Heatwaves and climate disasters are exposing Europe’s infrastructure crisis, requiring a massive ramp-up in investment. Policymakers are turning to private finance to fill the gap, believing that only small amounts of public resources will be necessary to unleash the capital needed. But this approach entrenches the interests of private capital at the expense of citizens while limiting the influence of the state. Instead, what Europe needs is an evidence-based, state-led infrastructure strategy.

In October 2024, torrential downpours hit Valencia, leading to catastrophic floods with devastating consequences, destroying homes and businesses, wrecking roads and rail lines, and submerging cars. The event was a human tragedy, in which hundreds of people lost their lives, and many others lost their livelihoods. It also revealed a painful truth: Europe’s infrastructure is not fit for the changing climate. The floods caused total direct damages of over 18 billion euros. To put this into context: Spain’s annual infrastructure investment deficit (that is, the difference between current and needed spending) is estimated to be around 19 billion euros per year. This means that a single storm caused damage equivalent to around one year of Spain’s infrastructure investment gap. 

The problem goes beyond climate adaptation. Across Europe, countries are struggling to maintain deteriorating infrastructure and build new projects. Recent high-profile failures, such as the collapse of the Carola Bridge in Dresden in September 2024, should make this crisis impossible to ignore. The bridge collapsed due to corrosion and material fatigue, yet renovations were only scheduled for the following year.  

Governments are also struggling to find money for renovating and building schools, hospitals, and electricity grids.  

Everyone appears to agree on the need for more infrastructure investment, but the prevailing question is: who is going to pay for it? In answering this question, policymakers are falling for the private finance myth: the idea that the market will finance our essential public services. 

This is happening at EU and national levels alike. The Competitiveness Fund proposed by the European Commission as part of the next EU budget, for example, specifically aims to attract private investment, including for infrastructure projects. Similarly, the Germany Fund launched by Berlin in early 2026 aims to mobilise 130 billion euros in private investment for a major expansion of public infrastructure and defence capabilities.  

At first glance, this strategy may sound effective. If the private sector shoulders the bulk of Europe’s infrastructure investment, public resources can be allocated to other essential needs, such as social welfare and education. However, contrary to what policymakers would have us believe, private finance does not come for free. 

Socialising risks, privatising profits 

Private investors expect returns commensurate with the risk they take. When it comes to infrastructure, these returns must come either from the people who use that infrastructure (through energy bills or road tolls, for instance) or from public contracts and subsidies. Whether the upfront investment for the project is financed by the public or private sector, it is always eventually paid for by some combination of billpayers and taxpayers. 

Moreover, many socially beneficial infrastructure projects require huge upfront investment without necessarily delivering high profits. For example, a new metro line requires billions in upfront construction costs, takes decades before it generates any return, and in most European cities never turns a profit at all.  

To get private actors to invest, governments therefore need to provide incentives. This is called derisking. Through deregulation or by providing public funds, for example in the form of a guarantee, public authorities aim to adjust the risk-return profile of investments. The German federal government, for example, is backing the Germany Fund with public funding and guarantees totalling around 30 billion euros. The problem with derisking is that it is often done today without any meaningful conditions in place, as also pointed out by former Italian prime minister Enrico Letta. This leads to socialising the risks while privatising the profits: if an infrastructure project is successful, the private sector collects the profits; if it fails, the public shoulders the costs. 

The Castor underground gas storage plant in Spain is a prime example of derisking gone wrong. The project, built off the Mediterranean coast by the privately owned company Escal UGS, had to be shut down in 2013, before it even entered commercial operations, because it triggered hundreds of earthquakes along the coast of Valencia and in Catalonia’s Ebro Delta. Even though the company was to blame, the Spanish government had to compensate it with a 1.35 billion-euro package. This is because public authorities had derisked the investment, agreeing that the state would compensate shareholders in the event of a shutdown, even if the shutdown was due to negligence or deceit traceable to Escal UGS. The Castor gas project is just one of many in which citizens bear the costs, while private investors are shielded. 

There is no straightforward economic evidence that private finance is better for taxpayers or billpayers. If infrastructure projects can generate revenues for private companies, they can also do so for the public.

Private finance won’t save us  

It is arguably true that some amount of private finance is useful for Europe’s infrastructure investment needs. The problem with the private finance myth is that it claims private finance should be the default option, ignoring its shortcomings and the potential benefits of public or alternative models. 

Our recent research at the New Economics Foundation shows that there is no straightforward economic evidence that private finance is better for taxpayers or billpayers. If infrastructure projects can generate revenues for private companies, they can also do so for the public. Instead of bearing the costs that come with subsidising a privately owned project, by retaining full ownership of the project, the public could ultimately see a long-term fiscal return. The remunicipalisation of Hamburg’s electricity grid is one such example. In 2024, it generated profits of around 109 million euros for the city. 

In terms of cost efficiency, consumer prices, employment conditions, and service delivery, private ownership is often not the better choice. Privatisation has been linked to higher electricity prices, increased job precarity and cuts in the postal industry, and decreased preparedness for the Covid-19 pandemic in hospitals across Europe. While investors profit, workers and citizens bear the costs. 

Private capital, by its very nature, allocates funds to areas where returns are highest, rather than where need is greatest. 

There are at least four structural factors which can explain why the private sector generally charges higher bills, while investing less in job and service provision. 

First, the cost of capital for the private sector is generally much higher. Most EU governments currently borrow at 3.5-5 per cent on a 30-year bond. Private infrastructure funds, by contrast, typically target returns of 12-16 per cent or more. This determines what equity investors demand when committing capital to a project, and what users or taxpayers ultimately have to cover through bills or public subsidies. 

Second, incentive structures differ. Private firms are motivated by profit, whereas public authorities typically pursue broader social objectives, like income redistribution or public health. The Corporate Europe Observatory, for example, found that the privatisation of healthcare across Europe has led private providers to “cherry pick” lower-risk and higher-paying patients over higher-risk and lower-income patients. 

Third, many infrastructure sectors, such as water or electricity grids, are natural monopolies. A natural monopoly exists where a single provider can supply the entire market at a lower cost than any combination of competing firms, typically due to high fixed costs and significant economies of scale. A report by Common Wealth on the UK’s major electricity and gas distribution networks, for example, revealed that, amid the cost-of-living crisis, companies were able to exploit their natural monopolies, paying dividends to shareholders totalling between 2.4 and 3.6 billion pounds from 2017 to 2021. 

Lastly, while effective regulation can mitigate some of the above failings, recent decades have been marked by a lack of regulation. And the trend is moving in the wrong direction as the Commission pursues deregulation across the board, ranging from the energy system to digital technologies and food safety.  

No government policy can fully resolve these structural issues. Private capital, by its very nature, allocates funds to areas where returns are highest, rather than where need is greatest. Societally vital and environmentally necessary investments that do not meet return thresholds are simply not considered. An overreliance on private finance thus does not just risk delivering worse outcomes; it also entrenches a logic in which the boundaries of what is possible are drawn by investors, not citizens. This makes it essential for society to take conscious decisions about where and how private finance should play a role, rather than delegating broad swathes of infrastructure finance and delivery to the private sector by default.  

Evidence-based approach 

Rather than sticking to a misplaced loyalty to private finance, policymakers should apply a systematic approach to determining whether and when public or private delivery better serves societal interests.  

Instead of focusing solely on immediate public spending, policymakers need to consider the full bandwidth of financial considerations: project delivery costs, revenue streams, and financing costs. Additionally, wider economic effects, known as “multiplier effects”, need to be incorporated, as infrastructure projects can raise economic activity and tax revenues in the surrounding area.  

Importantly, non-financial considerations also need to be included. Factors like environmental consequences, the local benefits of community ownership, and strategic motivations, for example public ownership of the energy grid to ensure energy security, must be part of an informed decision. Otherwise, governments will continue to hand over critical infrastructure to private actors, with detrimental long-term effects on society and the environment. 

This requires broader changes to macroeconomic policy to address the underlying causes of underinvestment. Decades of austerity and stringent fiscal rules have created a self-perpetuating cycle. As governments cut public investment and outsource to the private sector, they lose the institutional capacity, expertise, and leverage to deliver infrastructure themselves, becoming increasingly dependent on private actors and less able to dictate their terms. 

The fact that austerity impedes rather than spurs economic prosperity has also been highlighted in a recent publication by the International Monetary Fund. They show that, on average, austerity policies aimed at reducing public deficits can increase debt-to-GDP ratios due to the negative impacts on tax receipts and economic activity. To break this cycle, governments must rethink their approach and design fiscal policy to accommodate public infrastructure investment, where it is deemed in society’s best interest.  

A threat to democracy  

Infrastructure is not just a financial asset – it is foundational to a functioning society. It determines how we move, how we learn, and how we are cared for. These decisions should not be made by the market, but through democratic deliberation.  

As governments cut public investment and outsource to the private sector, they lose the institutional capacity, expertise, and leverage to deliver infrastructure themselves, becoming increasingly dependent on private actors and less able to dictate their terms. 

The state not being able to provide the infrastructure its citizens need is a threat to democracy. This has also been pointed out by the German conservative minister of transport, Patrick Schnieder, in connection with the dire state of the country’s railway network. We also see this unravelling in Valencia, where the far-right party Vox used the floods as a springboard for both anti-government and anti-climate rhetoric.  

Valencians will be heading to the polls next year. Recent projections place Vox in the lead with 24.4 per cent – a doubling of what they currently have. At the same time, experts warn that infrastructure improvements following the floods have been lagging behind, meaning that there is no guarantee that the same could not happen again. Rather than outsourcing our collective future to actors with no democratic mandate to shape it, the public must be given back control. 

Europe’s fiscal debate remains fixated on debt and deficits. Yet climate change represents a growing and still largely unpriced threat to public finances. Without early investment in mitigation and adaptation, families and businesses will face repeated shocks, higher prices, a weaker economy and a state forced into consistent emergency spending.

In late January, torrential rainfall triggered a massive landslide near Niscemi, Sicily, opening a 4-kilometre chasm beneath homes and forcing entire neighbourhoods to evacuate. Weeks later, storms swept across Spain and Portugal, forcing thousands to be driven from their homes and causing millions of euros of damage to crops. These are not isolated incidents. The 2021 floods in Germany and Belgium killed nearly 200 people and caused an estimated 46 billion euros in damage. Wildfires have repeatedly torn through Greece, Italy, France, and Spain, destroying homes and livelihoods. Indeed, NASA’s satellites recorded extreme weather events last year at twice the intensity of the 2003–2020 average. Climate impacts are increasingly shaping our lives and economies.

Yet the direction of European economic policy is running directly against this reality. Since 2024, the EU’s new fiscal rules have significantly constrained public investment capacity across member states, including for climate-related spending. At the same time, the Commission has moved to roll back core elements of the European Green Deal, weakening corporate sustainability reporting requirements, removing climate transition plan obligations for most companies, and diluting the 2035 internal combustion engine phase-out date, under the banner of competitiveness and simplification.

What is being set aside in economic policy making, in the rush to appear business-friendly, is any serious accounting of what climate inaction will actually cost. New modelling by the New Economics Foundation (NEF) incorporates physical climate damages, mitigation and adaptation costs, and the effect of climate risk on sovereign borrowing costs. It finds that average EU public debt could be around 58 percentage points of GDP higher than official climate agnostic projections by 2050, and around 197 percentage points higher by 2070, under a business-as-usual scenario in which global warming reaches approximately 2.5°C.

Climate change alters debt dynamics through at least three channels. First, it reduces potential economic output. Climate change lowers labour productivity, damages infrastructure and disrupts energy production, agriculture and tourism. These are not one-off shocks but cumulative drags on growth. In 2024 alone, heat exposure across the EU resulted in the loss of 90 million potential working hours, which amounts to 111 per cent more than the 1990–1999 average. Under current policies, OECD projections suggest GDP losses of around 12 per cent across the Mediterranean region by 2070, with Continental and Atlantic Europe close behind at around 10 per cent, and Nordic-Baltic countries seeing losses of just below 9 per cent.

Second, it increases public spending. Governments finance emergency relief, rebuild infrastructure, and support households and firms after disasters. As insurance gaps widen, with less than 20 per cent of climate-related losses in Europe privately insured between 1980 and 2024, the state increasingly becomes the payer of last resort. After the 2021 flood disaster, the German government established a 30-billion-euro reconstruction fund to cover what was not insured and to support local councils and infrastructure reconstruction.

Third, climate exposure and weak transition policies raise sovereign risk premiums, increasing borrowing costs themselves. Research by the ECB finds that climate risks are already being priced into sovereign bond markets. Countries with high carbon emissions face higher borrowing costs, and when extreme weather strikes, highly indebted governments see their yields rise. The implication is clear, as climate risks intensify, states that have not credibly mitigated and adapted to climate change will find it progressively more expensive to borrow.

The climate risk estimates may in fact be conservative. Most climate risk projections assume that climate damages rise gradually as temperatures increase and rely on historical data. But climate systems are not linear. Crossing tipping points, such as large-scale ice-sheet destabilisation or disruption of the Atlantic Meridional Overturning Circulation (AMOC), could trigger abrupt and potentially irreversible shifts. From an economic perspective, that means damages would not simply accumulate, they could accelerate, compound, and cascade across sectors and regions.

In contrast, scenarios in which governments frontload investment in clean energy, resilient infrastructure, and adaptation show substantially better long-run debt outcomes. The same NEF analysis finds that increased climate action today produces debt trajectories roughly 20 percentage points more favourable than business-as-usual by 2050, and 58 percentage points more favourable by 2070. If greater globally coordinated climate action were achieved, average EU debt falls below current official baseline projections by 2070. In effect, early public investment strengthens fiscal sustainability.

