Who Destroyed Europe’s Competitiveness—and Why Is Nobody Accountable?

Not an unforeseeable accident. It was the predictable consequence of policies pursued in isolation from their cumulative economic and strategic effects 

Leon Vermeulen 

 

 

How did we get there?

“Our European way of life was built on the power of our industries. Today this power is wavering.”

The warning from Polish Secretary of State Krzysztof Bolesta could hardly be clearer. Europe’s industrial foundations are weakening. Companies are struggling with high energy costs. Governments are becoming increasingly nervous about competitiveness. And the European Commission is now reportedly considering changes to its Emissions Trading System because existing policies may be placing an unsustainable burden on European industry.

The language used to explain this emerging reversal is revealing.

· “Rising energy prices.”

· “Industrial competitiveness.”

· “Private-sector concerns.”

· The need for “pragmatism.”

But for the dismayed European taxpayer, there is a rather obvious question. How did we get here?

Because Europe’s industrial crisis did not descend from the heavens. Nor did Europe simply wake up one morning to discover that energy had mysteriously become expensive and its industries uncompetitive.

Decisions were made. And decisions have consequences.

For decades, a significant part of Europe’s industrial model rested upon a relatively straightforward economic reality: advanced European manufacturing combined with access to comparatively inexpensive energy and raw materials, including substantial supplies from Russia.

That arrangement was never without political complications or strategic risks. Dependence on any major external supplier creates vulnerabilities. But it was nevertheless part of the economic foundation upon which German and wider European industrial competitiveness was built.

Then Europe began dismantling that model.

Climate policy increased the cost of carbon-intensive production. The energy transition accelerated. Nuclear power was reduced or abandoned in some countries. Relations with Russia deteriorated catastrophically. Russian pipeline gas supplies collapsed amid sanctions, Russian supply reductions and the destruction of the Nord Stream pipelines. Europe rushed to replace lost supplies through alternative sources, including liquefied natural gas imported over much greater distances.

Each of these developments can be debated individually. But that is precisely the problem. European policymaking too often treated them individually.

· Climate policy belonged in one institutional box.

· Energy security belonged in another.

· Industrial competitiveness belonged somewhere else.

· Foreign policy operated in yet another sphere.

· And European security was increasingly delegated to the logic of geopolitical confrontation and military deterrence.

What appears to have been insufficiently examined was the cumulative consequence of pursuing all these policies simultaneously.

· What happens when an industrial continent increases the cost of carbon while losing access to a major source of relatively inexpensive energy?

· What happens when manufacturers must compete with American companies enjoying structural energy advantages and Chinese companies benefiting from enormous industrial scale and state-supported infrastructure?

· What happens when Europe deliberately accepts a profound restructuring of its energy relationships without first ensuring that its industries can remain globally competitive under the replacement system?

We are now discovering the answer.

· European industry struggles.

· Investment moves elsewhere.

· Production becomes more expensive.

· Governments panic.

· And eventually, policies once presented as essential and non-negotiable suddenly become available for “pragmatic revision.”

This should not merely be an argument about the ETS. It should be an argument about European strategic governance.

The Geography Europe Cannot Escape

There is another uncomfortable reality European policymakers rarely seem willing to discuss. Europe cannot legislate away geography.

Western Europe is one of the world’s great industrial regions, but it does not possess unlimited domestic supplies of the energy and mineral resources required to sustain that industrial system.

Russia, whatever one’s political judgment of its government or its actions in Ukraine, remains one of the world’s largest resource powers And it remains geographically part of Europe.

That reality will still exist in ten years. It will exist in fifty years. It will exist long after today’s political leaders have left office.

Yet Europe increasingly appears to be constructing its long-term strategy around the assumption that permanent economic and political separation from Russia is both desirable and sustainable.

Perhaps it is. But where is the serious strategic debate? Where is the assessment of the long-term economic consequences? Where is the discussion about whether Europe can maintain strategic autonomy while replacing neighbouring resources with supplies transported from much greater distances? And where is the debate about the danger of exchanging one form of dependency for another?

Europe was once heavily dependent on Russian energy. Today, parts of Europe increasingly depend upon the United States for security while relying more heavily on global LNG markets and other external suppliers for energy.

Is that strategic autonomy? Or has Europe simply changed the direction from which its dependencies arrive?

These are not arguments for returning to the past. Nor are they arguments for accepting Russian conduct or abandoning Ukraine. They are arguments for strategic realism.

A serious European strategy must recognise that geography, resources, economics and security ultimately belong to the same equation. Europe’s problem is that its institutions have repeatedly treated them as separate equations.

