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The end of the Draghi miracle: a time of uncertainty

21 Julio - 2022
Mario Draghi
Mario Draghi. Fuente: Comisión Europea

Jaime Batlle
Director del Postgrado de Desarrollo Directivo en Negocios Sostenibles


We are currently witnessing a series of circumstances that accelerate the transition to a new paradigm in the political, economic and social spheres of the West. 

The environment that emerged in Europe and the United States at the end of World War II was characterised by the consolidation of democratic systems and an expanding economic system. Since the end of the war, the events that have precipitated the change we are now witnessing are:

  • The end of the gold standard by Nixon in 1917
  • Western supremacist hegemony on the global stage
  • The break-up of the Soviet Union in the early 1990s
  • The emergence of the Internet and climate change

These developments have contributed to an imbalance that the West has looked away from, if not outright provoked.

Climate change is a consequence that will generate unbearable additional costs amidst a scenario dominated by massive amounts of debt and the end of the Draghi miracle

The fall of the twin towers in New York was one of the responses to that hegemony, leading to an aggressive, interventionist and extractive US foreign policy in the Middle East, which it had to put an end to while the more media-driven Islamic terrorism focused on an already weakened Europe. This policy relegated Russia to international pariah status, and hence, in large part, the invasion and war in Ukraine.

The end of Draghi miracle

From the base and foundation, the abandonment of the gold standard gave rise to the financial speculative economy and the consequent increase of debt to unmanageable levels, while the Internet facilitated the irruption of technology as an instrument of production in which the human factor is no longer decisive, with the consequent disappearance of the middle class in both Europe and the United States. 

Climate change is a very serious, unresolved consequence that will generate unbearable additional costs amid a scenario dominated by the huge amount of debt to be repaid and the end of the Draghi miracle.

At the same time, geopolitical changes are emerging in which the most important is the rise of China as a superpower in a position to challenge the US for world hegemony

Beneath these unresolved structural problems, geopolitical changes are emerging in which the most important is the rise of China as a superpower, in a position to challenge the United States for world hegemony, while Europe is losing economic and technological weight. 

This is the scenario that will guide the change of paradigm, dominated by involution in the West -especially in Europe, and we shall see if it also happens in the United States-, while a period of expansion opens up for China and the emerging Asia economies, which without the burdens and mortgages derived from the dignified and unrenounceable freedom of the West, are ready to take the lead, on the basis of liquidity, cemented by years of surpluses in their balance of payments, partly materialised in the high holdings of US public debt in the hands of China and Japan, although probably for different purposes in both countries.

Geopolitical changes

History is slowly but inexorably moving toward an unpromising scenario in the West. Europe as a whole will not be able to take on the huge amount of debt, which will probably lead to an economic fragmentation in which the less productive countries will have no choice but to devalue, since it seems unlikely that the more productive countries of the old continent will be willing to take on the huge debt of the southern countries if this puts their own economies at risk.

In this sense, it is not unreasonable to think that the mutual currency (euro) could undergo a major restructuring or even disappear.

Not only do we see a scenario in which we will be poorer, but it remains to be seen how important China's strategic penetration into Europe will be and what the United States is willing to contribute and share with Beijing on European soil when the real future game is played in Asia and the Pacific.

Is not unreasonable to think that the mutual currency, the euro, could undergo a major restructuring or even disappear

Russia will assimilate Ukraine, which will add security pressure to a weakened Europe, and that will be a boon for Chinese aspirations on the continent. Debt and inflation tensions will drive up interest rates, and Europe is likely to become a two-speed economic territory. A prosperous but US and China dependent north, and the souther part, a devalued economic hotspot. We shall see how Italy and Spain will resolve this and the area of conflict and its shock wave.

It would not be unreasonable to think that the destiny of Southern Europe will be defined in the next 15 years and will be oriented towards a scenario halfway between what is now Latin America and the dream of a European Union that seems unrealisable. 

It is a time of uncertainty, as always when history seems to be accelerating.

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