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Europe’s deepening crisis and Germany’s current state

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The European Central Bank (ECB), the Bank of England (BoE) and the Federal Reserve (Fed) went on to increase interest rates one after the other, as it was expected. Three central banks, who prioritize the “fight against inflation”, aim to make borrowing difficult and cool the economy by hiking the policy interest rate. While the ECB raised the policy interest rate to 2%, the Fed increased it to 4% and BoE to 3%.

ECB President Christine Lagarde asserted there is still way to go on interest rates, and that with the increase, their goal is to reduce inflation to 2%. Inflation in the euro area is expected to rise from 9.9% in September to 10.7% in October. Decisions on interest rate that make borrowing difficult are thought to pose a risk of global recession.

However, the debate that the ECB’s reasons for raising interest rates are not the same as those of the Fed is also on the agenda. Some economists argue that for the U.S., post Covid-19 period led to the rapidly increasing demand and therefore inflation, while in the euro area, geopolitical tensions (such as the Ukraine-Russia war) have become the source of inflation. This view is of “inflation-phobic” Bundesbank origin, fearing that inflation will become permanent in the euro area and that this will strain the German and European economies, especially in the year-end collective labor agreement negotiations in Germany.

On the other hand, we should also note that in the euro area, which is said to have fallen into an inflation pit due to geopolitical reasons, the hike in energy prices, which experienced a huge increase in summer, has started to decline. Natural gas prices fell by 50% compared to September and by 70% compared to August, when it peaked. The EU has clearly stopped seeing this nightmare of winter freeze, for a while. In this case, the view that geopolitical elements trigger inflation is partly impractical.

Source of inflation: Demand or profit?

But what is not right for Europe is right for the United States? Earlier, we stated the mainstream interpretation of the origin of inflation in the United States was excessive demand. There are also variants of this statement: Excessive money supply causes inflation; the fact that demands for wage increase force companies to increase prices causes inflation…

These statements are highly controversial, and the policies of the central banks are contradictory. For example, BoE, which claimed to control inflation by increasing interest rates, launched an emergency bond purchase program after the real estate market alarmed following Liz Truss’s package of tax cut, and did not hesitate to release money.

Moreover, these statements observed to lose their reputation within the mainstream. In an article published in the Financial Times, it was argued that the Fed’s showing excessive demand and wages as the cause of inflation did not reflect the facts. The article by Paul Donovan, the chief economist of the world’s largest asset manager, UBS, identifies the source of inflation as the profit margins of companies, with a long-lost openness.

Prices are rising faster than wages, and real wage growth is negative, Donovan says. This finding is based on the following: Businesses and companies have grown their profits by reflecting price increase to their customers, while at the same time making people work harder and increasing wages less than the prices. Post-pandemic household continued to consume by saving less and borrowing more, and thus managed to make up for the sorry state of real wages.

Numerical repercussions of sanctions to the German industry

A report released by the IMF last February estimated that 60% of inflation in the euro area was caused by supply shocks. Therefore, supply chains smashed by COVID-19, the destruction in international trade and the manufacturing industry are among the main causes of inflation. It is seen that the sanctions imposed on Russia have also stirred up trouble in the manufacturing industry in Europe, especially in the German industry.

Perhaps BASF, the world’s largest chemical producer, best describes the state of the German industry shaped after the sanctions against Russia. BASF reported last month that should Germany be forced to ration gas this winter, it may shutter its flagship plant, which employs 39,000 people. Even if this does not happen, BASF will have to stop some of its operations next year, and European consumers will be constrained to U.S. and Asian suppliers for their chemical supply, according to experts. It should be kept in mind that natural gas is not only an energy source for BASF, but also serves as a raw material for making products such as ammonia. Therefore, BASF CEO Martin Brudermüller is one of the most important opponents of sanctions against Russia.

According to preliminary estimates published in mid-October, BASF’s net income in the first three quarters of 2022 was 909m euros. That’s a 32% drop from the same period last year. The company’s second quarterly report also shows that energy costs rose by 260% compared to the same period last year, costing the company 500m euros.