What Happened to European Security Diplomacy?

There is also a question that deserves far more examination. Before the collapse of European-Russian relations, Moscow repeatedly called for discussions about Europe’s security architecture.

Many Russian proposals were unacceptable to European governments. Some were viewed as attempts to divide NATO or establish Russian spheres of influence.

Those concerns were legitimate. But diplomacy is not conducted only with countries whose proposals one already accepts. The purpose of diplomacy is precisely to negotiate where interests conflict.

Europe should therefore ask whether every reasonable diplomatic avenue for constructing a more stable European security framework was genuinely exhausted.

· Could stronger arms-control arrangements have been pursued?

· Could new confidence-building mechanisms have been established?

· Could the deterioration of the European security order have been slowed?

· Could economic interdependence have been preserved while reducing dangerous strategic dependencies?

Perhaps the answer to all these questions is no. But serious societies examine such questions. They do not simply declare history inevitable. Because the consequences of diplomatic failure have been enormous.

Europe now faces war on its continent, dramatically higher defence expenditure, damaged economic relations, disrupted energy systems and growing pressure on its industrial base.

Even if every major geopolitical decision taken since 2022 were considered justified, the cumulative consequences still demand examination. Instead, Europe increasingly seems to regard questioning the strategic pathway itself as politically unacceptable.

That is dangerous.

When governments prohibit themselves from reconsidering assumptions, they do not have a strategy. They have a doctrine.

The Blocked-Option Mindset

This may ultimately be Europe’s deeper problem. The European Union has become remarkably effective at closing policy options. Once a strategic direction has been established, enormous institutional, political and reputational forces develop around maintaining it. Changing course becomes politically difficult because doing so may imply that earlier decisions were mistaken.

So the original policy continues. Then reality intervenes.

· Industries struggle.

· Energy prices rise.

· Competitiveness deteriorates.

· Public support weakens.

And suddenly the supposedly immutable policy quietly becomes flexible.

This appears to be what is now happening with Europe’s industrial and climate policy. The Commission may call it pragmatism. European taxpayers might reasonably call it something else. A predictable failure.

Where Is the Accountability?

This brings us to the question European institutions appear least comfortable answering. Who is accountable?

Ø Who assessed the cumulative economic consequences of Europe’s climate, energy, industrial and geopolitical policies?

Ø Who modelled the possibility that Europe’s industrial base might become structurally uncompetitive?

Ø Who examined the consequences of simultaneously losing Russian energy, increasing carbon costs and competing against lower-cost industrial systems elsewhere?

Ø Who evaluated alternative scenarios?

Ø Who warned political leaders?

Ø Who ignored those warnings?

And if policies now have to be reversed because European industry cannot survive under the conditions policymakers helped create, why are those responsible simply allowed to redesign the policy and continue?

In private business, strategic failure on this scale has consequences.

· Executives lose their positions.

· Boards are replaced.

· Strategies are abandoned.

· Investors demand explanations.

In European governance, failure too often seems to produce another policy review.

· The same institutions diagnose the problem.

· The same institutions propose the solution.

· And the same political class remains responsible for implementing the correction.

Nobody appears accountable for how Europe arrived at the crisis in the first place.

That is not merely an economic problem. It is a democratic one. Because democratic legitimacy depends not only upon elections and institutions. It also depends upon responsibility.

When political leaders can make decisions with enormous long-term consequences, discover years later that those decisions have produced serious damage, and then quietly reverse course without meaningful accountability, public trust inevitably erodes.

Europe’s industrial crisis should therefore trigger something much larger than an adjustment to the Emissions Trading System. It should trigger an examination of how Europe makes strategic decisions.

· Climate policy matters.

· Energy security matters.

· Industrial competitiveness matters.

· European security matters.

· Relations with neighbouring powers matter.

But they cannot be governed as separate worlds. They are parts of the same strategic system.

Europe’s greatest failure may not have been any single policy decision. It may have been the failure to understand how all those decisions would interact. And now, as European industry struggles under the cumulative consequences, policymakers are finally discovering what should have been obvious from the beginning.

Ø You cannot build an industrial strategy without an energy strategy.

Ø You cannot build an energy strategy without understanding geography.

Ø You cannot build a security strategy without diplomacy.

Ø And you cannot maintain democratic legitimacy without accountability.

Europe’s industrial power is wavering. The question is no longer whether something went wrong. The question European taxpayers deserve to have answered is much simpler:

Who will take responsibility for it?