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The impasse in which the European economy and its industry find themselves is the predictable consequence of the soulless and destructive course set years ago by our Eurocrats, a separate class of career politicians who are appointed rather than elected.
Companies
The reports in the media and industry data sobering and alarming. Every week, we read about dozens European manufacturing companies downsizing, shutting down production lines or going bankrupt. Every day, thousands of manufacturing jobs disappear across Europe. With them go investments, know-how and longstanding trade relationships, lost for good.
Our energy-intensive industries are particularly hard hit. Until recently, our crown jewels - mechanical engineering, automotive manufacturing, pharmaceuticals, biotech and petrochemicals - projected Europe’s global industrial strengths. Today, these same European companies pay up to ten times more for energy than their American or Asian competitors. They had long since ceased to be competitive. Now, even their very survival is at stake.
Companies with the financial means have relocated production to Asia or North America in recent years. Those without the cash reserves to do so, have yet to make the move, or face an existential choice.
Perhaps it is some consolation that we have all found ourselves caught up in an Everything Bubble. Although a recession should, in essence, serve as a self-cleansing mechanism..., governments, banks and our monetary system react allergically to any economic contraction. Understandably so, because our debts are sustainable only as long as future growth can support them. When the economy contracts, that underpinning disappears. In an Everything Bubble, almost everyone is subject to the same cosmic law.
Industry
One in three production machines in Belgium stands idle and unused. Around 30% of its industrial production capacity has turned out to be a loss-making investment. This is deflation in its purest form, brought about by the devestment of the economic and industrial base. Devestment as the opposite of investment.
Deflation has several meanings, but here it can be understood as the writing off or liquidation of loss-making investments and credit. Deflation means marking badly allocated credit down to its real book value, potentially to zero.
If inflation is the expansion of credit to finance productive assets, then deflation is the contraction or loss of credit allocated to unproductive and loss-making means of production.
Banks
Banks are undercapitalised. As more loss-making companies become unable to repay loans taken out to finance idle machinery, the banks’ exposure increases.
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Systemically important banks hold vast amounts of US government debt on their books because these securities are supposedly so safe. Safe, that is, in the sense that the higher risk and declining creditworthiness of the US Treasury are reflected in higher interest rates. As government bond yields rise, the market value of existing bonds falls because their coupons are lower than those offered by newly issued debt. The declining market value of previously purchased bonds erodes banks’ earnings prospects and equity.
If banks hold these depreciating Treasury bills to maturity, the losses do not necessarily show up immediately in their accounts. It is only later, when banks sell government bonds yielding less than prevailing market rates, that those losses become visible in their financial results and equity.
Governments
When onion prices rise in fresh markets, New Delhi and Calcutta are thrown into turmoil. When diesel prices in the Netherlands exceed €2.80 per litre, long queues form at Belgian petrol stations. When French schoolchildren demand better education, the streets of Paris fill with pallets of glass bottles ready to be thrown. French students may demand more funding for education, but the Élysée lacks the backbone, policy room and resources to deliver it.
Everything suggests that French policymakers have little to gain at the ballot box from cleaning up government revenues and expenditure. As a result, France’s public debt continues to spiral upwards. The ECB watches and waits, passively observing where this will lead.
In the Netherlands, forming a government has become a particularly arduous task. In Belgium, the government commits itself to tens of billions of euros a year in additional defence spending over the coming years, yet cannot even plug a €7 billion budget deficit.
Across Europe, public debt and interest rates are rising. One increasingly senses that the next crisis will not be a banking crisis, but a sovereign debt crisis: a Sovereign Debt Crisis combined with an Everything Bubble.
In 2008, it was still European governments, treasuries and taxpayers who footed the bill for the emergency funds deployed during the Global Financial Crisis. Today, attention turns to the IMF, supposedly the only lender of last resortwith pristine balance sheets — balance sheets that will, in due course, allow it to render all central and commercial banks obsolete and irrelevant with a single crack of the whip.