It should also be noted that along with BASF, Putin supporter Russian oligarch Mikhail Fridman is the co-owner of oil and gas manufacturer Wintershall Dea. Wintershall Dea was also a major financial investor of in the Nord Stream 2 gas project.

The German energy giant Uniper is of a similar case. Announcing the balance sheet for the first nine months of 2022, Uniper reported a record loss of 40 billion euros. In September, the German government nationalized Uniper by acquiring a 99% stake. The government is expected to give Uniper a 30-billion-euro support package.

Reaction grows against US-Germany-based economy in Europe

Contrary to all expectations, Germany managed to grow by 0.3% in the third quarter. But alarm bells are ringing for other EU countries.

The EU’s second largest economy, France, grew by 0.2% in the third quarter. The growth in the second quarter was 0.5%; the recession was driven by a decline in consumption due to high inflation. Similarly, Spain grew by 0.2% in the third quarter, despite a 1.5% growth in the second quarter and a large increase in tourism revenues in post Covid-19. Yet again the slowdown in growth is also caused by decline in consumption due to inflation.

As a matter of fact, reactions to the ECB’s hike in interest rates were immediate. In her maiden speech, Italy’s new prime minister, Giorgia Meloni, sniped at ECB, saying hike in interest rates would create additional difficulties for states, like Italy, which have high public debt. Italy’s public debt is currently around 150% of Gross Domestic Product (GDP).

French President Emmanuel Macron, whose country’s public debt to GDP ratio is around 113%, has also been critical of the ECB’s decision. Unlike the United States, European economies are “not overheating”, Macron told experts that demand must be curtailed to reduce inflation. Finnish Prime Minister Sanna Marin said last month that the ECB’s credibility has become questionable, since it is driving economies into recession.

In Germany, on the other hand, the voice of the opposition began to grow more. Tino Chrupalla of the Alternative for Germany (AfD) party urged the German parliament to lift the sanctions against Russia, stop selling weapons to Ukraine and withdraw Germany from U.S. unilateral politics. Sahra Wagenknecht of the Left Party described the Greens as the ‘most dangerous party’ in the Bundestag for destroying the German economy with their stance on the Ukrainian war. Meanwhile, after the Left Party Group chairman separated himself from Wagenknecht, saying that the most dangerous party was still the AfD, rumors increased that the opposition figure would leave the party and form a separate organization.

German Chancellor Olaf Scholz took several CEOs on a trip to Beijing. According to CNN, Scholz is accompanied by German industry titans such as Volkswagen, Siemens, Deutsche Bank and BASF. The chancellor’s visit to China comes amid controversy that began when the Chinese state-owned Cosco sought to buy shares in the operator of one of the four terminals at the port of Hamburg. It should also be acknowledged that China is Germany’s biggest trading partner. Germany, whose economy is based on exports and is separated from the Russian market, appear to be not wanting to lose the Chinese market.

Europe

EU divisions deepen over who should negotiate with Vladimir Putin

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As the US continues to mediate talks between Ukraine and Russia, the debate within the EU over who will sit at the table is intensifying.

Negotiations between Russia and Ukraine scheduled for next week in Abu Dhabi, mediated by the US, will take place without European participation.

There are currently no expectations of a breakthrough, but this has not prevented infighting within the EU over representation.

Italian Prime Minister Giorgia Meloni added fresh friction to the debate yesterday, 5 November, stating that the EU gives “the impression of a Europe moving in different directions.”

In a letter to European Council President António Costa, she argued that the 27 EU leaders must unite behind a single representative before the end of the year.

According to Rapporteur, an “alphabet soup” of diplomatic formats, such as the E2, E3, E5, or the CoW (Coalition of the Willing), is competing to take centre stage in discussions concerning the future of Ukraine.

Facing elections next year, Meloni has long pushed back against the assertive stance adopted by the E3 format, which brings together the UK, France, and Germany, in their efforts to represent European interests in ending the war and shaping the continent’s future security architecture.

