Monthly Discussion

The € Argues for Europe’s Future

The energy-consumption cycle, otherwise known as the Kondratieff cycle, has been discussed in Predictions and in this Newsletter. It specifies a wavy pattern for the worldwide economy with periods of boom and major recession appearing rather regularly, every 56 years. In Exhibit 3 we see that the last four peaks in energy consumption (1968, 1912, 1856, 1800) indeed coinciding with economic booms, at least in the country that played the major role in the world economy at the time.

Exhibit 3. The idealized variation of energy consumption from a natural-growth pattern (S-curve), as reported in Predictions. Peaks in energy consumption coincide with economic booms and valleys with major recessions. Each one of the last four cycles has been associated with a western power dominating at the time.

As a matter of fact, the country that dominated the world economy changed as we moved from peak to peak. Two hundred years ago it was France that dominated the European scene with Napoleon imposing his rule on most of Europe. But following the defeat of Napoleon at Waterloo in 1815, the Napoleonic era came to an end and power was transferred from the French to the British. The British dominance (1828-1884) came to an end when the Germans began playing a prominent economic role with new technologies such as chemicals, automobiles, airplanes, and electric power (1884-1940). But the outcome of World War II transferred power from the Germans to the Americans who began developing such new technologies as plastics, transistors, antibiotics, organic pesticides, jet engines, and nuclear power.

A new economic cycle began around the mid 1990s. According to the paradigm of Exhibit 3 one may expect a yet another shift in the world economic center. Where could this one be?

Europe began uniting at about the same time. This unification process culminated on January 1, 2002 with the introduction of a unique currency for 300 million people. Moreover, the collapse of Communism has liberated another as many people, next-door neighbors to the European Union, all of them eager to develop, grow, and consume. Could it be that the conditions are appropriate for the European Union to wrestle power away from the Americans during the next 56 years?

It is certainly a possibility. Europeans have been catching up technologically with the Americans. For example, concerning Information Technology—a traditionally American stronghold—there exist today exemplary applications in the Swedish and German industries, unparalleled in the US. And the adoption of mobile telephony in the E.U. has from its beginning surpassed that in the US.

It has been argued that Asian markets—still mostly dormant—are more important than those of the West, and should eventually dominate the world economy. It may well be the case, but probably not before one more economic cycle, i.e., expected boom around 2080. Fort what concerns the next 20 years, economic dominance is likely to stay with the West, and the appearance of the Euro precludes an American-European alternative sharing dominance.

As if the $ and the € were genes belonging to different species!