This is because early investment improves debt outcomes through three reinforcing mechanisms. First, it reduces emissions.  Less warming means less damage, and less damage means lower debt. Second, climate investment generates economic activity well above its cost. Research by the IMF finds that each euro of green public spending produces between 1.10 and 1.50 euros of output, as jobs are created, innovation accelerates, and productivity improves. Third, investment in adaptation to climate change reduces the fiscal cost of future climate shocks, so that when extreme weather strikes, the damage is contained. A framework that undervalues these dynamics is not prudent but instead is structurally biased against the investments most likely to improve economic outcomes. It is fiscally irresponsible.

Overcoming this requires a decisive expansion of public investment in clean energy, resilient infrastructure, and adaptation, financed through more progressive taxation, excluding green investment from fiscal rules and through common European borrowing that enables all member states to invest at scale. The case for doing so extends beyond climate risk alone. The conflict in Iran and the resulting energy price spike, Europe’s second major fossil fuel shock in less than five years, is a reminder that dependence on fossil fuels carries its own severe economic and fiscal costs. Investment in clean energy and efficiency is therefore also an investment in strategic resilience. Europe has already shown in the field of defence that it can both mobilise joint borrowing and create fiscal space by exempting strategic expenditure from fiscal constraints.

The choice, ultimately, is not between spending and saving. It is between investing now in resilience and transition, or spending far more later on lost economic potential, damage, recovery, and debt service. Every year of delay narrows the options and raises the bill.

A German version of this article was published in Surplus – Das Wirtschaftsmagazin on 2 April 2026.

The industrial debate in Europe today revolves almost entirely around the notion of competitiveness. It is often argued that, in order to keep our industries alive, we must scale back our social and environmental standards. But is that really the only choice Europe has? An interview with Dutch economist Paul Schenderling by Elze Vermaas.

Elze Vermaas: Your previous book, Er is leven na de groei (“There Is Life After Growth”), imagined how the Netherlands can shape a post-growth transition at the national level. What motivated you to turn your attention to Europe in your new work, Continent van de kwaliteit (“A Continent of Quality”)?

Paul Schenderling: I really wrote this book out of emotion, because since last year a new narrative has begun to dominate. This narrative suggests that Europe is no longer competitive, and that in order to become competitive again, we should lower all the democratic standards we set for the economy. I truly believe this is not the path we should choose and that there is an alternative course with much more positive outcomes for people, the planet, and the economy. Europe is now facing that choice.

In your book, you argue that lowering democratic standards is linked to what you call the “painful divorce between democracy and capitalism”, and that our democratic options are limited by a “golden straitjacket”. Can you explain what you mean by that?

It was always very naïve to believe that democracy and capitalism would go hand in hand. What usually happens is that economic liberalism erodes people’s certainties, and companies ultimately gain so much influence over the democratic process that democracy is severely undermined.

We see this in many different ways today, but let me highlight the two most important ones. The first is that the professional pride of many practically trained people has been completely eroded due to intense global competition among them. This leads to an overwhelming feeling of underappreciation, which manifests in a loss of confidence in democracy.

Second, companies can simply move their capital around the world. This has made democratically elected politicians vulnerable to blackmail: when they make a democratic proposal, companies can always say, “If you go ahead with that proposal, we will move our business abroad.” This also leads to democratic choices being limited to a very narrow set of options that prioritise the business climate – a situation also referred to as a golden straitjacket.

These two trends are driving democracy and capitalism apart and ultimately ensure that those with economic power also gain the most political power.

 In Belgium, too, we see a strong focus on the business climate, which means that policy ideas that take a different perspective are quickly dismissed as unrealistic. You use the concept of “trilemma” to describe this dynamic. Can you explain how that trilemma works?

I borrowed the trilemma from the work of Harvard economist Dani Rodrik, who developed it in 2011 in his book The Globalisation Paradox. I created a variant of it for Europe in 2025, which consists of three pieces: Hyperglobalisation, the protection of European industry, and the preservation of European social and environmental legislation. According to the trilemma principle, we can only choose two of these at a time. In other words, there are three possible combinations, and Europe is currently at a crossroads.

The first option is that we maintain hyperglobalisation and our social and environmental legislation, but then global competition will destroy our industry – a process that has actually already begun. The second combination we can go for is maintaining hyperglobalisation and protecting our industry. But in this case, we will have to drastically weaken our social and environmental legislation. These two options are currently the main ones in the political debate. You could even say that this is the centre-left and centre-right narrative in Europe at the moment.

Fortunately, however, a trilemma has three possible directions. The third possibility is that we retain our social and environmental legislation and our industry. In this case, we will have to radically abandon hyperglobalisation, which requires pursuing a fundamentally different trade policy.

One of my main motivations for writing this book is to show that, by acknowledging the trilemma, we can start to politicise European trade policy again. Too often, in political debates and election manifestos, trade policy is treated as a kind of law of nature, something that cannot be changed. But it can, and I want to add that third option to the political debate.

How can we best structure our trade policy to avoid both excessive globalisation and excessive protectionism? After all, we also rely on raw materials that come from outside Europe.

If European politicians continue on their current course, there is a good chance that we will swing from one extreme to the other, just like the US has. The enormous discontent that hyper-globalisation creates – for example among the working class – will simply keep building.

If European politicians continue on their current course, there is a good chance that we will swing from one extreme to the other, just like the US has.

Fortunately, there is a reasonable middle ground. Dani Rodrik calls this “globalisation with common sense”. It means saying yes to international trade and no to trade that does not take place under democratic standards.

In my book, I have developed concrete proposals for implementing this approach today. My first proposal is to charge all the costs that companies currently try to avoid outside Europe – for example, the costs of taking good care of employees and the environment – at the European border. Of course, this would not be needed if a company could demonstrate through independent certification that it bears those expenses for its employees and the planet. Such a measure would create a level playing field for international trade again.

My second proposal is to enforce much stricter physical product requirements at the border. This could include, among other things, our warranty legislation, but also product safety requirements. At present, the random checks carried out by customs authorities on the enormous quantity of imported products are far too few to guarantee adequate enforcement. In addition, some of the parcels that we order directly from web shops outside the EU are not checked at the border. Research shows that a large proportion of these products do not even meet basic safety requirements, let alone comply with the European Union’s minimum two-year warranty period. These seas of low-quality products naturally have a huge environmental impact and create unfair competition.

Could you also elaborate on the two other proposals you put forward in your book?

Another way to pursue globalisation with common sense is to bind all causes of exceeding the Earth’s carrying capacity – namely, greenhouse gases, toxic substances, and land, water, and material use – to a hard maximum in the form of a quota. Such caps already exist for CFCs and some greenhouse gases, and both have proven to be extremely effective. I believe this mechanism is ideally suited to setting a very clear democratic standard for the ecological impact of the economy, as well as offering plenty of scope for entrepreneurs’ creativity and innovation in finding ways to stay within quota and function within democratic standards.

There is also a second proposal that I would like to highlight. I expect that for 70 per cent of people, buying higher-quality goods with a longer lifespan is affordable, but this may not be feasible for the lowest 30 per cent of income earners. I think the proceeds from border levies should be used to finance a quality dividend for the latter group, so that they too can afford better, longer-lasting goods. Such a measure pays for itself: sustainable products are often cheaper over their entire lifespan. This is extremely important for making the green transition a social one as well, and it would be a win-win for both people and the planet.

You argue that our current interpretation of freedom, understood as the ability to consume without limits, is too superficial and that we should strive for a more meaningful form of freedom. Why is that?

I think that growth addiction is the perfect example of this erosion of freedom. We are being enslaved by the economy because we are being manipulated in the most subtle way – namely, through neuromarketing. In my book, I give the example of people literally being put in brain scanners to measure which biscuit contains the optimal ratio of sugar and fat that is truly addictive. And that biscuit then ends up in the shops. In the same way, advertisements are shown to people in MRI scanners to see which ones people click on most compulsively.

While serving human well-being should be our ultimate goal, we have become a means to serve the economy. This reversal has been a historical mistake, comparable to the militarism of the 1930s. Back then, too, people became cogs in a completely out-of-control arms race between European nations, where ultimately no one could see the point anymore. We risk doing that again – not with militarism, but with economism.

While serving human well-being should be our ultimate goal, we have become a means to serve the economy. This reversal has been a historical mistake.

Economists speak of people’s “freedom” to buy what they want, when in fact this is ultimately a fake form of freedom. Firstly, because we are heavily manipulated into choosing what we choose – how free are we really to choose that flavour of biscuit? And secondly, because the freedom to consume what you want is a very superficial form of freedom that does not bring deep and lasting happiness. Real fulfilment comes from long-term relationships and contributing to a greater whole by doing meaningful work.

The more advanced manipulation techniques get, the more difficult it becomes to overcome the growth addiction. And then you might end up in a dystopian situation where politicians will ultimately also use AI and advanced marketing methods to manipulate our political preferences. At this point, even democratic freedom will be at risk.

You yourself are a Christian Democrat. How do you see this philosophy fitting in with Christian Democratic thinking? And how would you convince a liberal of these ideas?

I think it is important for Christian Democrats that the economy not be seen as an end in itself, but that it should truly serve the good life. I share that fundamental conviction, but I believe that many Christian Democrats do not take its radical consequences seriously enough.

As for liberals: the liberal Aldous Huxley [author of the book Brave New World], who was wholeheartedly committed to freedom, was extremely wary of growth addiction. That is something he did not express in those terms at the time, but he was very wary of what in his terms and in his time was called propaganda, as well as the highly sophisticated manipulation techniques with which our freedom is ultimately taken away. Huxley spoke of people who ultimately become dodos – birds that have forgotten how to fly. And I think that consumerist society, in which people are thoroughly manipulated into choosing only pleasure and comfort, subordinates true freedom – namely, the ability to develop fully and make choices such as what you want to contribute to the greater whole – to the freedom to consume whatever you want, whenever you want. And so, I also believe that a true classical liberal who strives for that real freedom must set very clear restrictions on how the economy manipulates people to take away our real freedom. That is why a political liberal imposes limits on economic liberalism: because there is enormous tension between political liberalism and economic liberalism.

From the US to Turkey and the EU, the populist right has sought to capture central banks for partisan ends. While defending the independence of central banks from this attack is essential for economic stability and the rule of law, it must not mean endorsing their failures. Stronger accountability and clearer coordination between monetary and fiscal policy are key to reconciling central bank independence with democratic goals such as climate resilience and economic justice.  

Trump’s failed attempt to remove Lisa Cook, the first Black woman ever appointed to the Board of Governors of the Federal Reserve (Fed), is part of a broader plan to bring the US’s central bank to heel and dismantle the rule of law. By stacking the board with loyalists, Trump aims to bend monetary policy to his will, cutting rates to finance tax breaks for the wealthy and to try and manufacture short-term growth, rather than safeguarding long-term economic stability. This is not about better economic management, but about weaponising the central banks to serve partisan ends while sidelining society’s real challenges: inequality, inflation, instability, and the climate crisis. 

The reality is that Trump’s agenda would weaken, not strengthen, the US economy. A politicised Fed is likely to dismiss the real causes of price instability, and instead become a source of instability itself. Since the dollar underpins global finance, a loss of confidence in the Fed could destabilise US Treasuries and spike global borrowing costs at a time when predictable financing is critical for competitiveness and the green transition. 

Trump’s attempt to subordinate the Fed is part of a global trend. Turkey’s Erdoğan has repeatedly fired central bank governors who hiked interest rates; Modi has overridden decisions by the Central Bank of India in an effort to bring it under tighter government control; Nigel Farage’s Reform UK has railed against central banks buying bonds (a practice known as quantitative easing), as has Germany’s AfD, accusing the European Central Bank of stoking inflation. Ironically, French National Rally’s Jordan Bardella wants the ECB to do exactly the opposite: buy bonds to relieve France’s public debt situation. Their goal is not only to weaken technocratic authority but to capture monetary power as a political tool.  

Defending central bank independence against capture by the populist right is essential to upholding the rule of law and separation of powers, as well as keeping inflation in check. But protecting independence cannot mean defending the current technocratic orthodoxy that has too often failed society.  

Price stability at what cost? 

For decades, central bank independence has been sold as a guarantee of stability. But while the ECB has recently declared victory over inflation, the reality is far less flattering.  

A recent paper by the International Monetary Fund (IMF) shows that, in 2022-2023, inflation-targeting central banks (those that, like the ECB, focus on keeping prices within a narrow range) performed no better in curbing inflation than central banks guided by broader mandates that also consider growth, employment, and financial stability. Other studies show that central banks in general tend to overstate the efficacy of monetary policy in controlling inflation.  

The biggest reason for such failure is likely that the central banking orthodoxy misunderstood the source of inflation and applied the wrong cure. Central banks acted as if inflation was driven by demand-led pressure, when it was in fact predominantly caused by a “cost-push” – namely, skyrocketing global fossil fuel energy prices. 

Moreover, as Isabella Weber and other economists have argued, the price surge of 2022-2023 was made worse by “greedflation”, where dominant firms raised prices to protect or expand their profit margins. Meanwhile, empirical research found that, in the US, roughly half of the excess fossil-fuel profits went to the wealthiest 1 per cent of households, while the bottom half received less than 1 per cent. Other research by Weber and colleagues empirically demonstrated that rate hikes (the recipe central banks typically use to curb inflation) cannot break greedflation, because firms simply pass higher financing costs on to consumers.  

