CIO Letter March 2020 EN

MARCH 2020 CIO LETTER Thomas FRIEDBERGER CEO and Co-CIO, Tikehau IM Europe : The Final Countdown Thousands of works have been published on Europe, its history, geography, economy and cultures. It would of course be impossible to summarise all the writings and reflections ever shared on the dynamics driving the Old Conti- nent. But, at a time when global growth now only counts very partially on Eu- rope’s contribution, when the centres of technological innovation and economic growth inevitably appear to be focused on the US and Asia, we nevertheless find it important to at least try to understand these dynamics. First of all, 1 because Europe is still, even today, the No. 1 trade zone in the world 1 . Second, The 28 EU Member States represented because in recent centuries, conflicts staged in Europe have often had world- 5% of the global trade wide repercussions. But also because it is probably the most difficult major of goods in 2018. Source : Eurostat economic block to grasp, which not only partially explains its weaknesses but also creates strong barriers to entry and large-scale opportunities for potential investors. Finally, because it is the geographic area in which Tikehau Capital predominantly invests at this point in its development, and it is thus important to establish a view of the main trends in the region, which remains to this day one of the only major alternatives to the Americas Accordingly, this quarter we decided to take a look at the dynamics of Europe, the continent that shaped the global economy in its image after dominating the world from the Renaissance to World War I, and whose decline since the end of World War II seems to be gathering pace in the 21st century with the emerging rivalry between the US and China for global economic and mone- tary dominance. As usual, we will attempt to shed light on this analysis from a historical and geographic standpoint, all the more debate-worthy perhaps in that European current events necessarily call up political interpretations. Also as usual, we will attempt to steer clear of any ideological or political considerations because that is not our calling. Instead, we will remain focused on an analysis aimed at establishing a framework for our policy governing CIO LETTER The first question we can ask ourselves is: investments in this fascinating why did European civilisations continent, bursting at the seams win out over others through with value for those capable of conquest and colonisation, aligning their investments with each country’s specific charac- ultimately succeeding teristics and decoding the extra- in dominating the world after ordinary complexity stemming the Renaissance? from its very rich history. We can probably rule out random luck if we ap- 2 proach the question from a geographic standpoint 2 . Guns, Germs and Steel Jared Diamond, 2017 In prehistoric times, the development of farming can be traced to the Fertile Crescent and China, which 3 boasted temperate climates and varying altitudes Prisoners of Geography conducive to the growth of multiple species of flora 2 Tim Marshall, 2015 and fauna. There are other “Mediterranean”-type climates in the world, such as Australia and Chile, but they are more geographically restricted. Also, the Eurasian region offers the greatest weather variations between seasons, leading to a wide variety of perennial plants which are ideal for crops. In addi- tion, the Fertile Crescent is the only zone boasting such a large number of domesticable animals such as cows, pigs, sheep and goats, which is why ani- mal husbandry appeared in Eurasia well before other regions. The proximity of animals also allowed the re- gional population to develop resilience to viruses and diseases transmissible from animals to man, unlike other populations, which later played a role when Eu- ropeans came into contact with other peoples during the discovery of the New World and colonisation. nother factor explaining the development of Eurasian power was the continent’s enviable Ageographic position, as the largest block of land on Earth hosting the largest number of societies in competition and especially given its east-west orientation, as opposed to the American and African conti- nents lying predominantly on a north-south axis 3 . This unique set of circumstances paved the way for farming and innovation to expand more rapidly in Eurasia than in other regions in the prehistoric era, because this east-west orientation guaranteed a uniformity of climates that facilitated travel as well as the transmission and transposition of farming techniques. Days were roughly the same length across the continent, and seasonal variations relatively comparable. Eurasia’s broadly similar climates also meant the diseases found in its countries were broadly similar. The vastly different latitudes in the Americas and Africa created natural barriers not only So, we have just established how the geographic to travel (e.g. Sahara Desert, tropical situation of Europe on the world’s only east-west forests), but also to the propagation oriented continent - Eurasia - meant