Europe on a Death March to a War Economy

It has been a busy season of European theatre. Volodymyr Zelensky flies into London, is walked up the steps of Downing Street, filmed in the doorway with the prime minister, then shuttled through secure rooms with the French president and the German chancellor. The public line is unity, resolve, a fresh Ukrainian peace plan. The private agenda is more brutal. How do you keep funding a war that is already lost on the ground, without telling your own voters, your own industries, and your own workers that they are being handed the bill.

Europe has leaders in disarray, and the more they insist on unity, the clearer that disarray becomes. On one track, Brussels is trying to turn frozen Russian reserves into a magic money tree for Ukraine. On another, it has locked in a deadline to cut off Russian gas and oil completely by the end of twenty twenty seven, regardless of the energy needs of member states that never agreed to be a suicide pilot in someone else s war. Add Donald Trump, who now runs a private foreign policy with Moscow while openly threatening tariffs and market access, and the picture looks even worse. Europe is not being squeezed by fate. It is doing this to itself.

Frozen assets as fictitious collateral

The story begins in Belgium, not in the trenches. Around two hundred billion euros of Russian central bank assets sit immobilised with Euroclear and other custodians, a legacy of the sanctions wave unleashed after February twenty twenty two. For two years, this money has been described as frozen, an interim technical status that kept lawyers and traders happy because it preserved a legal fiction. The assets were still owned by Russia, still subject to sovereign immunity, still theoretically protected by the basic principles that made Brussels and London global custody centres in the first place.

That fiction is now being discarded. Unable to raise enough money for Ukraine through normal budget means, and under pressure from Washington to show more commitment, the European Union has started to talk about the frozen reserves as if they were already European property. First, there was talk of diverting the interest and other profits generated by these assets, a way to skim what Brussels called windfall gains without touching the principal. When that line started to fray under legal scrutiny, the next step appeared. If you cannot legally seize the funds, why not pledge them as collateral for a large loan and call it a reparations facility.

On paper, it looks clever. The European Union or a set of member states borrow tens of billions and say that these loans are backed by future Russian reparation payments. In practice, it is fictitious collateral. The Ukraine that emerges from this conflict will not be the legal entity that borrowed before the war, nor the entity envisaged in International Monetary Fund programmes. Large parts of the current territory, and the tax base that sits on it, will most likely be outside its control. Any attempt to assert continuity will trigger decades of legal dispute, not the kind of clean, bankable cash flow that a serious collateral pool requires.

The economic side is even more obvious. What remains of western Ukraine will be a shattered state with a collapsed population, ruined infrastructure, and massive liabilities to both private creditors and multilateral lenders. The idea that this entity will have surplus funds to pump back to Europe in the form of reparation payments is fantasy. Everyone involved knows that. They press ahead anyway because the point is not to secure future cash. The point is to create an operational fiction that allows the European political layer to keep writing cheques for war while pretending the money came from Russia.

Moscow has noticed. Former president Dmitry Medvedev has already said that seizure or diversion of Russian central bank assets would be treated as a cause for war, and has warned that if Europe goes down this path, any eventual settlement may involve what he calls real reparations paid in kind by the states that took the money. Whether that language is bluster or serious policy is almost beside the point. The message to every government and sovereign wealth fund on earth is simple. Assets held under Western custody are only protected until the day they become politically inconvenient. After that, the law will be re interpreted on the fly.

Energy self harm as policy, not accident

Asset confiscation would be damaging enough. Europe has decided to double that bet by making its own energy supply a battlefield. Brussels has now written into law that by late twenty twenty seven there will be no imports of Russian gas or oil by any European Union member. Publicly, this is framed as a moral and climate imperative. Europe, we are told, is freeing itself from dependence on Russian hydrocarbons and accelerating the green transition at the same time.

Strip away the rhetoric and the result is more prosaic. The decision means that Europe has locked itself out of the cheapest, most proximate energy source available to its industry and households, in favour of more expensive liquefied gas and volatile spot markets. It has done this at the same time as it is trying to build an electricity hungry digital and artificial intelligence ecosystem that will require far more stable power than it has today. That is not a transition. It is a deliberate energy squeeze.

Hungary and Slovakia have already signalled that they will challenge the gas ban in the European courts, arguing that it violates their right to secure energy for their own populations and industries. They are unlikely to prevail. When it comes to Ukraine and sanctions, the current Brussels doctrine is that energy security and economic competitiveness are optional. Signalling loyalty to the United States is not.