Worse still, the ECB’s policies have not only been ineffective against inflation – they’ve been counterproductive for the green transition. New empirical evidence suggests that every time the ECB raises rates by 0.25 per cent, it reduces new offshore wind installations by 8 per cent and solar photovoltaic installations by 26.5 per cent, due to higher capital cost for these investments.  

The ECB’s policies have not only been ineffective against inflation – they’ve been counterproductive for the green transition.

And as economists Luca Fornaro, Lucrezia Reichlin and Veronica Guerrieri warn, the ECB’s short-term focus on price stability could undermine its own long-term goals of price stability. Even if inflation is stable for now, climate disruption will make supply shocks more frequent. ECB researchers estimate that by 2035, depending on the level of global warming, headline inflation could increase by 0.3-1.2 per cent a year on average, while food prices could rise by 0.9-3.2 per cent a year. As climate damages intensify, dealing with supply shocks will only grow more complex.  

Add it all together, and it’s clear that the current monetary policy framework has not only failed to keep inflation in check but is increasingly ill-equipped for the world we inhabit.  

More coordination, not less independence 

The challenge is to preserve the ECB’s credibility and autonomy while aligning monetary policy with long-term goals like competitiveness, affordability, and climate resilience. 

Such a strategy should start by recognising that, contrary to central banking textbooks, inflation is not always a monetary problem. It can stem from multifaceted phenomena such as geopolitical shocks, supply bottlenecks, climate events, or corporate profiteering. In such a complex and uncertain world, one single instrument – interest rate – cannot solve it all. By contrast, a combination of instruments deployed by both central banks and governments could be more effective in achieving price stability.  

Inflation is not always a monetary problem. It can stem from multifaceted phenomena such as geopolitical shocks, supply bottlenecks, climate events, or corporate profiteering.

Such coordination could be implemented within the existing legal framework. The ECB’s legal mandate already allows it to support EU economic policies as long as they do not prejudice price stability. However, this secondary mandate is poorly defined and therefore often neglected. For example, should the ECB provide lower interest rates or more lenient collateral rules for renewable energy businesses and affordable social housing? Or should it instead support labour-intensive manufacturing industries? These are deeply political questions that unelected central bankers lack the democratic legitimacy to decide on. 

As multiple academics and policymakers have argued in recent years, central bankers shouldn’t have to make such consequential choices alone. In line with the Maastricht Treaty’s concept of the “broad guidelines” on economic policies, EU member states, together with the European Commission and the Parliament, should jointly define a small number of time-bound secondary objectives that reinforce price stability, such as cutting reliance on imported fossil fuels or boosting investments in affordable housing. 

Accountability mechanisms should be reinforced, so the ECB can justify its decisions in a transparent way, including when it declines to pursue certain secondary objectives. To that end, Professor Eric Monnet and the New Economics Foundation proposed the creation of a coordination council at the EU level. Bringing together finance ministries, the ECB, EU institutions, and competition authorities, such a council would offer a permanent forum to agree on shared objectives and keep potential misalignments in check. 

This approach strengthens the coordination between fiscal policy (primarily a responsibility of EU member states) and monetary policy (part of the ECB’s mandate). Crucially, a whole-of-government approach to macroeconomics enables to focus on tackling the actual origins of the inflationary pressure by encouraging policymakers to deploy the optimal combination of policy instruments.  

During supply-driven inflation, governments should invest to ease real shortages or implement price caps on basic goods, including to limit the spread of inflation to other sectors. In the presence of greedflation, solutions like rent controls, price caps, windfall taxes, and anti-monopoly action could be appropriate. Greater coordination would give governments stronger incentives to implement these inflation-repressing policies because these measures, if successful, would reduce the need for interest rate hikes, shielding governments from higher debt costs.  

Coordination would also allow policymakers to better prepare for and mitigate future price instability risks. For example, an obvious strategy to pre-empt future energy price shocks is to increase investments in renewable energy generation, storage, and grid interconnections, as well as in energy efficiency, given the disinflationary impact of these investments. Accompanying this strategy with the implementation of a “green interest rate” policy by the ECB would help ensure low and stable financing costs for these investments. 

Serving the people 

The populist right’s path of chaos and capture offers a false solution to a very real problem: a status quo of increasingly impotent central banks in the face of ever more complex challenges. However, there is a different course we could chart for central banking: one that protects their credibility and autonomy while aligning monetary policy more closely with democratically defined goals. 

For the EU, this shift doesn’t require treaty changes, but a new mindset. The ECB has adapted before: Mario Draghi’s “whatever it takes” saved the euro during the European sovereign debt crisis, and his successor, the current ECB President Christine Lagarde, has courageously brought climate change into central bankers’ minds. The question now is whether politicians in Brussels and Frankfurt can rise to the new challenge. If not, they risk reinforcing the feeling that central banks serve elites, not the people. 

As a new coalition takes the reins of Europe’s biggest economy, the question of government intervention in markets remains as potent as ever. With most Germans supporting a mix of strong state action and an innovative private sector, the incoming government has an opportunity – and a responsibility – to direct its investments towards increasing citizens’ disposable income as well as creating greener, more inclusive communities that give people a sense of ownership and confidence in the climate transition.

Following the German parliamentary elections in February 2025, onlookers may have observed a strange dualism in the statements made by the leaders of the new incoming coalition government, made up of the centre-right Christian Democrats (CDU) and the centre-left Social Democrats (SPD).

On the one hand, they agreed to soften Germany’s restrictive public debt rules to allow for bigger investments in defence and infrastructure – something the new chancellor, Friedrich Merz, of the Christian Democrats, objected to during the election campaign. On the other hand, both Merz and leaders of the Social Democrats have been repeating narratives about savings, a leaner state, and the need for careful fiscal responsibility in spending decisions. The coalition treaty is full of phrases suggesting that plans will require close financial examination and that the parties want to undertake those actions rather than will undertake them.

The duality between large funding increases and language emphasising prudence in state finance was particularly noticeable in the initial lack of emphasis on climate crisis measures. Before the intervention of the Green Party, whose votes were needed to pass the constitutional amendment easing the “debt brake” in March, there were no fixed commitments to spending on a key policy issue: supporting German industry while advancing the renewable energy transformation at pace. Eventually, 100 billion euros were earmarked for climate protection and green restructuring of the economy. This, however, was stretched over 12 years.

More or less state?

At first sight, none of this may appear surprising. Merz had been emphasising a market-led approach to tackling the climate crisis with a focus on the innovative capacity of businesses. It matched his longstanding broader account of how the economy should be run, with the state taking a big step back and allowing space for the free market to drive technological change. Merz suggested that people wanted “less” of the state, to be freed of the restrictions it imposed, and in particular, to reduce the amount of debt it accumulated.

While this explains the continued prudent language about state spending, how can we square the circle to also account for the massive increase in debt-financed spending that goes beyond defence activities? While some of the calls to reduce state bureaucracy and increase opportunities for private investments are founded in genuine concerns about restrictions on economic competitiveness (including for private renewable energy investments), the apparent dialectic is in line with decades of mainstream economic policymaking. While the neoliberal organisation of the economy involved approaches such as privatisation and welfare state reductions at great scale, at no point was it about a weakening of the state. To the contrary, neoliberalism has always focused on the use of strong states to reshape the delivery of state functions, economic activity and social life according to market principles. It does not assume that market order maintains itself; instead, it requires a strong state to support it. This approach is longstanding practice in Germany with its ordoliberal tradition, in which state action has been used extensively by CDU- and SPD-led governments to steer market processes to achieve particular outcomes of private sector activity. 

Indeed, the coalition treaty of the new German government includes many policy choices aimed at supporting particular markets through strong state action, for example by reducing VAT for food and drinks in hospitality businesses. This is not a new approach. Even during periods of apparent fiscal prudence and strict state debt rules, the German state provided huge sums to subsidise activities supporting the car industry indirectly, for example through subsidies for business vehicles and for commuters. The new government continues on this path by increasing the subsidy for commuters (mostly benefiting those driving to work). 

Therefore, the duality in the approach taken by the new government is not as idiosyncratic as it may initially appear. Economic policymaking in Germany over recent decades has not been about a weakening of the state but rather the types of strong state action that are able to support particular areas of market activity. While the assumption of greater amounts of new state debt is important, the biggest change is the greater emphasis now placed on state-supported investment – in addition to many of the existing subsidy schemes.

Directing the climate transition

Focusing on the necessary transition to a carbon-neutral economy, the new government’s approach is therefore a mixed bag. While additional investment for the transition (albeit limited in scale over a 12-year horizon) is welcome, many of the strong interventions in markets (such as increased subsidies for car-based work travel) are examples of costly policies that are directly counteracting carbon reduction goals. The scale of funding (“more” or “less” state) is an elementary question; equally important is how the state directs its involvement in the economy. The German government has been shaping the economy continuously. The key question is where it places the emphasis of its strong actions in relation to the transition away from fossil fuels.

For a successful transition towards renewable energy generation and use, collaboration between the state and the private sector is required. Instead of asking whether one should take the lead over the other, the question of how this is done should centre on what the interplay between state and firms should look like. Although the German energy market has attracted more players in recent times, energy generation still dominated by a few major firms. Efforts by smaller municipalities, groups of households, or even individual households to organise their own energy generation using renewable energy sources have traditionally been very difficult. While the previous government, and especially the business and climate ministry under Robert Habeck (Greens), reduced the burden for such efforts and enhanced the ability of communities to benefit from local energy production, many barriers remain. This is important because many people in Germany feel that the climate transition is happening in a way that does not take their lives into account. That lack of perceived efficacy has been harnessed by the far-right Alternative für Deutschland (AfD) to mobilise against transformative efforts in a worrying way.

For a successful transition towards renewable energy generation and use, collaboration between the state and the private sector is required.

If German politicians engaged more with public perceptions of how the economy works, their climate transition efforts could be much bolder. Politicians often assume publics to be focused on singular preferences, like state debt reduction, but people’s economic views are actually more complex and indeed align with discussions about how the state and private sector should interact.

d|part, a think tank for political participation I co-funded, conducted 16 focus groups in Bochum and Leipzig in 2023 and 2024, exploring how Germans of all backgrounds really discuss economic issues. This helped reveal how politicians can confidently engage in strong action rather than constantly downplaying the existing and changing involvement of the state in the economy and climate transition. 

The view from the ground

During our research, most people expressed some views reflecting orthodox market-based principles. Neoliberal framings were particularly present when participants talked about the welfare state. While some saw the social safety net as one of the key strengths of the German state, many emphasised the need for everyone to make a substantial contribution through work (“Leistungsprinzip”). Those in lower-paid jobs especially often talked negatively about recipients of benefits, because they did not see them as “pulling their weight”. Common tropes grounded in factual errors (for example, that welfare recipients got more money than minimum income workers), were repeated several times:

“One should at least earn more than what you get as ‘Bürgergeld’ [minimum income support]. There’s a whole series of people that say, if I get that and that much ‘Bürgergeld’ why should I go work for the same amount of money?”

Nils,¹ 26 (Bochum)

Apart from views about welfare, many participants also saw the private sector as solely responsible for innovation. The idea that most innovation emerges from interconnected state and private sector networks – what Marianna Mazzucato described as an “entrepreneurial state” – was not common knowledge. Many described the role of the state in this regard as one of providing foundations, such as education, but assumed that new developments were attributable to the private sector only:

“When it comes to the economy, German medium-sized businesses [‘Mittelstand’] are the innovation engine. Germany’s biggest capital has always been and will be education…. And we go towards those medium-sized businesses because it is them who take the greatest responsibility for society.”

Sascha, 31 (Leipzig)

At the same time, however, most people did not just want the state to be a passive bystander. While welfare transfers were discussed contentiously and the state’s role in supporting technological innovation was underestimated, hardly any participant wanted to leave things to the market. Many wanted policies to be directed to support German industry, but they did not believe that economic growth per se would benefit everyone:

“We all see how it works, we don’t always need to have growth, because growth always comes at the expense of someone else.”

Julian, 43 (Bochum)

There was little belief in the idea of trickle-down economics. For most, it was clear that big societal challenges require coordination and joint efforts. Relying on the individual motivations of companies was not enough for most, as they were often described as “stand[ing] in competitive struggle with each other. They look at profit and sometimes are very short-term focused” (Melanie, 64, Leipzig).

This was particularly apparent in discussions about the challenges posed by the climate crisis. Most agreed that it was a serious issue that required engagement with. They wanted the government to act in a way that takes into account the impact on businesses and households, but which ensures that the transition is achieved. For most, the problem was not a rejection of strong climate action, but a lack of confidence that the state is capable of assuming its leadership role:

“… We’re so far behind, also with the dependence on resources like oil, gas, etc. We should have done so much already with wind and had the opportunity to do construction with solar. And the government of the CDU together with the SPD simply messed that up, they rather relied on cheap Russian gas…All of these are things we missed out on. We would be in so much better a position if our politics over the past 20 to 30 years had been conducted in a forward-thinking way.”

Peter, 58 (Leipzig)

People’s views about the economy and the state’s role in it were not as unidimensional as many politicians might have assumed. Most respondents wanted policies that allow space for private firms to operate freely and also wanted the state to provide direction and longer-term orientation. This was equally apparent in discussions about state finance. Most liked the idea of reducing state debt in general, but were simultaneously very open to new borrowing if used for future-oriented investments. Survey evidence supports this finding: two-thirds of Germans would opt for the state to stop taking on new debt in principle, but two-thirds also agree that new debt is acceptable if it is used for investments.

Besides avoiding a binary “more or less state” mindset, there is another important difference between how people are often portrayed regarding their economic views, and their actual attitudes. Contrary to the individualising tendencies of neoliberalism, most participants indicated that their material wellbeing was a reflection not only of the “money in their own pocket” but also their immediate lived environment.

