Despiteheadlinesand gut feelings to the contrary, “the EU improved compared to the U.S.,” in the past decade on relevant GDP indicators, Zsolt Darvas, a senior fellow at Bruegel, told me on the first workday of 2024. If you thought that wasn’t the case, you were likely looking at the wrong data, he says.
It took me a while to processDarvas’s analysiswhen I first came across it. But he stuck to his guns in our conversation. The original sin ofanalysis like the Financial Times’, which showed how spectacularly the EU has fallen behind the U.S. economy in the past decade and a half, is that they express EU output in current U.S. dollars. That, Darvas told me, “is not very useful.”
Here’s why: In 2008, the euro was worth almost one and a half dollars. By 2022, it had fallen back to close to parity. As a result, the EU economy, measured in current U.S. dollars, would have declined in dollar terms compared to the U.S.’s even if it had Wirtschaftswunder-like growth rates.
When you weigh other indicators, such as economic output adjusted for purchasing power parity (PPP), per capita GDP, or productivity per hour worked, it’s almost as if a miracle has occurred—or at least, the European economy looks far better.
Adjusted for purchasing power, the EU output fell only 4% behind that of the U.S. over the last 20 years. Looking at GDP per capita, the EU 27 grew faster than the U.S., thanks in great part to Eastern Europe catching up and Western Europe holding steady. The only bad news here is for Italy and the Southern EU: Their GDP per capita kept falling behind.
Even Germany doesn’t look so bad when you examine the right metrics: In GDP per hours worked, at purchasing power standards,Germany surpassed the U.S. in 2022, completing a decade-long comeback story.
Is it all upside heading into 2024 then? Not quite, Darvas concedes. Europe’s lack of Big Tech companies, its reliance on renewable and foreign energy, and its limited availability of venture capital are all hurdles to overcome. And its declining and aging population isn’t a recipe for stellar growth either.
Still, Darvas’s expectations are “somewhat more positive than the market consensus,” he told me. Why is he so confident this time around? Europe proved more resilient against the cutoff of Russian gas than expected, the hike-cycle in central bank rates is ending, and, finally, labor markets are “super strong.”
How is that for some New Year optimism?
More news below.
Peter Vanham
peter.vanham@fortune.com
@petervanham
TOP NEWS
ASML blocked
The Netherlands has blocked ASML, one of the world’s leading manufacturers of chipmaking equipment, from selling some of its products to Chinese customers. Last year, the Netherlands agreed to join the U.S.-led effort to restrict technology exports to China, yet ASML reportedly argued that it could continue shipping some equipment to the Asian economy until the end of 2023. ASML is the only manufacturer of the lithography equipment used to make the most advanced semiconductors. Wall Street Journal
Expired COVID drugs
Europe is set to lose about $2.2 billion in expired COVID treatments by the end of February 2024, according to data from analytics company Airfinity. European governments flocked to buy Paxlovid, the antiviral drug from Pfizer, upon its release in late 2021. But tight restrictions on who could use the drug, as well as a collapse in demand as COVID testing wound down, now means that millions of courses will go unused. Financial Times
The EIB’s new president
Spain’s economy minister Nadia Calviño took over as head of the European Investment Bank on Monday, replacing Werner Hoyer. Calviño is the first woman to lead the EIB. Calviño handily beat Margrethe Vestager, the EU’s competition chief, for the role of EIB president in early December; Vestager had annoyed French officials by choosing an American to serve in a top position.
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This edition of CEO Weekly Europe was curated by Nicholas Gordon.
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