fortune.com
@petervanham