Most political action in Germany aimed at improving people’s living standards is discussed in terms of its implications for household income. Even in terms of energy transitions, compensation mechanisms tend to centre on cash transfers to compensate for carbon price increases. Such considerations are very important. Many research participants were indeed concerned about the impact of climate transition measures on their personal finances, in particular in the aftermath of a cost-of-living crisis. But political measures only directed at individuals and households underestimate the extent to which people think about material wellbeing and the economy collectively within the communities in which they live. Importantly, when prompted to think about material wellbeing and the economy, people fused considerations of issues like the availability of jobs in their region with community attributes determined by state service provisions:

“Why can’t our school students use public transport for free if they show their student ID? Why doesn’t the state, for example, organise sports initiatives and clubs? That could be music, could be maths. Some students, they come home after school and have no hobbies. They sit at home on their phones because the parents work. The parents have no money to pay for this and that, to send their child [to such activities].”

Valentyna, 54 (Leipzig)

In other words, people evaluate the functioning of the economy and their material wellbeing both through their personal finances and the conditions in their community. As this involves public services as well as private sector offers, there is an opportunity to improve people’s material wellbeing not only through personal account transfers, but also via collective provisions – which can be more cost-effective for certain services due to pooling effects.

This has an important secondary benefit: it can help overcome disaffection with the state’s capacity to manage big transformations, thus reducing the scope for populists to harness discontent. Germans’ perceptions of changes in their immediate environment have largely been negative, matching an overall sense of pessimism regarding the development of the country’s economy.

Political measures only directed at individuals and households underestimate the extent to which people think about material wellbeing and the economy collectively.

Synergy in economic and climate policy

People need to see that state action on the economy and climate transition can result in changes that positively affect their lives. In addition to increasing households’ disposable income, improving offers in the community is the best way to create direct visibility for such efforts.

Whatever action is taken by politicians must be shown to have an impact on people’s lived realities. At the moment, many in Germany perceive the climate transition as something that is done to them rather than something they are a part of. As it progresses, people must feel they have a strong sense of ownership and agency. Questions must be asked around how, for instance, communities can actively share in the generation of renewable energies. Rather than only benefiting indirectly through secondary compensation mechanisms, enhancing communal ownership of related infrastructure and creating models for the direct sharing of profits is likely a key way to involve people.

This is not just an idea propagated by several advocacy organisations championing democratic innovations. In a recent interview with DER SPIEGEL, Sachsen’s Christian Democrat head of government, Michael Kretschmer, also promoted such efforts. Discussing people’s engagement with wind energy generation, he said:

“They have no emotional connection to a wind turbine, unlike with a mine or a coal-fired power plant, which also offer them a job. However, if they have a financial stake in a wind farm via a cooperative and are allowed to have a say, things look very different.”

This insight should be taken to heart by the new federal government. People’s view of the economy and climate transition is more complex than often suggested. While most have internalised some elements of neoliberal orthodoxy, they do not want the state to retreat to some abstract notion of freedom.

Instead, most wish for a proactive state that competently supports businesses and people in the longer-term transitions for which politicians must take responsibility and provide leadership. Engaging with people’s concerns does not simply mean changing how much money is in their pocket (although disposable income is one important dimension). Material wellbeing is also determined by people’s perception of their community, involving both private sector and state offers. Enabling more opportunities for people to directly share in, and see the results of, the transformation at a local level is not just likely to increase support for it, but also enhance people’s sense of efficacy and belief that political decisions matter.

1. Names altered to retain anonymity. ︎

As European leaders rush to bolster defence spending in response to Russian aggression and uncertainty regarding transatlantic relationships, they risk diverting attention from the other serious crises threatening the continent’s survival: climate change, economic instability, and social fragmentation. True security cannot be achieved only through military strength – it requires massive investment to address the root causes of instability. And Europe can afford to invest far more than its current fiscal constraints allow.

In the past month, urgent discussions have dominated European politics as EU leaders scramble to address the breakdown of transatlantic relations and provide Ukraine with the necessary security guarantees to ensure a just and lasting peace following Russia’s aggression. EU leaders have backed a European Commission proposal to allow governments to exclude defence spending from fiscal rules and to jointly borrow 150 billion euros for European defence.

In Germany, after winning the snap federal elections on 23 February, Christian-democratic leader Friedrich Merz performed a major political U-turn, pushing through parliament a bill to reform the country’s debt brake by excluding all defence spending above 1 per cent of GDP.

These developments come on top of a 30-per cent increase in defence spending since 2021, which brought the total defence spending in the EU to 1.9 per cent of the bloc’s GDP.

But true security for Europe won’t come from military strength alone. It will also require economic stability, climate resilience, energy independence, and social cohesion. Without adequate investment in these areas, no amount of military spending can ensure a safe future for all.

True security for Europe won’t come from military strength alone. It will also require economic stability, climate resilience, energy independence, and social cohesion.

Broader security concerns

Russia’s full-scale war against Ukraine has reshaped Europe’s security landscape. However, the debate around military spending risks overshadowing the underlying vulnerabilities that, if unaddressed, will expose Europe to existential crises in the future.

Climate breakdown is a powder keg waiting to destabilise economies and nations. Ana Toni, chief executive of this year’s United Nations Climate Change Conference (COP30) in Brazil, has warned that failing to act on climate breakdown will lead to more wars in the future. Germany’s Federal Intelligence Service (BND) echoed this concern, predicting that climate breakdown will trigger resource-driven conflicts, destabilise already vulnerable regions, and increase forced migration due to droughts and other climate-related disasters.

At the same time, Europe remains alarmingly dependent on foreign technology. Over 80 per cent of critical digital infrastructure and technology comes from outside the EU, leaving the continent vulnerable to supply chain disruptions, cyberattacks, and economic coercion from foreign states. According to a recent study, securing European digital autonomy would require 300 billion euros in public and private investment over the next decade.

Building a strong economy and a resilient society hinges on social trust. However, trust in governments across the EU and the Organisation for Economic Co-operation and Development (OECD) remains historically low. This erosion of trust is not just a domestic issue – it is a vulnerability that authoritarian regimes like Russia and billionaires like Elon Musk exploit to destabilise Europe. By sowing division and amplifying grievances, they undermine the cohesion of European societies and weaken our collective ability to respond to external threats.

If it comes at the cost of budget cuts that weaken public goods and widen inequality, increased defence spending will only exacerbate this problem. When governments prioritise military budgets over healthcare, education, and housing, disenfranchisement is likely to grow. This dynamic creates fertile ground for extremist parties, many of which have close ties to Russia, to exploit public frustrations and gain political traction. As future crises unfold, social cohesion will only become more critical.

More tanks, fewer wind turbines?

Some politicians have argued that increasing defence spending means cutting elsewhere. British Prime Minister Keir Starmer, for example, has reduced international aid budgets to fund military investments. But these choices are being made in the name of fiscal rules that are neither workable nor economically sound. In Europe, defence spending is being carved out from these rules, while vital investments in climate, infrastructure, and social needs remain restricted. The real question isn’t whether we can afford to fund defence – but why only defence is being freed from the rules that still constrain everything else.

The real question isn’t whether we can afford to fund defence – but why only defence is being freed from the rules that still constrain everything else.

The fiscal rules that EU countries agreed upon in 2024 prevent necessary long-term investments in infrastructure, climate resilience, and economic security. A recent Bruegel study analysing national fiscal plans under the new rules found that the overall increase in public investment across the EU is expected to be less than 0.2 per cent of GDP – far from sufficient to meet Europe’s multiple investment gaps. An analysis by the New Economics Foundation (NEF) shows that only three member states have sufficient fiscal space to meet green and social investment needs under these rules.

What’s more, fiscal rules have also failed on their own terms. The International Monetary Fund (IMF) highlighted that reducing government deficits has, on average, increased total debt rather than reducing debt-to-GDP ratios. Conversely, governments routinely underestimate the economic benefits of public investment. In the European Commission’s Debt Sustainability Analysis – which assesses the sustainability of government debt – a fixed multiplier of 0.75 is used for government spending. In other words, the Commission assumes that for every euro the government spends, the economy only grows by 0.75 euros. This is despite the fact that the paper referenced to back up this assumption shows that public investment typically has a much stronger impact – boosting the economy by 1 to 1.40 euros for every euro spent.

Green investment is especially powerful in driving economic prosperity. An IMF study found that each euro spent on green technology generates between 1.10 and 1.50 euros in economic activity. Other research has found even higher impacts, with multipliers reaching as high as 4.20 euros. These investments offer a triple benefit: they stimulate the economy, reduce carbon emissions,, and lower future costs from climate damage.

By contrast, a Rand study found that military spending likely delivers a lower multiplier than civilian infrastructure, meaning it generates less economic activity per euro spent. This is not to dismiss defence needs, but to say if Europe can afford to fund its security, it can – and must – afford investments that boost its economy and improve its resilience.

Giving exclusive priorities to defence spending doesn’t just divert funds from green industries – it also redirects critical productive capacity. Economists Tom Krebs and Isabella Weber warn that ramping up military budgets pulls resources – such as skilled labour, raw materials, and industrial capacity – away from renewable energy and electric vehicles, and reinforces fossil fuel dependence. Exempting defence spending from fiscal rules but leaving other investments shackled to them will likely leave Europe with more tanks but fewer wind turbines.

If Europe can afford to fund its security, it can – and must – afford investments that boost its economy and improve its resilience.

A new economic model for Europe

To break the cycle of perpetual crisis, Europe’s macroeconomic frameworks must be designed to address underlying risks proactively. This requires politicians to be honest about the need for more significant reforms to protect Europeans in the long term.

First, with Germany now committed to increased public spending, the EU must push for a broader revision of fiscal rules. If borrowing exclusions can be made for low-multiplier military spending, then there is surely a case for borrowing to invest in things that will have much greater economic impacts – ensuring that all member states can borrow for high-multiplier, productivity-enhancing investments.

Second, as Mario Draghi proposes, the EU should issue new joint debt to replace the Recovery and Resilience Fund, which ends in 2026. Agreeing this now would provide crucial investor confidence and ensure governments can develop longer-term plans.

Third, the ultra-wealthy must pay their fair share. Economist Gabriel Zucman and the EU Tax Observatory estimate that a 2-per cent minimum tax on centimillionaires would neutralise the regressivity of European tax systems and raise 67 billion, while a 3-per cent minimum tax would make European tax systems slightly progressive and raise 121 billion euros.

Finally, central banks and governments must align their policies to achieve Europe’s economic objectives. A recent NEF study shows that closer coordination between monetary and fiscal policy could lower the cost of essential public spending and curb inflation.

No amount of defence spending can fix a broken climate, a fragile economy, or fractured societies. If Europe wants lasting peace, it needs to fight climate breakdown, inequality, and polarisation with the same urgency it is currently investing in defence.

With an economy based on industry and exports of physical goods, Germany is particularly vulnerable to a global environment of geopolitical tensions, trade wars, and rapid technological change. As the far right grows, what will it take to revitalise the German economy and save Europe’s green agenda? An interview with Wolfgang Munchau, author of Kaput: The End of the German Miracle.

Green European Journal: The German economy has been stagnating for a few years now. What makes you argue that this is not just an interlude, but a sign that the German economic model itself is kaput?

Wolfgang Münchau: Stagnation started in 2018. By definition, no economic recession can last seven years, because recessions tend to be cyclical developments. This is a structural slump, and it should have happened earlier, but there were some factors that delayed it.

Germany had a pretty good period of economic performance from 2005 to 2015 but that was, in many ways, a matter of luck. The country had an economic crisis in the early 2000s, but it was a different type of crisis, a competitive crisis. German companies were still making great products, but they had become less competitive and needed a reboot, and that’s what they got through labour market reforms.

But what really prolonged Germany’s economic success at the time was the EU’s Eastern enlargement. German companies could offload large parts of their supply chain to cheaper production areas. There was also a supply chain revolution: container shipping became very big, and so did just-in-time production systems. The way companies organised their supply chains changed dramatically between the mid-1990s and early 2000s.

A third benefit was, oddly enough, the eurozone crisis, because it led to a devaluation of the euro, which really improved the competitiveness of German products. Fourthly, there were still the long-term consequences of labour market reforms. Lastly, there was cheap Russian gas, which helped keep up steel and chemical production, which were both very important. That explains why Germany did well until 2018, but the causes of decline started a lot earlier.

What are these causes?

Germany has four dominant industrial sectors: the car industry, steel production, mechanical engineering, and chemical industries. Industry accounts for almost 30 per cent of German GDP – a much higher share compared to most countries. Germany’s entire economic and financial system, as well as the political system, was very much geared towards running those sectors. There wasn’t enough flexibility or interest in innovation in areas that were outside of those. This is how Germany missed the digital revolution, and that became a very big problem because digital technologies encroached on analogue technologies. Electric cars are more digital than diesel cars, and the next generation of cars will be a digital device, not a mechanical one. E-cars are a whole other product, just like mobile phones are very different from old telephones. This first issue can be described as a lack of flexibility or an over-specialisation of the German economic system.

A second, separate issue, is that Germany has become dependent on export surpluses. Export surpluses – which are in essence an economic imbalance – became a celebrated feature of the German model. But Germany and German companies invested the earnings from their surpluses abroad. They didn’t invest them in building bridges at home, or in upgrading a completely dysfunctional railway system, or the worst mobile phone network in all of Europe. This lack of investment is now really hurting Germany.

The outgoing government certainly made mistakes, but all these issues have been created long before it came to power in 2021. It’s the failure of systems that are run by consensus rather than by competition.

Has Germany always been so resistant to technological innovation?