Last month, the Italian leader said:

“If France, Germany, and Great Britain believe that within that renowned E3 format they can achieve more alone than we can all achieve together, then they should at least do so in the name of everyone, with an official mandate from all parties.”

An EU diplomat remarked: “When we speak of the E3, we are talking about geopolitical influence, military strength, and financial power. This does not mean Italy is excluded, but Rome clearly believes it must have a seat at the table.”

Meloni has the backing of Poland, another major military power and the only other large EU country sharing a border with Ukraine.

However, her counterpart Donald Tusk has been less explicit about seeking a direct role in top-level talks.

“As you know, we have many different formats,” Tusk told reporters in Warsaw on Thursday. “We have a clear position as the EU and as the Coalition of the Willing. I am fully engaged in these processes.”

Foreign Minister Radosław Sikorski, however, proved considerably more outspoken. “The last thing we want is Western Europe dealing with Russia while bypassing Eastern Europeans,” Sikorski said, drawing parallels to the 1930s and the 1945 Yalta Conference:

“You cannot exclude Eastern Europe and Scandinavia from these talks. We are roughly 120 million people. Finland borders Russia, Norway borders Russia, the Baltic states border Russia, and Poland borders both Russia and Ukraine.”

Berlin argues that the E3 remains the natural representative group, given that Germany, France, and the UK are the three strongest military powers capable of underwriting future security guarantees for Ukraine.

Like Italy, Poland favours the E5 configuration, which would allow Warsaw and Rome to take part.

Yet Sikorski also floated another leadership lineup to meet Putin: António Costa, EU foreign policy chief Kaja Kallas, and UK Prime Minister Andy Burnham.

Sikorski argued that under EU treaties, the Costa-Kallas pairing holds the legal authority to represent the bloc.

Speaking to journalists in Lisbon on Thursday, the EU’s top diplomat, Kaja Kallas, said: “I agree with Prime Minister Meloni; we must not speak with different voices. We must remain united in stating that these matters sought by Russia require Europe’s decision as well.”

Meloni is not alone in pointing out cracks in the EU’s posture. Last week, Danish Prime Minister Mette Frederiksen, a close ally of Meloni on the European Council, questioned a phone call made to Putin by the leaders of Finland and Norway, asking what they truly hoped to achieve.

Finnish President Alexander Stubb and Norwegian Prime Minister Jonas Gahr Støre defended the conversation as a useful step taken in full coordination with Kyiv.

According to an EU official, the pair would be “more than happy” to discuss appointing a special envoy for Ukraine.

The official stressed, however, that the call was not “a bid” to position Stubb and Støre for the role.

Regardless, the war is unlikely to end this winter, even as Europeans explore fresh mechanisms to finance Ukraine.

“We must be realistic about peace talks and extremely cautious regarding Russia’s true intentions,” Donald Tusk said. “During the winter months, Putin may have less motivation to reach an agreement.”

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EU urges citizens to prepare 72-hour survival kits for crises

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European Union citizens should be prepared to meet their basic needs independently for the first 72 hours of an emergency until public services can organize relief, according to new guidelines.

Hadja Lahbib, the European Commissioner for Equality, Crisis Management and Preparedness, presented the non-binding advisory guidance at the European Civil Protection Forum.

In her remarks on the initiative, Lahbib said: “When a disaster strikes, the first hours can be vital. Every European must know what to do, how to protect their family and how to help others. Preparedness begins in our homes, our schools and our communities.”

The Brussels leadership explained that the new measures are prompted by Europe facing increasingly frequent and complex crises.

Under the recommendations, the European Commission advised citizens to stockpile essential supplies and keep pre-packed emergency grab bags ready.

These steps aim to ensure that individuals can address their primary necessities independently during the first three days of a crisis, before state aid is mobilized.

The guidelines also encompass three additional priority areas: preparing children for emergency situations, making safety measures accessible to individuals with disabilities, and ensuring the public is better informed about potential threats.

Citing the 2001 founding anniversary of the EU Civil Protection Mechanism, the European Commission also proposed designating 23 October as “EU Preparedness Day” each year starting in 2027.