Gas prices and LNG supplies
Just a week ago, the TTF gas price broke through the €90 mark. Today, it stands at €103/MWh. Regular readers know why. QatarEnergy had an export capacity of 135 billion cubic metres, accounting for 20% of global LNG export volumes. Until 2022, Russia still had an export capacity of 235 billion cubic metres. Both supply routes to Europe were knocked out of action by Washington.
Regardless of the prices Europeans are willing to pay, the EU27 cannot secure the 400 billion cubic metres it consumes annually from alternative sources. Gas storage levels are historically low at 74% and insufficient to see Europe through a normal winter.
Just as the ban on smoking on outdoor terraces will presumably be relaxed, the total ban on Russian LNG imports due to take effect on 1 January 2027 will also be postponed. Until then, Europe will continue importing record quantities of Russian LNG, while we carry on buying cigarettes at every corner shop and vending machine.
The aftermath and phantom pains of Hormuz
The real shock of Hormuz is still to come. Until now, it has been cleverly masked by deficit spending, the depletion of oil reserves and savings evaporating through unproductive consumption and inflation.
Without distractions such as Covid and Ukraine, it would have become obvious to everyone years ago that our economy had already entered a prolonged period of latent stagnation. Hormuz is the fireworks display that formally brings a spectacular public celebration to a close as the sun sets in the west.
Five of the last seven global recessions were immediately preceded by sudden spikes in oil prices. Expensive oil makes everything more expensive, driving up costs that businesses can pass on to the ultimate end customer — the consuming public — only partially and with a delay.
Urea, nitrogen compounds and sulphur from the oil and gas industry underpin the production of the fertilisers that have driven the yields of our mechanised agriculture to unprecedented heights. Hormuz is forcing fertiliser production sharply lower, translating into smaller harvests and higher food prices.
It has been nearly 150 years, since 1877, that American farmers last harvested so little grain as they are expected to during the 2026 harvest season. Tens of millions of tonnes of grain remain trapped in the Sea of Azov and the Black Sea. Everything suggests they will not reach the global market in time.
The AI Tech Bubble
In previous publications, you could read how stock markets remain afloat thanks to the investment frenzy in LLMs, AI and data centres driven by the Magnificent Seven. Although these companies have yet to devise a viable business model for AI, their relentless expansion of computing capacity rests on two essential conditions: abundant electricity to provide data centres with cheap energy in the future, and the production of semiconductors.
The global energy supply system has been battered, and it will take years to get all those Swiss watches ticking together in perfect synchronisation once again. Meanwhile, 30% of global helium production has been destroyed or knocked offline. Indeed, the Persian Gulf — and Qatar in particular — accounted for 30% of global helium exports.
Without helium, silicon wafers cannot be cooled during plasma etching, leak detection becomes impossible, and etched silicon cannot be patterned… Without helium, no chip production and no processors. Without cheap energy, no data centres.
Final thoughts
It was an illusion to believe that European industry could afford to wage war against its most important and strategically vital energy supplier.
After years of American manipulation and direction, Europe is beyond saving. Without fully realising what it was doing, it has erased itself from the international map. Its combined economies count for little alongside the Asian and American blocs. Europe has no energy, no raw materials, no industry, no R&D — only trade deficits, only consumption without investment — and it is inexorably heading into a debt spiral from which it cannot escape. A debt spiral is what happens when debt grows faster than the economy. Meanwhile, the entire Global South looks on with pity as Europe sinks, and carries on building its future.
For Trump, that means mission accomplished.
Europe, the European Union and the European Council have been removed from the international stage. They have proved utterly unreliable and become irrelevant. Trump can now turn his full attention to reshaping and restoring international relations with economies that actually matter. These are relationships he temporarily sacrificed by feigning support for Europe’s arms race, and by allowing Europe to isolate itself in its fight against an imaginary enemy.
Europe is no longer at the table. It’s on the menu.