I grew up in a Germany that was highly innovative. Germans were innovative in their fields, certainly in all areas of engineering, but they have disregarded digital technologies, they underestimated their impacts. There are many examples of that: Christian-democratic Chancellor Helmut Kohl put his stakes on analogue high-definition television in the 1980s; companies like Siemens were betting on analogue telephony. The quality of German analogue technology was very high. It was actually quite innovative. The problem is that the world moved on. Digital technology produced all sorts of advantages in terms of data and stuff you could do with it.

The car industry is the same. They dismissed the idea of electric cars because they thought electric cars were for girls, and they were boys. For these men, a car is about the smell of an engine, the mechanics of it. The former chairman of Volkswagen once said that there was no space for electric cars in his garage. This kind of statement creates a dangerous cultural consensus. And Germany is a country that wants consensus. There was consensus on cheap Russian gas too, with the exception of the Greens. Anyone who disagreed got laughed at.

The outgoing government certainly made mistakes, but these issues were created long before it came to power. It’s the failure of systems that are run by consensus rather than by competition.

Germany’s overreliance on industry made it more dependent on Russia for cheap energy, and China and the US for exports. When Russia invaded Ukraine and China started rising as an industrial competitor, Germany found itself overexposed. What will be the consequences of Trump’s trade war?

Germany’s industrial sectors were developed in complete ignorance of geopolitics. Companies thought they were protected because the German government fixed the deals for them in the background. Germany is exposed simply because of its surpluses. If you are running a very large trade surplus, you are going to lose a trade war. No matter how much the EU says we’re going to hit back against Trump, we will run out of things to tariff before he does, because we’re not importing as much from the US as they’re importing from us. It’s as simple as that.

If Trump starts a trade war, the best thing you can do is to just sit back and try to address the imbalances that made you overexposed.

When the “traffic light” coalition of Social Democrats, Greens, and Liberals was formed in 2021, it seemed a promising formula. They planned to invest in digitisation and the green transition, for example. Where did they fail?

I supported them back then, and I thought it was a good idea to start addressing the investment shortfall, which they eventually failed to do. I think they all contributed to their failure in their own way, including through the way they interacted with each other. If Robert Habeck [of the Greens] had been finance minister and Christian Lindner [of the Liberal FDP] had been economics minister, perhaps the coalition would still be standing: Greens would have pushed to open the debt brake, and the FDP would have avoided some of the mistakes Habeck made.

They were also ill-advised on their fiscal strategy. The coalition effectively collapsed when the constitutional court ruled that the government had misspent funds set aside for the Covid-19 pandemic by funnelling them into the climate budget. This ruling took around 50 billion euros out of German public spending; the whole financial basis for the coalition was gone, and the parties couldn’t agree on anything anymore. At that point, Lindner’s position to balance the budget would have required many cuts, killing the SPD’s entire social programme.

As for the Greens specifically, I think the way in which the heating bill was introduced was really foolish.

If you are running a very large trade surplus, you are going to lose a trade war.

You also disagree with their push to phase out nuclear energy.

When the coalition came to power in late 2021, nuclear accounted for 14 per cent of German electricity. Shortly after coming to power, the government switched off three power plants. A month later, Putin invaded Ukraine. At that point, they should have turned the plants back on. In a political crisis, you keep your options open. Instead, they went on to shut down the remaining three nuclear power plants in April 2023.

The Nord Stream 2 gas pipeline was killed on day one of Russia’s war on Ukraine, and there were serious questions about the continued gas flow from Russia through North Stream 1: if you’re serious about sanctions, you have to do everything at once. If you wait, as we did, Putin can find a way around sanctions.

Nuclear wouldn’t have solved all of Germany’s problems, but it would have made a difference. For example, the number of coal-fired power stations you would have had to switch on would have been correspondingly less. Habeck should have gone to his party and said, as difficult as it was, that it was necessary to keep nuclear plants going, because doing otherwise could have killed the whole green agenda. Unfortunately, I think that’s essentially what happened. Not only because of that decision, but that certainly contributed to it.

The outgoing government was probably the first genuinely green government in Europe, because in no other country did Greens have such a position of power, including on economics. Now red-green stands for failure in Germany. That is something that we have to reflect on very deeply.

The first thing the green agenda would need is a Capital Markets Union in the EU, because the heavy lifting in terms of investment isn’t going to come from governments but from the private sector.

Greens were also the only force critical towards North Stream 2 from the beginning, and they seriously questioned Germany’s overexposure to China. Is your assessment of their experience in government purely negative?

Not at all. They were indeed the only party in Germany that was outside of the foreign policy consensus, and they were right, while most other parties were wrong. The Greens are clearer foreign policy thinkers than any other party. You cannot do foreign policy with the SPD. The CDU used to be very fuzzy, and now it has converted to a position closer to that of the Greens. So that is a very big plus on the Greens’ track record.

A big minus is the way the green agenda was implemented, because it focused too much on regulation and not enough on innovation. The first thing the green agenda would need is a Capital Markets Union in the EU, because the heavy lifting in terms of investment isn’t going to come from governments but from the private sector.

Europe had a chance around five years ago to become a world leader in green technology. It is failing. China and the US are the driving forces. We Europeans have the technology, the people, even the passion for green tech, but we have failed to create the conditions for it to flourish. Our regulatory approach was geared towards large companies meeting certain targets. The whole balance between regulation and innovation was wrong, and as a result, we will now see a rollback of the green agenda.

Is it too late for Germany and Europe to change this state of things when it comes to green tech, digital, and AI? Should we simply accept and prepare for deindustrialisation? This might increase our exposure in times of war and geopolitical tension.

It’s hard to say. Europe could have a smaller industrial base, or it could go through some deep deindustrialisation. It will depend on whether companies can still run their activities at a profit in Europe. But with the trade war that is coming up – and I think Trump is very serious about this – our export-based business models are no longer going to be viable. This means that some deindustrialisation will take place, and some companies will relocate to the US.

On AI, it is going to be very difficult. Macron can make big speeches and declarations, but the problem for Europe is regulation. We have the world’s most restrictive data protection rules. I don’t think anyone in their right mind is going to invest in Europe with regulation that treats companies as lawbreakers. It’s very difficult to comply with the laws, even if you want to. Only large companies have legal departments that know how to do this. Most AI companies are startups.

On the bright side, AI is not proprietary technology. The programming is open source, and we have our own data. To benefit from AI, we don’t need Google or OpenAI, but a good regulatory environment. Imagine you had a manufacturing assembly line, and sensors on every node of that assembly line that collect data at all times on product reliability. Your entire production process would generate zillions of data. This will bring production efficiency to a whole other level. AI is hugely exciting for Industry 4.0, and also for the Internet of Things. However, this data will not be transmitted through optic fibre, but through the next generation of mobile telephony, or 6G. The Chinese are already starting to develop it, while we are struggling to roll out 5G.

If we were serious about a European AI industry, we would need cheap energy, deregulated digital markets, and cutting-edge digital infrastructure. Since we’re not going to have any of these in Europe, I think the answer is that we are too late.

Germany’s industrial sectors were developed in complete ignorance of geopolitics.

The EU is now rushing to pursue a new “competitiveness agenda”. Is this effort going in the right direction?

If we don’t call things by the right names, we shouldn’t be surprised that we don’t do the right things. The EU speaks of competitiveness because lots of business people keep nodding when they hear that word. But that’s not what the EU needs. It should be talking about innovation and investments, and the goal should be productivity. The only macroeconomic definition of competitiveness looks at the current account, and we have current account surpluses with the rest of the world. We can write this problem off. We don’t need to worry about competitiveness.

In fact, we are too competitive, because we’re not investing enough. What we should be focusing on is raising domestic investment into cutting-edge technologies, and making life a little bit more bearable for small companies, but that is not happening right now.

You mentioned the Capital Markets Union earlier as the only way to save the green agenda. What will it take to bring it about?

The problem is that the EU is not serious about these things. It has actually renamed the Capital Markets Union as the “Savings and Investments Union”. Now, a European savings product is probably better than nothing, but in our current situation, we have to think big.

The Draghi report called for an additional 800 billion euros per year for green, digital, and defence investments. The EU Commission can’t leverage this. And there’s no way we can raise it in taxes. No one but the private sector can do it. To generate this kind of investment, you need to redirect loans that are currently going to Volkswagen, for example, to entrepreneurs who come up with something genuinely new. You need to build a very significant infrastructure of financial products and financial companies to realise this kind of investment scenario. Europeans have failed at this.

Without a real Capital Markets Union, nothing will work. You will not get green investment. You will not get a competitiveness boost, if that’s what you want, nor more productivity. You will not get an increase in defence spending either, because your economy will not generate enough growth to afford it. Virtually everything that is happening in Europe right now hinges on the fact that we do not have a capital market. This, by the way, also requires a fiscal union, which we failed to create during the eurozone crisis. I understand that there was no majority for that. But the problem is that if you accept this failure, you accept the failure of Europe. And Europe is failing right now. It’s not just the green agenda, but a bigger failure.

This is the key, and yet virtually nobody is putting any political capital into it, because they think they can leverage money domestically with taxes and, in Germany, by reforming the debt brake. The debt brake reform is now treated as the magic wand. It will indeed have to be reformed, but this will not solve any problem.

Deindustrialisation is a result of low growth, and in turn, it impacts growth because there’s less economic activity.

The German automotive industry alone currently employs almost one million people, and waves of layoffs are being announced almost monthly. What kind of social and political consequences can we expect from deindustrialisation and the transition to a different economic model?

Things would be less painful if you had economic growth. The more economic growth you have, the more leeway you have for policies to smooth things out, as we did with the coal industry. The coal industry died in the 1980s, and there were a lot of subsidies. That money is just not available now. If you look at all the money they are earmarking right now for environmental projects and for defence, you realise that there’s no money left for anything else. So the transition will be fairly cold.

Deindustrialisation is a result of low growth, and in turn, it impacts growth because there’s less economic activity. You need to start creating new activities, but it will take time until these companies grow. These are small companies to start with, and you need a lot of them, and some of them might become big and become viable industries. We haven’t even started. This is a process that will take 10 years, and I think it will inevitably lead to more political fragmentation and more radicalisation. I think Alternative für Deutschland is headed for 30 per cent in a couple of years, and the question will then no longer be whether we have a coalition with them, but whether they will form a coalition with us.

The politics becomes very difficult at that point. The Trump agenda in the US can work in some way, because it’s a coalition of the far right with some libertarian hyper-capitalists like Elon Musk. That is not the case in Europe. In Europe, it’s the fascists only.

There’s also the fact that Germany and France are growing more distant. France is gambling on nuclear energy, overblowing national budgets every year, and pushing for reindustrialisation, including in the AI sector. Do you see this as a source of more turmoil for the EU?

The Franco-German relationship is very bad, partly because the relationship between Scholz and Macron was bad, including on the Ukraine issue. The question is, what will Friedrich Merz do as chancellor? Will he be able to lead from the front? I don’t think he will, and it won’t be easy to get Macron into a common line because he now clearly sees himself as the senior partner in this relationship. He seems to be full of disdain for his European colleagues, especially for Germans, who don’t want to help or put troops into Ukraine alongside the British and the French. This will be very difficult.

I’m not entirely without hope, because bilateral relations can make a difference, but the vested interests of France and Germany go in very different directions, because their energy policies go in very different directions. Their ways are set: France with its emphasis on nuclear, and Germany with its emphasis on new renewables. Nuclear is gone for Germany, it won’t come back. The question for Germany is how to deal with the intermittency of renewables, whether with gas or coal, and what the policy mix of those will be. In any case, Germany will not be a country with abundant energy supply. France and Spain may be better positioned in that respect. Spain in particular is strong on solar, and could import more from North African countries. Spain could become a hub for big data.

Germany has had many different centrist coalition governments, yet its structural problems have only gotten bigger. Parties on the extremes, from the AfD all the way to Sahra Wagenknecht’s BSW, don’t seem to represent a real alternative, as their proposed recipe is to double down on the old industrial system while cracking down on immigration. Would an alliance between the CDU and the Greens, already tested at state level, hold any promise?

I think that if he had a choice, Merz would prefer the Greens over the SPD. And I think it could be the best combination for Germany right now. Merz would get his way on economic change (and possibly on migration) more than with the SPD, which is more hamstrung on social policies and on its close ties with Russia. The Social Democrats also have very strange attitudes towards the military; they are not really supportive of any European initiatives.

On the contrary, Greens like Annalena Baerbock as foreign minister and Robert Habeck as finance minister wouldn’t be a big problem for Merz. It would be a smoother project. I think there would be some reboot of the green agenda under such a government, but even Merz has never spoken about a Capital Markets Union, and he’s not in favour of European debt.

In any case, it’s going to be difficult for Europe. I don’t have the hope that everything will be fixed. I see Europe in decline.

This interview was conducted on 18 February 2025, a few days before Germany’s snap federal elections took place on 23 February.

With the first “crypto president” back in the Oval Office, bitcoin and a host of other digital currencies seem set to go mainstream, promising a radical decentralisation of the financial system. Nowadays, the crypto industry is actively contributing to wrecking the planet and strengthening the far right. Could digital currencies serve to advance a progressive and post-growth agenda instead? 

Donald Trump’s return to the White House has brought global crypto markets to all-time highs. The US president has promised to swap the US Treasury’s gold for a “strategic bitcoin reserve”. He has established a task force to bring digital assets into the mainstream. He has even launched his own “meme coin”. For Trump’s supporters, he’s the first crypto president.  

