Europe has faced enormous challenges in recent years, with capital drainage, industrial recession, and the energy crisis seriously plaguing the region. The formation of this situation is the result of a combination of many factors.
First of all, the impact of US interest rate hikes on Europe cannot be underestimated. Since most European countries do not have a foreign exchange control system and capital flows freely, a large amount of circulating capital chooses to go to the United States to enjoy high interest rates. After all, the interest in the United States has reached 55%, compared to the level of interest in Europe, which cannot be competitive. This has allowed European wealth to be attracted to American capital, exacerbating the massive loss of European capital.
Secondly, the outbreak of the Russia-Ukraine war has also exacerbated the plight of Europe. As an important energy country in Europe, Russia's oil and gas resources have always been an important support for European industry. However, Russia's involvement in the conflict in Ukraine has limited energy access to Europe, which has led to a rapid decline in the European industrial system. At the same time, the rise of Chinese industry has caused the European industrial system to face a double blow from two directions.
Finally, Europe's military power and diplomatic tactics have also contributed to the deterioration of its situation. For many years, Europe had relied on the United States for military protection, but with the decline of American national power, Europe's position gradually declined. European countries are underspending on maintaining their armies and defense, and more money is being spent on people's welfare. This puts Europe in a weak position in negotiations with Russia.
Despite the enormous challenges, the loss of capital in Europe has also been replenished to a certain extent. China and the United States, the world's two major economic powers, have become new destinations for European capital.
China has attracted a lot of European industrial capital. According to China's Ministry of Commerce, European investment in China reached $12.1 billion in 2022, up 70% year-on-year. German chemical giant BASF has invested 10 billion euros in the Verbund project in Zhanjiang, Guangdong. In addition, global chemical giant INEOS plans to invest US$800 million to build a wholly-owned plant in Ningbo, China. Germany's Volkswagen also wants to continue operating its car plant in Xinjiang and has invested $700 million in Xpeng Motors. The inflow of European industrial capital has brought new technology and employment opportunities to China, and injected fresh blood.
In contrast, the United States has attracted more European financial capital. However, instead of placing banks in the United States to earn interest, these European financial capitals did not buy the United States** and chose a conservative approach. The U.S. is backing the war in Ukraine and Russia to attract European financial capital to buy the U.S.**, which in turn pushes up U.S. assets**. However, Europe has realized that there is a bubble in the United States, and in order to avoid risks, it has chosen a conservative investment approach.
Behind the phenomenon of the great exodus of European capital is the problems and dilemmas facing Europe. Europe** should identify these problems and propose solutions accordingly. Here are my personal thoughts and opinions.
First of all, Europe should strengthen internal reform and industrial upgrading to improve its competitiveness. It is only by improving the technological level of industry and the capacity to innovate that Europe will be able to attract and retain capital. Europe can increase its support for scientific and technological research and development and high-end manufacturing, provide preferential policies and resource support, and attract more investment and talent.
Second, Europe should strengthen cooperation with other countries and regions to promote multilateralism and investment cooperation. By cooperating with China and other emerging economies, Europe can access more business and market opportunities. At the same time, Europe can also strengthen cooperation with the United States to jointly address global economic challenges and threats.
Finally, Europe should strengthen its military and diplomatic strategy to improve its ability to respond to external threats. European countries should increase investment in national defense and improve their military strength to protect their own interests and security. At the same time, Europe can also strive for more cooperation and support by strengthening diplomatic exchanges and dialogue, so as to create a better environment and conditions for the return of capital.
In short, the great flight of European capital is the result of a combination of factors. Europe** and businesses should recognise the current situation and proactively seek solutions. Through internal reforms, greater cooperation and improved self-strength, Europe is expected to rebuild its competitive edge and attract capital back. At the same time, the international community should also strengthen cooperation and dialogue to jointly address the challenges and dilemmas facing global economic development.