The numbers tell the story. Germany now sits near the top of global tables for domestic electricity prices. Other European states are not far behind. Industry in Germany, Italy, France, Belgium, and the Netherlands pays significantly more for power than competitors in the United States or Canada. For energy intensive sectors like chemicals, metals, and parts of the car industry, that gap is the difference between survival and closure. Academic work on electricity prices and employment makes a simple point. Sustained increases in electricity costs cause measurable falls in jobs in energy intensive manufacturing. You do not need a doctorate to understand why.

Officials and friendly media often blame this entirely on the green push. Wind and solar are expensive, we are told. The reality is that the green transition was never designed to take place with Russian pipeline gas and oil removed from the system overnight. That was a political choice taken after twenty twenty two, and it has been locked in by policy decisions since. The European Union is not the victim of some external energy shock. It chose to stage its own shock and has now committed to extending it into the next decade.

The only growth left is war

If you follow the money through the European stock markets, one sector still looks healthy. Defence. Arms makers, missile manufacturers, drone producers, the constellation of contractors around the new NATO spending surge, all have clear order books. The civilian industrial base does not. German car makers, chemical producers, machine tool firms, all talk quietly about energy costs, supply chain disruption, and the loss of reliable export markets. Some are already cutting investment and employment in Europe while expanding in the United States or in Asia.

On paper, one could tell a hopeful story about defence investment, technology spillovers, and industrial spin offs. The problem is that there is no credible export strategy. Ukraine has been an unflattering real time advertisement for many European systems. Tanks have proved vulnerable, air defence systems have struggled, ammunition stocks have been consumed faster than they can be produced. Very few countries outside NATO are queuing up to buy the same kit. Much of the new production is therefore destined to sit in storage or to be used up in a conflict that Europe has no clear path out of.

That is not an industrial strategy. It is a transfer of resources. European taxpayers pay higher energy bills and accept weaker public services. In return, a narrow set of defence firms and their shareholders receive guaranteed orders for products that will either be destroyed or stockpiled. Economies that once prided themselves on sophisticated machine building and high quality manufactured exports are reduced to building missiles, shells, and components whose value disappears the moment they are used.

A political class that has run out of world

This is not happening in an institutional vacuum. It is driven by a specific political generation. The current leadership class in Europe, from London to Berlin to Paris and Brussels, grew up under United States dominance, internalised Cold War reflexes, and built its careers on alignment with Washington. They were indulged, flattered, and rewarded as reliable pro Atlantic operators. The price for that indulgence was simple. Do not question NATO strategy. Do not question sanctions policy. Do not question the basic narrative about Russia and Western civilisation.

That bargain worked, for them, while there was enough surplus in the system to keep the voters quiet and the industrial base ticking over. That world has gone. The United States is no longer the uncontested centre of the global economy. China and the wider BRICS constellation have emerged as an alternative gravitational centre. The empire whose protection they sold is eroding, not expanding. When the tide went out, Europe s political class had nothing else to offer. No serious industrial strategy, no independent security concept, no new social contract at home.

So they have retreated to the one script they know. Hysterical demonisation of Russia, grand speeches about defending democracy in Ukraine, a media culture that treats any move towards negotiation as appeasement. It is theatre aimed less at Moscow than at their own voters. The aim is to divert blame. If their populations can be convinced that every closed factory, every cancelled rail project, every struggling household budget is somehow the fault of the Kremlin, then the same political class can survive a little longer.

The trouble is that neither the working class nor the industrial elites can indefinitely suspend their own experience. Steelworkers know when furnaces are shutting. Engineers know when investment projects are being moved to Tennessee or Guangdong. Even shareholders understand when an entire continent has decided to bet its future on defence orders and expensive imported gas. The more this reality bites, the less persuasive the old morality play becomes.

American leverage and European dependency

Overlay this with United States policy and the picture is even starker. Washington has always used trade, finance, and security guarantees as tools of influence. Under Trump, that strategy is simply being pursued with less tact and more noise. Tariffs on European steel and aluminium, threats of new duties on cars, linkage of NATO spending with access to the American market, all form part of a simple message. You will pay more, you will invest more on our soil, you will follow our line on China and Russia, or you will face punishment.

That message does not fall on empty ears. Large European companies, from chemicals to cars and tech, have already started to shift capital expenditure towards the United States, where energy is cheaper and industrial subsidies are generous. European leaders travel to Washington, promise to buy American liquefied gas at two or three times the old Russian pipeline price, and commit to building factories in the United States that ought, on any rational reading, to be built at home.