Trump’s U-turn on cryptos (he called bitcoin a “scam” against the dollar in 2021) has come with hat tips to far-right bitcoiners. For example, the president has granted a full pardon to Ross Ulbricht, known as “Dread Pirate Roberts”, who netted around 1 billion dollars worth of bitcoin from selling illegal drugs and six murders-for-hire. Others walking free included leaders of far-right hate groups the Proud Boys and Oath Keepers, charged with seditious conspiracy. Both relied on networks of crypto donors, taking in at least 112 Bitcoins since 2017. That’s 12 million dollars in today’s money. 

Today, bitcoin markets are buoyed by far-right enthusiasm. But could crypto, with its push for a decentralised financial system, be useful for furthering green and progressive ideals? 

Bubbles for bitcoin 

Big Crypto was by far the biggest corporate donor during the 2024 US presidential race, giving more than 120 million dollars. That’s more than Big Oil, Big Tobacco, and Venture Capital combined. Keen not to offend the young white men that make up the majority of crypto advocates, Democrat nominee Kamila Harris was also cosying up with Big Crypto. The industry is set to hand over another war chest worth 80 million dollars for crypto-friendly candidates of any political persuasion before the 2026 midterms.  

Proving his crypto credentials, Trump set up an election fundraiser selling digital artworks. The sale of “non-fungible tokens” (NFTs) depicting him as a cosplay superhero and National Rifle Association fan netted him 4.5 million dollars. But despite his honorary title, Trump isn’t the first crypto president. In 2021, El Salvador’s right-wing populist president Nayib Bukele bet his country’s economy on bitcoin, forcing every business to recognise crypto as a legitimate currency with parity to the US dollar. The gamble proved an unmitigated failure. Last month, under pressure from the International Monetary Fund, and a near-complete lack of interest from Salvadorans to buy anything with bitcoin, obligations to accept it were quietly dropped.   

But Trump is pushing ahead. He’s scrapped plans for a digital US dollar, focusing his support instead on private crypto projects, including “stablecoins” – digital tokens that peg their value to other cryptocurrencies, fiat money, or exchange-traded commodities.  

The crypto industry has always been awash with wash trading and fraud.

In Europe, the creation of another US-made payment tool might add urgency to the development of a digital euro – a global payments system that cuts out dominant US providers such as Visa and PayPal. The European system may itself resemble a cryptocurrency, albeit a highly centralised one. 

While the EU is taking a tougher stance on crypto market offerings, Czech central bank chief Aleš Michl is keen to plough billions of euros’ worth of bank reserves into crypto. “For the diversification of our assets, Bitcoin seems good,” Michl told the Financial Times. “Those [Trump] guys can now kind of create some bubble for bitcoin.” 

Trump has also been busy building his own crypto project, known as Trump Coin. Gary Gensler, outgoing chairman of the US’ agency against market manipulation (SEC), has highlighted that most crypto projects are simply illegal unregistered securities. Trump replaced Gensler with more crypto-friendly Paul Atkins.    

Trump Coin joins a long list of worthless celebrity-backed “shit coins”. The crypto industry has always been awash with wash trading and fraud. Thanks to Trump, it’s also a growing nightmare for the planet.  

Greenwashing crypto 

During the 2024 US presidential race, bitcoin prices doubled. The amount of crypto “mining” going on also doubled. Bitcoin currently uses as much energy as the whole of Poland, emitting nearly 100 million tonnes of CO2 per year. Not bad for a currency that almost no one uses to buy stuff.  

Bitcoin’s massive energy demand doesn’t stem from how many people use it, but rather from how the so-called digital gold is “mined”. The process involves specialist computers repeatedly making random guesses at a long string of digits. The machines generate a lot of heat and burn out quickly. Globally, redundant machines create around 30,000 tonnes of e-waste each year – about the same as the Netherlands. Much of this e-waste is dumped in the Global South. Bitcoin “miners” also suck up roughly 2,237 billion litres of fresh water each year for cooling. 

Unsurprisingly, due to the profits they make from it, the biggest commercial proponents of crypto are Big Oil firms. Some have been recognised by the World Bank for their “innovations”: capturing residual gas from oil extraction and burning it for bitcoin miners. Traditionally, oil companies flare off excess gas. The only difference between setting fire to methane and setting fire to methane for bitcoin is that the latter makes the oil industry much more profitable, slowing transitions to cleaner alternatives.  

Cryptocurrencies are terrible for the planet. And we shouldn’t cling on in the hope that the underlying blockchain technology could come in handy for environmentalists, feminists, or socialists any more than we should cling to micro-plastics and mustard gas. 

Bitcoin currently uses as much energy as the whole of Poland, emitting nearly 100 million tonnes of CO2 per year.

Yet there are numerous meme coin projects marketed around the supposedly green motives of their founders. In May 2022, billionaire businessman Adam Neumann launched a carbon credit cryptocurrency called Flowcarbon. Despite being ultimately meaningless for action on climate change, Neumann raised 70 million dollars in start-up capital from big tech firms, like Samsung and a16z. 

In 2014, left-wing Spanish activist Enric Duran made cryptocurrencies his centrepiece for disobedience in the hope of enabling post-capitalist futures to flourish. But his so-called “FairCoin” project was a degrowth currency in much the same way that Dogecoin has something to do with dogs. Degrowth was a logo that failed to translate to radical economic alternatives. Due to “significant trust issues”, the project was quietly folded in June last year. 

Jackson Palmer, the co-creator of Dogecoin, revealed his epiphany about the inherent unsustainability and conservatism of all crypto projects, from degrowth to dog money: “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.” 

Funding the far right 

Prominent so-called “bitcoin maximalists”, from US radio host Alex Jones to manosphere influencer Andrew Tate, are all on the extreme right of the political spectrum. Because the only real affordance crypto projects offer is in subverting political institutions, it makes sense that these projects are generally only useful for people who don’t believe in those institutions.  

Take the “Freedom Convoy”, for example – a series of protests and blockades which took off in January 2022 after a Covid-19 vaccine mandate was imposed on Canadian long-distance lorry drivers. President Justin Trudeau invoked an Emergency Measures Act to stop organisers from receiving donations from the public and tackle the major disruptions caused by the blockades. But bitcoiners moved in, raising nearly 1 million dollars worth of crypto to keep the Covid-19 conspiracy efforts going.   

The crypto-fundraising tactics were repeated in the Netherlands the following June, when right-wing bitcoiners turned their attention to Dutch farmers protesting government regulations to control greenhouse gas emissions.  

Right-wing activists created crypto, while white supremacists continue to take a shine to it, with bitcoin in particular reshaping the racist right in radical ways. According to a 2021 Hatewatch report, many prominent racist terrorists were also early crypto adopters. Patrik Hermansson, of the Hope Not Hate watchdog, told me:   

“In the UK, most far-right activists have been quick to start taking crypto donations, from Tommy Robinson to Patriotic Alternative. And this is for practical reasons. They’re de-platformed from other payment rails, like PayPal and Stripe. They may have their bank accounts frozen. Crypto effectively solves this problem. And extra anonymity is also useful. The risk of being publicly exposed as a financial supporter for a violent far-right cause usually deters other donors.” 

A progressive response 

In 2010, cyberlibertarian activist Julian Assange saved WikiLeaks with crypto. Following the organisation’s release of diplomatic cables and the “Collateral Murder” video, US politicians and payment providers, like Visa and PayPal, implemented a blockade choking off Assange’s financial support. But Bitcoin couldn’t save Assange from prison. Crypto is inherently incapable of engaging in political struggles.  

Cybercrime, war, sanctions evasion, climate change and all the other social and environmental issues Trumpism perpetuates would be easier to fix without crypto. But ridding the internet of crypto will be tricky due to an enduring myth that free-market capitalism can emancipate the poor from free-market capitalism. This myth is epitomised in books like Joshua Dávila’s Blockchain Radicals and Isaiah Jackson’s Black America. Both authors argue that cryptocurrencies are levelling the economic playing field, allowing “left behind” communities to enrich themselves and catch up with wealthy, mostly white, political elites.  

But this narrative, according to academic and activist Jared Ball, is “cryptoganda”. Ball argues that the mythology of “Black capitalism” implies that the rich acquired their wealth not through violence, but through the same modes of investment that Black communities are now being advised to use in order to get ahead. Even if some poor Black investors do strike it rich from crypto, their personal investment strategies in no way benefit their wider communities. “There is no investment pathway to collective revolutionary change or closing the material inequality gaps that exist between Black and white or any other group,” Ball told me. “No technology has ever changed social relationships. They exacerbate and intensify them and allow for a consolidation of power, and we’re already seeing that happen in the cryptocurrency space.” 

Bitcoin should be considered similar to the global trade in endangered rhino or tiger parts. When investors are allowed to speculate on bitcoin, they encourage an environmentally disastrous global industry that has failed to benefit anyone except criminals, Big Oil, and some early speculators. 

But saving ourselves from the fires of slapstick crypto capitalism doesn’t mean jumping back in the frying pan of traditional market finance. In the frying pan, “innovation”, “profit”, and “growth” are all used interchangeably. They are ends in themselves. Capitalist innovation, even of the “green” variety, produces crises that ultimately call for further capitalist innovation for profit. 

In challenging the crises-innovation spiral, it’s tempting to reject digital innovation altogether. But capitalism is the problem here, not technology. Cryptocurrencies, like every techno-fix, embody the political values shared by their design communities. Rather than understanding innovation as part of a wider growth imperative, we should recognise capitalism as an impediment to real digital innovation.  

Designing and building post-capitalist digital tools will require political struggles. No meme coin can erase this fact. 

The continent’s economic footing has consistently weakened in recent years due to a combination of dwindling industrial capacity, an increasingly hostile global trade environment, and a limited ability to raise capital. In its efforts to strengthen its economic sovereignty, Europe must try to build on its diversity, avoid the pitfalls of monopolisation and concentration, and tackle the climate crisis.  

Green European Journal: In his much-anticipated and commented-on report, Mario Draghi draws attention to an obsolete economic model in Europe and the declining competitiveness of the EU. What do you make of Draghi’s diagnosis and proposed remedies? 

Barry Lynn: It is a really important moment in European history. I think the Draghi report does a good job recognising the moment and the magnitude of the changes that have to take place. There has been a strong focus on the competition aspect of the report. However, what the report is mostly focusing on here is money: how do you concentrate capital? 

A former head of the European Central Bank is essentially making a case for Europe to borrow money collectively and invest. That idea is strongly opposed by the Germans and, in different ways, by the Dutch. From the beginning of the European Union, this has been a fundamental question: can Europe collectively raise the money it needs? And now the question becomes: will the Germans accept a watering down of their control over monetary and debt policy?  

My own take is that Europe’s weakness largely has to do with Germany’s extremely selfish protection of the structure of the euro and the European market put in place 25 years ago, as we saw with Greece in 2015 already. But without the ability to concentrate capital, Europeans cannot and will not do many of the things that they want to do.  

There is a lot of money in Europe, but it is not like in the US. There, capital markets are vibrant, and the government has the ability to provide a lot of capital on top of that. This is a large part of what Draghi is saying: if Europe wants to get serious about investing in a renewed political economy, it will have to rethink how to concentrate capital, both in the private capital markets and publicly.  

Regarding competition, I think this is not an issue that Draghi really has spent a lot of time focusing on. In fact, his goals for Europe require strong anti-monopoly and anti-chokepoint policies. But when you get to the details of some of the policies he is promoting – whether it is consolidation of telecoms or the creation of industrial European champions – his proposals do not really align with the goals. In a way, the report is an opportunity for discussion. Yes, the goals are desirable, but the specific policies advocated in the report need improvement because what he is proposing is not going to work. 

As Europe contemplates emulating the US and other major economies with continent-sized champions, it is worth examining how this strategy has played out in the US. What are the risks that Europeans should bear in mind before adopting this sort of policy? And what does having an economy dominated by monopolists look like? 

If you read Draghi’s report and the mission statements that [European Commission] President Ursula von der Leyen put out (and that were sent to the individual Directorates-General to guide their work for the next five years), it does seem that Europeans want to follow the American approach to the defence industry and heavy industry. That is absolutely foolish.  

This American approach, which began in the 1980s and allowed extreme concentration in defence and heavy industry, has been absolutely disastrous. It had catastrophic effects. Just look at Boeing: when Ronald Reagan came to power in 1981, there were four different manufacturers of commercial airliners in the US. And now we are down to two within the entire world. What you see in the case of Boeing is a corporation that has serious problems getting its products out of the door, innovating and introducing new technologies, and keeping up the quality.  

And Europe is going to follow this? Following the Boeing path would be crazy. The Siemens/Alstom merger [rejected by the EU Commission in 2019] has become a worm in the brain of European industrialists. But how could it be a good idea to merge the two corporations that make train sets in Europe at a time when you need more and better train sets? Nonsense. It is stupid. 

So, if the EU does not need European champions to compete globally, is there a way to balance the need for competition in the single market with the need to be competitive at the global level? How do we make sure that EU industrial policy caters to the general interest of the public and not just to corporate interests? 

There is a really simple answer to that: tariffs. Broadly understood, competition policy encompasses trade policy and industrial policy, and vice versa: a real industrial policy encompasses competition and trade policy. All three are a unit. So if you want to have competition within Europe and make sure that the Chinese, with their extremely heavily subsidised mercantilist system, do not come in and destroy your corporations, there is a simple tool to use, and that is tariffs. Only recently, the idea of tariffs was anathema in Europe. Now Europeans have come to realise they need to use tariffs, but they must be really careful.  

In the US, in the broad field of electric vehicles (EVs), including batteries and other components, we realised we could not depend on Chinese sources of supply. It is not safe, and also not wise in terms of innovation. That is why we used 100 per cent tariffs, or more, if necessary to protect the competitive system, rather than going through consolidation.  