that Europe was of farming techniques, which were able to impose its culture on the world, including necessarily highly specific to each cli- the most advanced civilisations, and not vice-versa: mate. These climate and ecological rapid development of farming techniques, propaga- barriers also slowed the dissemination tion of technological innovation, and immunity against of technologies, whereas the relative zoonotic diseases that would later decimate conque- ease of east-west travel was at least red populations. partially responsible for the speed at which technological innovation tra- But then why were China and velled at the time. For example, the wheel, invented around 3400 B.C. in other Asian civilisations, also the Black Sea region, was found just present on the continent, unable a few centuries later in a large part of Europe and Asia, brought to the to prevail over Europeans? different populations through wars, spying expeditions, immigration and After all, the Chinese, Mongol and Persian civilisa- peaceful trade. It was Eurasia that saw tions also had their heyday before the “globalisation” 4 the fastest technological development ushered in by the discovery of the New World. In his book The Rise and Fall of the Great Powers 4 , Paul The Rise and Fall of because its societies accumulated not the Great Powers, 3 only their own inventions but those of Kennedy draws on an analysis of the different forces Paul Kennedy, 1989 other peoples as well. Medieval Islam, present at the start of the 16th century, which most for example, inherited inventions from historians agree marks the beginning of the modern India and China conveyed on the Silk era, to try to explain how Europe was able to take ad- Road, not to mention from Ancient vantage at that time and dominate all other empires. Greece. Around 1500, the largest centres of power were the China of the Ming Dynasty, the Ottoman Empire, the Mughal Empire in India, Moscow, the Japan of the Shogunate, and the group of States comprising cen- It was subsequently tral and western Europe. Aside from the latter group, the propagation of all other powers were centralised to the extent that power called for the uniformity of beliefs and practices writing that spurred the in terms of religion, trade or weaponry. The isolation of the elite, conservatism and repression against any more rapid development non-centralised initiatives ended up costing these of Eurasian civilisations. empires when it came to innovation. Compared to these great eastern empires described by travel- lers as overflowing with riches and a certain military power that Europe was able to personally attest to Interestingly, though, the primary objec- several times, including in 1453 during the conquest tive of writing was to keep accounts of of Constantinople by the Ottomans, Europe looked farming production. Tribes of hunter- positively fragmented. It was competition between gatherers had no concept of storage, the different kingdoms, accentuated by the religious and thus had no need for writing. From diversity conveyed by the Lutheran Reformation, crop storage arose writing, and from that stimulated innovation and the spirit of enterprise writing the much faster transmission which in turn steered the region into a virtuous circle of information between regions and of economic growth and military progress, making it generations, thus cementing the foun- possible to colonise the world. dations of the European power that would later be unleashed on the world from the Renaissance onward. CIO LETTER The fall of the Roman Empire with the ater, by pillaging the riches of the New World, abdication of its last emperor in 476 Europe developed a financial power that it would sounded the death knell for European L put towards military innovation. The printing unity: it was the last time the peoples press not only allowed for better circulation of infor- of Europe would be able to come to- mation, but also the exportation of germs to which gether. Whereas China for example in the Europeans had built up immunity by domesti- the Middle Ages presented an unde- cating animals early on, thus accelerating Europe’s niable cultural unity, Europe had to world domination. On the weapons front, the advent deal with a balance between national powers that fluctuated to the tune of of broadside-canon wielding high-seas sailing ships wars and alliances. Such a precarious and musket firearms likely made a crucial difference balance maintained the competition to European colonisation and the domination of eas- that preserved a certain emulation in tern empires in the race to secure a global hegemony. military and civilian technological in- Tales of naval battles between Europeans (notably novation alike. Thus, China launched Portuguese) and Muslims off the African coasts or naval expeditions embarking on the in the Straits of Hormuz and Malacca speak to this discovery of the New World roughly 80 imbalance of forces and the crushing defeat of any years before the European conquis- resistance by Europe with its mighty weapons.

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