Europe's welfare states rest on a promise that no treasury can keep.
Governments promised workers a pension in old age in return for a lifetime of taxes. Every large European government made some version of that deal. No government set the money aside to honour the commitment.
Four structural fractures now run through the continent, each one feeding the next. America faces the same four weaknesses on a slightly slower clock.
America's advantages, cheap energy and the trust of global capital, buy time.
The Deal That Broke
Most European state pensions are pay-as-you-go systems. Money paid in by current workers goes straight out to cover the benefits of those already retired. No savings pot exists behind any individual's name.
The arrangement works only when many young workers pay in and relatively few old people draw out. The ratio of contributors to retirees has collapsed throughout the continent.
People are living 20 years longer than when European pension promises were first written. Fewer children are being born each decade. More people draw out while fewer pay in.
A government facing the arithmetic can break the promise, tax more, or print money to cover the gap. The first two options risk riots. Governments therefore keep reaching for the third, which waters down the value of every euro, pound and dollar already in circulation.
France tested the first option. The government attempted to raise the retirement age from 62 to 64. Millions took to the streets.
Thousands were arrested. Teenagers blockaded hundreds of their own schools. A shift of two years on a pension age nearly tore the country apart.
The anger ran deeper than a change of two years on a retirement date. A generation had done the arithmetic and worked out that the deal it was promised is no longer there.
A Generation Locked Out
In most of Europe, someone under 35 cannot afford to buy the kind of home their parents had at the same age.
House prices have risen far faster than wages. Rents consume half a pay packet. Good secure jobs have grown scarcer and do not pay very much.
When a home remains out of reach, adult milestones are delayed. People move back in with parents, wait longer to settle down, and delay having children or decide against it altogether.
A falling birth rate today means a smaller workforce paying into pension systems tomorrow. The shortfall compounds with each passing year.
The Cost of Making Things
In Felix's view, Volkswagen shut a factory on German soil for the first time in 89 years. Energy costs drove the closure. Energy for a big factory in Germany now costs 3 or 4 times what competitors pay in America or Asia.
A factory paying 4 times its rival's energy bill cannot compete, however good its engineers are.
BASF, the German chemical giant, has been shrinking its domestic operations and building new plants abroad. BASF and its peers supply half the factories in a country. When chemical makers pull back, every manufacturer downstream loses a supplier.
Each factory that closes takes its suppliers with it, along with the wages and tax revenue the operation generated.
For years, European governments assumed the continent could carry some of the most expensive power in the world and keep its heavy industry. Volkswagen and BASF proved the assumption wrong.
The Money Walks Out
The wealthy and the highly skilled leave when the first three cracks grow bad enough. Norway raised taxes on the rich and dozens of its wealthiest people moved to Switzerland, taking billions with them.
Felix argues that Britain is now one of the top 5 places on earth from which the wealthy are departing. The government raised taxes, and rich residents began to move.
In Felix's view, Wise and Flutter, two firms that grew up in Britain and Ireland, moved their main stock market listings to New York. CRH, the building giant, did the same a couple of years back.
When money and talent drain out of a place, its currency gets weaker. Savings kept there lose purchasing power year after year.
America as Destination
America has two things Europe has lost: cheap energy and the trust of the world's money. The two advantages are large.
American energy is cheap enough that factories are choosing to move towards the country rather than away from it. Money is currently flowing into the United States rather than out of it. The inflow is the single best thing America has going for it.
Wise and Flutter did not move their listings to New York by accident. The world's capital is still choosing America.
The Same Road, a Few Miles Back
The United States and Europe differ in structure and timing. The same four fractures are present, running on a delayed schedule.
The pension fracture is already visible in America. In Felix's view, the big American national retirement promise is on track to run short in the mid-2030s, according to the government. The mid-2030s are roughly 10 years away.
The third crack, energy costs, currently favours America. Cheap power is the main reason industry is arriving rather than departing.
The fourth crack, capital flight, has not appeared. Money is still flowing in.
What the Four Cracks Add Up To
The four cracks compound. A falling birth rate today shrinks the workforce paying into pension pots tomorrow, which widens the gap between contributions and promises.
France tried to break the promise and got riots. Norway raised taxes and watched its wealthiest residents leave. The alternative, printing money, erodes the purchasing power of every unit of currency already in circulation.
A locked-out younger generation stops having children, which shrinks the tax base that was supposed to fund the promises in the first place.
Expensive energy closes the factories that provided wages and tax revenue, which in turn narrows the base available to fund pensions.
Felix argues that the decisions made while room to act still exists will determine the outcome. Cheap energy and the trust of global capital give America room to act. The same four fractures are present, and low power prices alone do not close them.