That is the only way forward. Without tariffs, you are not engaging in industrial policy. What you are doing is simply giving away your security and your industrial treasures to other countries. 

The question is, how do we achieve the benefits of scale and accumulate enough capital to act competitively while avoiding the harms of concentration? And how can Europe develop smart industrial policy, potentially paired with trade policy, that would serve the transitions that European politicians are obviously thinking about within the reality of the current global economy?  

You have to sit down and figure out your strategy and goals and then design policies that fit the purpose. Otherwise, you are constantly reactive, in an incoherent way.  

This is exactly, let’s be honest, where the European industry stands when it comes to cars. What happened is that German automakers, around which the entire political system in Germany is structured, sold out the industrial core of the cars to China. Now, there is virtually no capacity to build batteries or electric drive trains in Europe, and the dependence on China is 100 per cent.  

It does seem that Europeans want to follow the American approach to the defence industry and heavy industry. That is absolutely foolish.

This is one way to look at the structure of power in Europe right now: the Chinese government in Beijing essentially controls German automakers, the German automakers control the [Christian-democratic party] CDU, and the CDU has a firm grip on the European Commission. But what Europeans spent all their time fretting about is the American Inflation Reduction Act (IRA). Well, the US invested a crazy amount of money in semiconductor production, batteries, and other EV componentry. Europeans could have decided to get together and work in a joint effort with the Americans to create scale, scope, and a single system of production. Instead, they were manipulated through Beijing’s control over the German automotive industry.  

If Europe does not get on top of the situation in the next few years, it will be over. Do you think Nord Stream was bad? What the Germans are doing now with China regarding automotive, chemicals, and other componentry, is the same thing but on steroids.  

This is the challenge that Europeans have to face. And let me be clear: here, the US is not the imperial power – China is. And you are about to fall under the control of the new imperial power. In contrast, America is offering a vision of redundancy, resiliency, and competitiveness.¹  

I think the Draghi report was quite sober about these threats (and the French government certainly has a very dry understanding of these threats). So I believe there is a real opportunity for Europe to arrive at a better place within these next few years, especially if there is a Harris administration in the White House. Even in the case of a Trump administration – which would complicate things – the basic goal will remain the same for Europe: making sure it does not come under the direct control of the Chinese industrial system and, hence, the Chinese state.  

Would you say that some EU member states have gone a little too far in the globalised value chain? And if so, are tariffs really the only way to get back to something more manageable?  

Let me be clear: Europe did not invent that system – the US did. The strategy was to create a monopoly at home and then allow the monopolies to offshore the capacity. We created the concentration of capacity in China that helped to suck European industry into it. We created the problem through our bad thinking and bad ideology.  

Your question is spot on: once you have 100 per cent of something overseas, the nation that controls that power is not going to let it go easily. Hence, you need to have a goal and a strategy, and then you can negotiate with your trading partners. It will be tough negotiations with the US, the Chinese, etc. But at the end of the day, everyone benefits from a resilient, redundant, distributed system of production in which there are no monopolists restricting technological change, and nor are there nation-states trying to exploit chokepoints to manipulate other nation-states.  

We used to have that, and we can have it again. Liberal trading systems are a good thing. They make the world safer, promoting peaceful cooperation among peoples, and that should be our ultimate goal. However, between where we are today and where we want to go, there are a lot of difficult choices and tough negotiations. But you know what? We are smart folks; we can do it. 

Even in the case of a Trump administration, the basic goal will remain the same for Europe: making sure it does not come under the direct control of the Chinese industrial system. 

The fragmented nature of the European market is often presented – including by Draghi – as one of Europe’s failings. But could this natural fragmentation, so often framed as a liability, be a strength when it comes to fighting monopoly and concentration?  

Indeed. The US is a single, very large economy because it is a single nation-state. Yet until the 1980s – and even into the 1990s – there was a very large number of localised businesses at the level of states because the regulatory system was designed to promote localisation and prevent concentration and centralisation. The challenge facing Europe now is avoiding the US path. Do you want to wake up 20 years from now and have three fast food restaurants, one single retailer, etc.? Or do you want to have a system designed to ensure resiliency, redundancy, and the kind of competition that leads to better and cheaper services and goods? These are all policy choices, and Europeans today have an opportunity to build upon their diversity, languages, experience, interests, and skills.  

Europe is at a crossroads. Depending on how you understand Draghi’s report, you may head down the road towards monopoly or walk down the path to a stronger, richer, and more innovative community. 

Diversity is key to understanding the other challenges raised by our time: sustainability and green policies in general draw on diversity, equilibrium, and abundance, as do nature and life. The Draghi report names green and clean tech as the one field where the European Union has an edge and some global leadership. How can we reconcile the current obsession for competitiveness with the sustainability goals that the EU has set for itself and the rest of the world? 

One fundamental problem with the report and how it views the challenges facing Europe is its framing of competitiveness. The report assumes that Europe is operating in a world market system. But there is no world market system. The world is made of powerful nation-states that have industrial policies which are geared to achieve specific strategic and economic outcomes. This framework of thinking about competitiveness immediately puts Europe at a fundamental disadvantage because it is operating within a mythic dream world.  

The starting point should be how to ensure security, prosperity, and democracy. That understanding then guides your decisions on how you structure your industry to compete within Europe but also with the US, China, South America, Asia, Africa, etc. That is the framework that would allow Europeans to rebuild industry in a way that the leading technological and organisational ideas from Europe remain European and are developed and built to scale within Europe. Then, as they are spread around the world, they can carry both the European flag and European values.  

Europeans are – and this is true for people on the progressive side all the way over to the conservative side –still dreaming of the lost ideals of the 1990s, when a liberal vision of how the world works was prominent. It was a myth already in the 1990s, and embracing that myth then is what got us into all these problems today. 

Europeans today have an opportunity to build upon their diversity, languages, experience, interests, and skills.  

Indeed, there is a kind of nostalgia for the Washington Consensus, which is what many world leaders grew up with and thus understand best. While the intellectual foundation of that worldview has largely been debunked, Europe has yet to develop an alternative, cohesive, and comprehensive vision.  How do we ensure that progressives and others in civil society can contribute to developing a form of industrial policy that delivers while keeping in line with sustainability goals? Are there any ideas or policy suggestions based on the American experience that can help Europe ensure a smart industrial policy? 

The most important thing is to be honest about where we are. Europeans face three intertwined existential threats. The first one is the threat posed by big tech to democracy. Big US tech corporations are threatening the ability of Europeans to speak freely and have open debate with each other. They are also limiting the extent to which European journalists can freely share news with citizens. Some of these corporations pose direct, immediate threats to the basic rule of law. Consider, for instance, what X and Elon Musk did in the UK over the summer, promoting riots and predicting civil war.  

The second existential threat is the security risks associated with the offshoring and chokepointing of vital industrial capacity, especially in China. As demonstrated by Europe’s dependency on Russian gas before the Ukraine invasion, when you allow for such extreme concentration of capacity in some other nation, perhaps on the other side of the world, one result is that the other nation feels free to coerce you. And sometimes this may tempt that nation into dangerous aggression and war.  

The third threat is climate, obviously.  

To counter these threats, European must conduct an honest assessment of the tools needed to address them. And the first thing is to get rid of their dreams about what the World Trade Organization system was supposed to deliver. Liberal trade was meant to enable a borderless and peaceful world, but it did not. It failed because we were naive about the need to use state power to regulate these systems to ensure the desired outcomes. 

Let me be clear about where I believe the fault lies. Many Americans would say China is at fault because it is cheating, manipulating trade, and so on. But no. Every lever that China controls today is because of our failure – in Europe and in the US – to regulate our capitalists and to ensure they do not expose us to the power of the Chinese state. We are at fault for our naivete. China just sat there and accepted all the industrial capacities that our capitalists offered to transfer into their hands.  

Our capitalists then happily picked up the machinery and the industrial arts that we had developed over the course of hundreds of years in Europe and the US, and they sold these cheaply to the Chinese. Then our capitalists transformed our manufacturing corporations into trading corporations designed to concentrate monopolistic power over the importation of what we used to make in Europe and the US.  

Today, as we are dealing with the threats to international security posed by the extreme chokepointing of industrial capacity in China, we are facing the effects of bad decisions that we made right here in our nations about how we regulate the behaviour of our capitalists and our corporations. The Chinese did nothing more than simply take advantage of our stupidity. 

Regarding climate, the third threat, do you think that a competitive and carbon-neutral industry is achievable under the current policy framework, or have we reached the limits of European market instruments? And bearing in mind that the Commissioner-designate for Competition policy, Teresa Ribera, is also a strong figure of sustainable policies, what would you tell her about the EU’s current competition policy? 

Well, yes, many of the issues we face are connected to how the conversation on competitiveness has been structured so far by the various players in the process. For example, if you want to understand who is pushing the agenda for the consolidation of telecoms, look no further than Deutsche Telekom.  

Teresa Ribeira has a track record of promoting sustainability in Spain. Joining sustainability and competition into a single unit under a single person’s responsibility is a fantastic opportunity. With the right creative thinking, she will see that the challenge is to structure markets in ways that promote a more rapid embrace of green technologies and innovation. 

So, are our market instruments still adequate? For decades, it has been assumed that a green industrial policy would emerge with an Emissions Trading System, market regulation, and maybe some incentives. But we are reaching the limit: is it because these measures are badly designed, or is something else required? 

Look at what the Biden administration has done over the last three and a half years. They rose to the challenge because they realised that the ultimate question was whether they just sit on their hands and allow the Chinese to take absolute control over EV production and the entire photovoltaics supply chain, or instead embrace a broad industrial policy that combines competition policy and trade policy into a single system of control aiming at certain desired outcomes. The US has successfully begun to integrate trade policy and tariffs, industrial policy and investments, and competition policy into a single system of regulation. Today, US officials understand that none of these instruments alone is sufficient to address big threats.  

Europeans need to use tariffs in a wise way to ensure that China’s mercantilist state does not destroy European industry and ideas during the period in which Europe is rebuilding its industry.

As long as we maintain tall silo walls between these different regulatory regimes, we fail. Von der Leyen’s decision to break down the barriers between competition and green policy is a great start, but what is still missing is trade policy. Europeans need to use tariffs in a wise way to ensure that China’s mercantilist state does not destroy European industry and ideas during the period in which Europe is rebuilding its industry. 

What the Biden administration did was groundbreaking, but it might not be enough to meet the challenges of a changing world economy, which could radically alter our understanding of conflict, supply chains, etc. Will industrial and trade policies suffice to guide the private sector towards a more sustainable way of operating, or should we aim to fundamentally rethink how the private sector operates? 

If you look at the subtext of the Biden revolution and what the president has been saying, it reads like this: 40 years ago, we made the world safe for big corporations. Then, we woke up one day and found that they rule everything, so now we are going to make the corporations work for us.  

The result is a return to the basic policies that were in place for 200 years, from the founding of the US until the first year of the Reagan administration in 1981. We are witnessing a radical reconceptualisation of political economics that is leading to a broad reconsideration of the power of corporations within society, their purpose, and their license. This is not anti-capital or anti-business; it is anti-monopoly. As such, properly understood, this revolution is truly pro-business and pro-entrepreneur. It aims to make success easier for entrepreneurs, people with better ideas and new techniques, and those who want to do right by the world. We could even say that Biden wants to see more billionaires in the world by reducing today’s super-extreme concentration of hundreds of billions or even trillions of dollars in the hands of a few people.  

The Biden administration has been working to free people with better ideas to develop and share them with others, and that is exactly what markets are for. A properly structured market is a place of exchange. Let’s go back to the origins of this world in 1776, when Adam Smith wrote his monumental Wealth of Nations. Markets should exist as a place where people come together and exchange ideas and work with one another in ways that make everyone richer and safer. A marketplace, properly understood, is where people cooperate. We do not have such markets today. Because of our failure to use antimonopoly laws to protect open markets, we now have systems of exploitation instead . 

In the US, the Department of Justice and the Federal Trade Commission have been leading the charge in resetting the foundations of antitrust, redefining the purpose of the market and how it should be regulated. But they have not gone very far when it comes to sustainability. Could they be doing more specifically on sustainability?  

We must first understand that fighting monopoly is not just a matter of antitrust policy. Look at the IRA or the Chips and Science Act. Both were passed by Congress, and they are the two most important anti-monopoly actions by the US Congress in decades because they are using cash to break choke points and to support new manufacturing facilities in ways designed to break the concentration of power over the production of EV componentry, photovoltaics, and semiconductors in Taiwan, Korea, and China.  

We could never have broken the choke points that we saw in Taiwan by simply using competition policy or even trade policy. It would have been too slow, and so would have tariffs. But now we are using cash to speed the process and prime the pumps.  

[Former EU Commissioner] Thierry Breton actually distilled the whole issue down to a perfect little synthesis. He said you must first rebuild the factories because they have been bulldozed. Only after that can you rebuild the competitive system. For the first task, you use cash to speed the process, and as part of the second task, you use tariffs to protect the process. Once you are strong again industrially, you can rebuild the competitive system domestically and internationally. And then we can have a liberal democratic system around the world designed to protect everybody’s freedom from concentrated corporate control. 

Your reflections on freedom, illusions, and lucidity suggest that we need a real and deep change in the culture and ideology that has been dominant in the past 40 years. Do you see any allies in this battle? Which political forces are pushing for change?  

