Reasons to Worry About Europe
European Straits #129
Dear all,
Today I’m on my way to Meribel, in the French Alps, where I’ll be participating in Anthemis’s Hacking Finance Retreat. Anthemis is a one-of-a-kind firm focused on reinventing financial services for the Entrepreneurial Age (my words). They combine various business lines, among them VC funds, a startup studio, advising large corporations, and publishing a beautiful magazine, also titled Hacking Finance, that digs into all these topics.
I’ve known Anthemis for years, but mostly from the margins. I first met David Galbraith, one of their partners, together with Ben Robinson (then at Temenos, now at Pangea), in November 2016 for a memorable lunch in London dedicated to discussing the future of progressivism.
Then I connected with Yann Ranchère, another partner. Yann got interested in what was then the very first draft of my book Hedge (a Medium story titled Liberal Institutions for the Entrepreneurial Age)...and offered to introduce me to Carlota Perez, author of the widely praised Technological Revolution and Financial Capital. That’s because Carlota is also part of the Anthemis galaxy: The writing of her second, forthcoming book Beyond the Technological Revolution has been supported by the Anthemis Institute.
All those moments eventually came together earlier this year, when Hacking Finance (the magazine) published an article about Hedge and me (written by Sarah J. Robbins), and invited me to a fireside chat that Sean Park, Anthemis’s founder, had in London with Carlota to celebrate the magazine’s launch.
I’m glad to now have the opportunity to get to know more about this intriguing and forward-looking community—in a region, the French Alps, that I’ve barely visited in my life (I must admit, I don’t ski), and in a retreat setting that is always favorable to deeper interactions. I’ll share more when I’m back!
The (many) problems with Europe
Today I’m going to rant about the sad state of Europe. (I know it’s not my job: As someone working in European tech, I should stick to optimism. But these days I see many reasons to be worried.)
1/ Filling the EU’s top jobs was last week's challenge. I must say I’m impressed with the outcome. Europe’s two most important positions, the presidencies of the European Commission and of the European Central Bank, have been filled by women—Ursula von der Leyen and Christine Lagarde, respectively. As far as I know, both have an excellent reputation. Former colleagues in the French government have worked with Lagarde, and they’re all very fond of her (also watch this interview). As for von der Leyen, my German mother-in-law likes her a lot, which is a good sign! Yet at the end of the day, Lagarde herself once famously joked that when things are going south, women are put in charge. And so her being promoted might be interpreted...as a sign that the situation isn’t so good?
2/ Indeed, the economy is not looking good. Like everywhere in the West, EU member states are creating jobs, as noted by The Economist. However, there are signs that the macroeconomic situation is unraveling. A few days ago, Raoul Pal, of Global Macro Investor, rang the alarm on Twitter. He warned that European banks are in a very bad shape, starting with Deutsche Bank (which just fired 18,000 employees) but certainly not ending there. Add to that the fact that budget deficits are high and interest rates are low, and governments could have a hard time coming to the rescue (a Japan-like situation). Now, Pal is a guy who seems to be used to predicting recessions that don’t happen. But you know the idea: Sooner or later, it finally happens, and today some signs are here.
3/ Brexit could drag the European economy further down. We still don’t know what exactly will happen on October 31, when the nightmare negotiation is supposed to come to an end. Who will be the next British Prime Minister? (Probably Boris Johnson.) Will ‘No Deal’ be on the table? (Probably yes.) In any case, many people have had quite a lot of time to reflect on the long-term economic consequences of Brexit, and they’re not good for the UK—which means, considering the UK’s importance in the European economy, that the entire continent could be headed toward difficulties. For an assessment of Brexit’s consequences, see this video of US diplomats as well as this (frightening) article by Umair Haque.
4/ There’s another problem with Brexit: France and Germany will be left on their own. If, like me, you’ve had experiences in both countries, you know that it’s difficult for them to see eye to eye. Indeed, all this talk about the couple franco-allemand isn’t because the French and the Germans have a lot in common. On the contrary, they have opposing views on almost everything. That is why post-war leaders have decided, starting with de Gaulle and Adenauer, that they had to work together no matter what. The UK then joined the EU to have their say in what was decided by France and Germany, and ever since they’ve been a facilitator and a moderating force in the complicated relationship between the two continental powers. Now that the UK is headed for the exit, will the relationship endure?
5/ The UK was not only a moderating force, it was also a much-needed liberal voice in Brussels. In my 2016 article Brexit: Doom, or Europe’s Polanyi Moment?, I mentioned “the strength (and the distinguishing feature) of the British: their sincere liberalism”. While Germany and France have always been ready to succumb to various demons (corporatism, high taxes, restrictions to immigration, and many others), the UK has always been there to plead in favor of liberal values and openness. Most pan-European regulations bear their mark and we should salute the contribution of the UK to a well-functioning, rather competitive European market economy from the 1980s onward. (That all makes Brexit all the more impossible to understand, but that’s another story.)
