Europe’s Hard-Right Turn

The European Union’s crony-socialism experiment is not going well.

Industrial production has been crippled by bad energy policy. Deindustrialization is spreading across the continent.

At the same time, smothering regulations have gravely wounded productivity.

For example, in Germany, it’s almost impossible for companies to fire employees.

Think about the chaos caused by this seemingly well-intentioned law. Because it’s almost impossible to fire someone, it’s also extremely hard to get hired. And wages are far lower than the U.S., because the incentives are out of whack.

Unemployed Germans collect Bürgergeld, which is essentially Universal Basic Income (UBI).

The Bürgergeld program covers rent, health insurance, and around €563 per month per adult for expenses, with additional payments for each child. The goal seems to be making citizens completely dependent on the state for sustenance.

Controversially, refugees, asylum seekers, and immigrants are able to take advantage of Bürgergeld. This group makes up 17% of Germany’s population but 47% of program recipients.

These types of policies have become typical throughout Europe.

And on top of this local repression, countries which are part of the EU have to deal with another layer of bureaucracy and overzealous regulation. Unelected EU technocrats make centralized decisions from Brussels, often with disastrous results.

The business environment is stifling. Why would anyone start a company in such difficult circumstances?

European policies are clearly unsustainable. The EU has become a powder keg of frustration and pent-up capitalism.

Hard-Right Turn

The stage is set for a societal and political upheaval.

In Germany, the nationalist party, AfD (Alternative For Deutschland), is surging in popularity. Among their chief policy goals are strict immigration controls, deportations, deregulation, and support of traditional values.

Elon Musk has come out strongly in support of the “far-right” party, saying AfD is “the only hope for Germany”.

Similar movements are underway throughout the EU. The establishment is attempting to stifle them at every turn, but major shifts are already afoot in Poland, Hungary, Greece, Italy, France, Austria, and beyond.

The EU socialist utopia experiment is failing. Deregulation and other policy changes are needed on a massive scale.

Historically, we’ve seen how Europe can go from peaceful co-existence to a volatile mess rather quickly. While I don’t expect total war as we have seen in centuries past, widespread social unrest seems baked in at this point.

Mangled Incentives

Charlie Munger famously said, “show me the incentive and I’ll show you the outcome.” In Europe’s case, free market incentives have been destroyed and replaced by subversive policies.

One result is that over the past 14 years, U.S. stocks have outperformed European ones by almost 4x.

This poor management is why so few big new companies are coming out of Europe today. Innovative, fast-growing companies are few and far between.

In the U.S., there are more than 600 “unicorn” startups (worth more than $1 billion). In all of Europe, there are less than 150. And on average, EU startups are far smaller than their American counterparts.

It’s not just economic and financial woes facing Europe. The EU has essentially forced member states to import vast numbers of refugees from across the Middle East. This is causing rising social discontent as many of these new Europeans fail to assimilate.

This is the inevitable outcome of neoliberal policies at scale. The world is watching, and taking notes.

As a result, a rightward-shift is underway across the globe.

This change is long overdue, but that doesn’t mean it will be clean or simple. The establishment will do whatever it can to cling onto the status quo.

This practically guarantees that things will get messy for a while.

We’ll keep you updated on this developing story.