There are allies everywhere. Some members of the European Commission, for instance. It is mostly really a matter of helping people understand the magnitude of the challenges and showing them that we have the necessary tools at hand. What matters is getting politicians to move beyond mere reactiveness and out of their comfort zone. When we start planning, envisioning, and strategising in earnest on how to rebuild our industrial and communications systems to be safe for democracy and national security, at that point, everyone becomes our ally, including people from all over the US.  

We have very much won this battle within the Democratic Party, and there are a lot of people in the Republican Party who are with us in certain fights. I think Europe is also undergoing a very radical shift, but sometimes it is hard to recognise this when you are in the process of change. In any case, now is the time for civil society to be very clear about what future it fights for, what is standing in the way and the tools available to break these barriers. 

We must be brave and honest and accept the fact that there is no going backwards. The only way to get to where we want to go is to move forward, and to move forward with strength. 

The interview was conducted by Edouard Gaudot and Michelle Meagher.  

From a raging pandemic to war on its doorstep, the EU has experienced multiple costly crises over the past few years. As the economy has taken a hit, the green transition has lost impetus in the public debate, and competitiveness has dominated the conversation instead. But can competition policy actually help the EU achieve its sustainability targets?

As the dust of the European elections is slowly settling on the continental right-wing drift, the fate of the Green Deal haunts the EU conversation. This ambitious set of comprehensive strategies and detailed policies aiming at the carbon neutrality and ecological transition of the EU’s economic model of production and consumption ranked very high among the concerns that drove the mobilisation of defiant, disgruntled voters to the polls.

Despite the recent changes in Europe’s political landscape, the Green Deal has already set the trajectory for radical change. However, whether the goals of the landmark legislation can be achieved depends entirely on how member states deliver on their obligations. A key element in this effort is finance, and the Green Deal requires a massive budget.

Yet, as the EU and its member states can only finance so much, the regulatory environment they provide for private economic actors is also critical. Successfully pairing public funding with private investment in service of the Green Deal will require a sweeping paradigm shift in economic regulation. The need for change is perhaps nowhere as evident as in the foundational principles of market competition itself, embodied in the legal framework of EU competition law.

A challenging obligation

Historically a driver of European integration and a pillar of the Union’s original social market economy model, competition policy was, in principle, supposed to allow the EU to balance the benefits of its market economy with the protection of the democratic fabric of society from unchecked corporate power.

That has not, however, been the case. Under the EU’s competition policy, there have been massive levels of industrial consolidation across the economy. This has led to an increase in unsustainable practices across many industries, such as in the seeds and agrifood sectors – or the media industry (to the point of prompting action from the Commission), to mention another aspect of the continuum.

This growing concentration of corporate power has led to calls for meaningful changes to the EU’s competition policy, but the European discussion on this matter seems to focus exclusively on economic notions of European and global “competitiveness.” Social and climate sustainability are rarely part of the conversation.

In 2023, the European Council commissioned former Italian Prime Minister Enrico Letta to write a key report on the single market. The report came out earlier this year, calling for an improved and reinforced single market to meet the EU’s pressing challenges, namely the sustainability of its economic model and its defensive autonomy. However, when the Council discussed its “new competitiveness deal” in April, member states mostly focused on competition between themselves and neglected most of Letta’s other recommendations; namely to put “a fair, green, and sustainable transition at the core of the EU’s Single Market”, integrating social and ecological goals into it.

The obsession with national and European competitiveness seems to overshadow the urgency of putting sustainability at the core of the reflection on economic competition.

Additionally, a highly expected report on the future of Europe’s competitiveness due in September and entrusted to the former president of the European Central Bank, Mario Draghi, is set to recommend the consolidation of national industries into more European ones with the aim of enhancing the Union’s competitiveness on the global stage. Again, the ecological crisis seems to come only second as a priority.

In the current political landscape, the general obsession with national and European competitiveness seems to overshadow the urgency of putting sustainability at the core of the reflection on economic competition. Thus, it is important to ask if the EU’s competition policy can serve the transition to a sustainable economy, and to what extent.

The global competition powered by the strategic rivalry between the US and China, two heavily subsidised economies scrambling for supremacy over green technologies and industries, has intensified the pressure on the EU and its member states to catch up to the race.

However, the EU faces significant hurdles on this path. Cash-strapped national budgets are still affected by the financial consequences of the pandemic and a prolonged economic crisis, which means that financing the green transition is beyond the capacities of both the EU and individual member states. What is more, the social and political risks of a complete overhaul of the current industrial production structure are posing further challenges. To achieve a higher level of sustainability, the EU must address the structure of the economy, the organisation of the market and, potentially, the emergence of new economic players challenging the dominant position of established entities.

As the shift towards a more sustainable economy challenges our industrial organisation, it inevitably raises the issue of the EU legal framework. Whether it is about the Stability and Growth Pact imposing austerity on eurozone balances, the preference for market instruments, or the principles of competition policies, the set of rules that have driven the EU’s economic model for seven decades are being brought into question by the new “climatic regime”.

Redesigning the EU’s competition policy

In this context, the legal niche that is competition law could prove to be much more important for the European Green Deal than is currently recognised. Competition policy has the potential to act as a fundamental element – or complement, or catalyst – for broader industrial policy, and there are various ways in which the green transition can engage with competition.

Firstly, in the EU, state investment into private enterprise must comply with rules on state aid and foreign subsidies, whether it is a direct grant, tax relief, or another kind of benefit. However, the EU has demonstrated a willingness to show some flexibility on its competition rules to accommodate green initiatives, as has been the case with the approval of funding for Swedish and German decarbonisation projects. We can expect to see governments wielding many such enticing carrots over the coming years. 

Second, climate adaptation will stimulate sectoral reorganisation and, thus, trigger mergers and acquisitions (M&A) which will come under review by competition authorities.  Up to now, the benchmark used to authorise M&As has been the “consumer welfare standard,” which purports to protect consumer interests. In reality, though, the consumer welfare principle embodies a bias towards concentrated power which can harm consumers, citizens and businesses.

However, the EU Commission has updated its position vis-à-vis M&As through the Corporate Sustainability Reporting Directive, which entered into force in 2023. The new rules require companies to provide more comprehensive and transparent sustainability reporting in line with the Green Deal, and to avoid mergers that reduce green innovation.

Third, during the Covid-19 pandemic, we witnessed another instance of sustainability being prioritised over competition due to a need for exceptional collaboration, with the EU temporarily greenlighting alliances to address the need for improving the supply and distribution of scarce products. In the face of increasingly recurrent extreme weather events, we could again find ourselves having to bend competition laws to mitigate harm and speed up climate adaptation.

While few are paying attention beyond the technocratic circle, current debates around the intersection of competition law and climate have generally focused on the narrow question of whether and to what extent relatively superficial collaborations between big companies should be permitted. Although this didn’t happen in the EU, a good example is an agreement by a coalition of the UK’s biggest supermarkets to jointly purchase Fairtrade bananas and coffee, which the country’s competition watchdog has greenlighted.  

At the same time, competition policy is generally hostile towards looser, more decentralised forms of coordination, such as cooperatives of small businesses. This bias is also being called into question by anti-monopoly activists in favour of a more decentralised, resilient, and democratic market economy. One can easily imagine circumstances in which dispersed and localised forms of coordination may need to become commonplace. For example, there could be an urgent need for local food production and distribution cooperatives in the event of a food shortage.

Again, the content of the rules for permissions and exemptions on the one hand and prohibitions on the other will determine the resulting mix of collaborations. It is time to bring a broader group of commentators, embodying a wider set of values, into the debate on collaboration.

Fourth, the current competition laws could allow companies to occupy a temporary position of monopoly when there are supply chain disruptions as a result of climate-driven economic emergencies. This is similar to what happened during the Covid-19 pandemic, when profiteering led to an increase in the price of hand sanitisers, face masks, and certain food products.

Oligopolistic firms use such circumstances as a cover for tacit collusion to create excess profit, as captured by the term “sellers’ inflation” or “greedflation.” These practices can lead to macroeconomic consequences, and it falls on competition authorities to investigate them. In turn, these probes can then contribute to sustainability by forming the basis for taxing excess profits or imposing windfall tax policies. The mandate of competition authorities currently includes such responsibilities, but there is a risk that companies could avoid accountability with the help of regulatory loopholes.

Fifth, competition law is a powerful tool, giving authorities and courts formidable powers of discovery and remedy. The European Commission can fine law-breaking companies up to 10 per cent of their worldwide turnover, and it has, for example, initiated proceedings against tech giants Meta and Apple for their alleged infringements of the EU’s anti-trust rules and unsustainable market practices. As a result, companies pay attention to competition law because it goes right to the heart of their business model, financial planning and bottom line.

Competition policy is a board-level concern, meaning that it has the potential to be used as a powerful tool for reordering the economy. This raises crucial questions about the use and potential misuse of competition law. In the US, for example, the threat of antitrust action has been weaponised by lobby groups to intimidate coalitions of investors engaging in perfectly legal, commercially self-interested decisions to divest from fossil fuels.

There is also a sixth reason why competition policy can serve the transition to a sustainable economy: in systemically important sectors – such as fossil fuels, food, transportation, shipping, and banking – concentrated market structure and the resulting market failures impact emission levels, land use, and ecosystem protection, and determine the viability of potential solutions. For instance, just 57 countries have been responsible for 80 per cent of greenhouse gases released into the atmosphere since 2016.  Within the existing EU framework, competition policy acknowledges its role in influencing market structure to an extent, but not in contributing to other market failures. 

Lastly, economic conflicts are often accompanied by intense interest group lobbying. A cautionary example is how the agricultural lobby, representing large, multinational agrochemical companies, has channelled the justified anger of farmers in Europe into a false dichotomy between farmers’ livelihoods and the protection of nature. In reality, it is multinational enterprises and their representatives, not the farmers, that oppose the Green Deal because the existing system serves them well; and eventually, when the current system does inevitably change, these large firms will also be the ones with the resources to adapt.

Meanwhile, small-scale farmers see their incomes and way of life threatened. Many of them are already unable to continue with their profession and are leaving farming altogether, even without the added costs of complying with green regulations.

Competition policy shapes market structures and has enabled the relentless consolidation in the agricultural sector over recent decades. By allowing unrestrained economic growth, competition laws are indirectly responsible for the lobbying power of agrochemical companies, as well as dominant players in other climate-relevant sectors. This means that competition policy can also be indirectly leveraged to address existing imbalances by targeting the economic power of market giants.

In other words, competition policy can be used to ensure that the private sector remains governable and accountable to the public, and that it does its part in the efforts to bring sustainability to the European economy.

But there are limits to what can or should be achieved through competition policy. Competition law comes with its own doctrinal baggage, and there is nothing as difficult to dislodge as a set of bad ideas embedded amongst an international community of technical experts and academics.

Without democratic oversight, the competition regime has evolved in harmful ways. In the name of “freedom”, markets around the world have become dominated by powerful actors; a “competitive” market can be one dominated by just a few behemoths; “consumer welfare” is sought through low prices, even if that implies low wages and appears to serve corporate welfare better; big companies are regarded as “more efficient” even if they are better able to exploit workers and nature.

That international community of experts will not willingly relinquish their hold on the highly powerful lever of economic policy that they currently wield, even as they disclaim their responsibility for the social, economic, and ecological consequences of the mass consolidation of industry that their policies have created.

Competition in a time of crisis

Fundamentally, competition policy is part of a wider set of tools for capital governance that will shape, both passively and proactively, how economic resources are channelled in the context of the green transition, and the responsibilities and obligations of companies for their role in it.

In addition, current and future competition enforcement will have a bearing on some crucial questions: What will food distribution look like beyond 2030? What technologies will we use to connect with each other and share information when weather or health events make it impossible to meet in person? How is AI being used to spread climate disinformation?

All this raises the issue of democratic accountability. While the urgency of the green transition is undeniable, it may be used to override the objections of local communities to projects like power plants, wind farms or mining operations. Although the European fossil fuel energy system has been undoubtedly technocratic and top-down, the transition towards a decarbonised energy system and a more sustainable economy presents an opportunity to empower citizens and local communities.

However, the EU still needs to address the democratic dimension of its Green Deal. Across Europe, grassroots citizens’ initiatives are increasingly demanding a say in the implementation of the green transformation. Competition policy tends to see citizens only as consumers, but there might be another dimension to entertain in the face of our current crises.

Still, the trend remains towards centralisation. Notably, the current EU legal framework does not guarantee NGOs or the public a right to challenge European decisions on granting state aid when they are contrary to environmental laws. As such, the EU is not in compliance with the Aarhus Convention when it comes to citizens’ right to live in a healthy environment. (A pillar of environmental democracy, this international agreement to which the EU is part of requires that the public – whether NGOs  or citizens – are granted access to information, participation and even justice, should they consider that EU decisions do not comply with EU environmental law.)

Interestingly, the Commission could – under the pretence of complying with the Aarhus convention and seeking to protect citizens’ right to a healthy environment – choose a procedure that would exclude the European Parliament from the legislative process to the benefit of the EU Council. This would likely result in a structural power imbalance in favour of national governments, practically limiting the reach of civil organisations.

It is true that a citizen or NGO petition to the European Parliament can only have a limited impact. However, bypassing the only democratically elected body of the EU would ensure that competition policy remains in the dark, closed rooms where corporate interests meet governments’ (not necessarily democratic) preferences.

Averting, mitigating, and adapting to climate catastrophe and biodiversity collapse will demand an unprecedented deployment of resources and economic coordination, whether through private or public means. The crucial policy questions of our generation revolve around the mix of resources we deploy, and how and when we do it. Whether the green transition is just and democratic depends on who decides on the deployment of those resources, and in whose benefits those assets are mobilised. Competition policy might very well be where the next battle for a sustainable European economy takes place.