6/ We can already see signs of European governments going awry when it comes to designing regulations. This past week, several articles have attracted my attention to how much Europe heads in the wrong direction whenever it seeks to 'regulate' the digital economy. One such article is about free speech. It makes the case that under laudable pretenses like fighting hate speech, Europe (led by France in this case) is about to institutionalize the end of free speech on the Internet. You can read it here: France has turned into one of the worldwide threats to free speech. And you know that I rarely miss an opportunity to lament bad regulations being designed in Europe. Read, for instance, The EU Copyright Directive Won't Kill The Internet But It Will Kill Startups.
7/ Sadly, it will only get worse, because liberalism is weakening across Europe. I won’t go through the list of the many European countries succumbing to illiberalism. Instead, I would insist on the marked absence of a counterweight to this worrying trend. For a brief period of time, France’s Emmanuel Macron looked like he was the one who could revive the flame of European liberalism. But today, his credibility in France has been by the Gilets jaunes crisis (and its illiberal aftermath) while his standing in Europe has been weakened by the difficulty (as always) of finding agreement with Germany on many critical topics. So if not Macron, who? I don’t see any politicians in sight—and, with just a few exceptions, I don’t see European countries that are decidedly going against the illiberal tide.
8/ And then there’s the US. Again, it’s not necessary to remind you of the consequences of the Trump presidency on the post-war liberal world order. What worries me is the growing divergence between the US and Europe. We don’t share the same values anymore; we don’t have the same interests; we’re not confronted with the same challenges (except for climate change). What Europe should probably do, in this context, is break from the US and choose its own path. That is happening in certain fields, like trading with China (see the European position regarding Huawei). But on other fronts, like Iran for instance, we Europeans are still stuck in the middle. The US didn’t listen to the Europeans before reneging on the Iran nuclear deal, but they still expect Europeans to deal with the consequences—namely sanctions with which European businesses have to comply, and possibly war.
9/ Now can the business world and civil society take over? That has been my theory for quite some time. It was inspired by Balaji S. Srinivasan, a strong supporter of individuals breaking free from governments and coming together to impose a borderless world. It sounds naive and utopian when you first hear it. But then you realize two things. First, it’s made easier by the rise of ubiquitous computing and networks, as explained in this article: Software Is Reorganizing the World. And second, it wouldn’t be the first time that most people live by institutions that weren’t built by states, but rather by some other form of non-state powers—like cities, guilds, corporations, networks of individuals, all of which are rendered stronger these days by the rise of technology.
10/ Here's the thing: I’m starting to warm up to my next book, which will be dedicated to technology in Europe. I work in tech, so I have a vested interest in the topic. But I also think that as long as Europe fails to figure out tech and fails to build large tech companies, it won’t stand a chance of reinventing itself and crawling out of the many problems we’re now collectively stuck in. To succeed in tackling this challenge, we must change our approach. We Europeans have been waiting too long for European governments to solve our problems, and they have failed. We have tried for too long to emulate Silicon Valley in order to grow our own tech companies, and it didn’t work. Finally, we still live with the illusion that we’re one of the most developed regions on Earth, but it’s not true anymore.
And so it’s time we reflect on entrepreneurship, institutions, policy, development, and many other things with a uniquely Europeans lens. This is what I intend to do in the coming months and this is what will be compiled and amplified in my book. So stay tuned, keep working hard, and please let me know if you have ideas to contribute 🤗!
🚂 We were happy to welcome Daniel Beutler, president of Trainline, to The Family’s Paris office recently. Trainline is the enlarged, post-merger version of one of the first startups in our portfolio, Captain Train, and their recent IPO was the first for our portfolio! Daniel talked with my colleague Erika Batista about growing a scale-up, in a video you can see here: From startup to international scaleup 🚆
📇 We’ve been excited by several women-focused initiatives lately, whether our own Goldup (helping women to launch their own online businesses) or Ada Tech School, a coding school built by and for women. These initiatives aren’t focused on keeping men out, but rather on acknowledging that solving gender gaps in tech can’t happen without specific, adapted actions. You can see a recent presentation of Ada Tech and some other new coding programs here: The new wave of coding schools 👾
🤑 Finally, we’ve been happy to work with Florent Artaud as he builds Ekwity, a service helping founders to better structure their employee stock option plan and helping employees to understand exactly what’s at stake and what they’re signing up for. Florent’s most recent article gives the basic outline any employee needs to understand why equity is an important part of their pay package: Salary vs. Capital: Why equity is so important for startup employees.
Here are readings on what’s going bad these days in Europe:
Brexit: Doom, or Europe’s Polanyi Moment? (me, The Family Papers, June 2016)
The European Union Versus the Internet (Ben Thompson, Stratechery, September 2018)
A Warning From Europe: The Worst Is Yet to Come (Anne Applebaum, The Atlantic, October 2018)
Europe in Disarray (Richard N. Haass, Project Syndicate, December 2018)
Europe Has Outsourced Economic Policy to China (Mike Bird, The Wall Street Journal, March 2019)
Beware the ‘Japanification’ of Europe, warn ING economists (Anneken Tappe, Market Watch, March 2019)
(me, my weekly newsletter, May 2019)
Europe must find its will to power (Martin Sandbu, The Financial Times, June 2019)
From Versailles to the Euro (Robert Skidelsky, Project Syndicate, June 2019)
Investors in Europe should hunker down for trouble ahead (Mohamed El-Erian, The Financial Times, July 2019)
Warm regards (from London, UK),
Nicolas