At the same time, an establishment conversation has begun about the need for Europe to reduce its exposure to United States policy. Serious economists and commentators talk about decoupling from America, about building an autonomous defence and industrial base, about the risk of being crushed between Washington and Beijing. Yet none of this appears in the speeches of the sitting leadership. They talk only about unity with the United States and confrontation with Russia and China, as if Europe had no distinct interests of its own.

Trump s private diplomatic channel with Russia, which has reportedly sidelined European leaders and even Zelensky in recent weeks, should be the final warning. Europe has spent years aligning its policy to a United States strategy in Ukraine. Now it discovers that Washington can pursue a separate track with Moscow, without even inviting Brussels into the room. Europe has committed economic suicide for a war it cannot control and for a patron who views it as expendable.

Russia, BRICS and the world that moves on

While Europe argues with itself and burns its own capital, the rest of the world adjusts. Russia has already redirected a significant share of its oil and gas exports to China, India, and other states that did not sign up to the sanctions regime. It offers discounted energy in exchange for investment, technology, and political backing. That process will continue regardless of whether Brussels ever decides to stop punishing itself.

The broader BRICS grouping has absorbed major energy producers and traders, from Saudi Arabia to Iran, while deepening financial and infrastructure ties across Asia, Africa, and Latin America. China moves carefully but relentlessly, building long term relationships with what used to be called the global South through investment, credit, and joint projects. It does not need to like Russia to see the advantage of integrating Russian resources into a Eurasian supply and value chain that does not depend on London, Brussels, or New York.

From Moscow s perspective, the frozen assets saga simply confirms what twenty years of experience had already suggested. Western custody is a loan of power, not a neutral service. Sovereign immunity is contingent. Contracts are honoured only until politics says otherwise. In that world, it makes rational sense to push trade, finance, and reserves away from Western centres and into alternative institutions. Europe, pre occupied with teaching Russia a lesson, has not noticed that it is teaching the rest of the world a different one.

Britain as preview, not exception

Some in Brussels and Berlin comfort themselves with the idea that Britain is a special case. Brexit, they say, has condemned the United Kingdom to decline, while the continent can still save itself. That is wishful thinking. London made a choice decades ago to prioritise its role as a financial centre over its industrial base. The very last major industries that gave Britain real weight in global markets were allowed to run down, move abroad, or be sold off. For a while, the City could still thrive on global flows of capital and trade.

That model is reaching its structural limits. As China, Russia, and BRICS develop their own payment systems, currencies, and capital markets, they will have less reason to route activity through London. As the European Union ages and stagnates, the pool of business that can be intermediated shrinks. Financial centres cannot exist forever on gravity and nostalgia. They require real economies somewhere underneath them. When the underlying economy is weak, the financial superstructure becomes fragile.

What Britain is experiencing now in slow motion is a warning, not an anomaly. The European Union is voluntarily putting itself on a similar path. It is hollowing out industrial capacity, accepting high structural energy costs, and replacing long term investment with budgetary transfers and defence orders. At some point, it will discover that its financial and institutional prestige cannot survive that hollowing out.

Collision or course correction

Put all of this together and the picture is not complicated. Europe is engaged in a deliberate, politically driven restructuring of its economy and its role in the world. It has chosen to weaponise its financial system by freezing and attempting to divert Russian reserves. It has chosen to weaponise its energy system by locking itself into a future without Russian gas and oil, regardless of the cost. It has chosen to subordinate its industrial and trade strategy to United States priorities, even as Washington demands tribute through tariffs and investment.

These are choices, not inevitabilities. They are made by a specific political class that has reached the end of its world and has nothing left to offer except permanent Cold War and moral theatre. The price is being paid by workers, by industrial firms, by younger Europeans who will inherit weaker economies and more dangerous security environments.

There are only two broad ways this ends. One is collision. The frozen assets gamble goes ahead, Russia reacts in ways that escalate the confrontation, and Europe discovers that it has destroyed its own financial credibility while gaining nothing on the battlefield. Energy prices remain structurally high, deindustrialisation accelerates, and the political layer responds with censorship, repression, and ever more frantic appeals to unity against an external enemy.

The other path begins with a simple admission. The unipolar moment is over. Europe is no longer the centre of the world and cannot behave as if it were. That would mean accepting a truly multipolar order, rebuilding energy and trade relationships on a less ideological basis, and reclaiming some strategic distance from Washington. It would also mean telling voters the truth. The current trajectory is not sustainable. It will not bring victory in Ukraine, and it will not preserve European living standards.

At the moment, almost nobody in power is prepared to say that. But reality has a way of imposing itself on political narratives. The longer Europe refuses to correct course, the harsher the eventual adjustment will be.

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