EU member states are preparing for an extensive hybrid attack scenario that could result in casualties, according to a Politico report citing European diplomats and officials.

The report noted that divisions have emerged within the EU over the bloc’s security role and whether its initiatives duplicate the functions of NATO.

According to the same report, ambassadors from the 27 EU member states held closed-door meetings focusing on deploying emergency response teams and allocating resources from EU funds to an affected country.

Following the outbreak of hostilities in Ukraine in 2022, both the EU and NATO intensified their preparations for a potential military confrontation with Russia.

In its “White Paper on European Defence – Preparedness 2030”, presented in March 2025, the European Commission identified Russia as one of the primary threats to European security.

The document outlines plans to boost defence production and improve air and missile defence, unmanned systems, and military mobility.

Meanwhile, Estonia, Latvia, and Lithuania have begun drafting contingency action plans for a potential Russian attack, including measures for the evacuation of hundreds of thousands of civilians.

The three Baltic states decided in May 2025 to cooperate in the field of civil defence.

Lieutenant General Christian Freuding, head of the German Army, also stated that Berlin must be prepared for a Russian attack by 2029 or earlier.

On the other hand, Russian President Vladimir Putin stressed in a statement in September that Moscow is not preparing for war with Europe.

Putin stated that Moscow has no such plans and that there are no justifications or real reasons to escalate the situation with Europe.

Criticising the European stance, Putin described rhetoric from European nations regarding a Russian threat and the necessity of preparing for war as a “provocation” and a “deliberate incitement of the situation.”

The Kremlin also noted that the EU is turning into a “military-political-economic bloc” by spending vast budgets to weaponize its economies.

Russian Foreign Minister Sergey Lavrov warned that statements by EU nations regarding the risk of war with Russia are driving European rearmament, which could ultimately become a “self-fulfilling prophecy.”

In earlier remarks, Lavrov assessed that “if Europe attacks the Russian Federation, it will be a completely different war, and it will be over very quickly.”

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Paris meeting between Marine Le Pen and Nigel Farage unscheduled

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Plans for a meeting in Paris between Reform UK leader Nigel Farage and French far-right National Rally (RN) figurehead Marine Le Pen remain uncertain.

Farage’s planned visit to France, which he announced for October as part of an effort to establish ties with figures on the European right before the end of the year, has yet to be officially scheduled by Le Pen’s camp.

Speaking to Politico on condition of anonymity to discuss sensitive inter-party relations, four National Rally officials familiar with Le Pen’s schedule said no visit to the party leader had been planned.

Multiple party figures said they saw no urgency in drawing media attention to relations with Reform UK or to the migration pact signed in September.

One official noted that the “costs and benefits” of holding a meeting with Farage needed to be weighed.

Political circumstances for both parties have shifted markedly since the prospect of a meeting with Le Pen, widely viewed as the candidate most likely to win the first round of the 2027 French presidential election, was first mooted.

Jordan Bardella, the National Rally’s second-in-command, attended Reform UK’s conference in Birmingham in early September as guest of honour.

Bardella and Farage announced an agreement proposing the return to France of all migrants reaching the UK through unauthorised Channel crossings in small boats.

The proposal triggered a backlash across different political factions in France, where critics questioned why the country should accept the return of asylum seekers.

Internal problems also emerged within Reform UK during the Birmingham conference.

Reform UK, which had maintained its polling lead over the Labour Party led by Andy Burnham, who took over as prime minister from Keir Starmer, was shaken by an undercover investigation published on the eve of the conference.

The development, which raised fresh questions over the party’s financial structure, led to the resignation of Farage’s two most senior aides.

Labour subsequently recovered in the polls, while a rise in the Conservative Party’s share of the vote began to challenge Reform UK’s second-place standing.

The initial announcement that Farage would travel to France to meet Le Pen before the end of October was also made at the Birmingham conference in early September.

Referring to a trip to Paris after Bardella delivered a speech in English, Farage said: “The only downside is I think they’re going to invite me to Paris, and I will have to speak French, but never mind, we’ll get round it.”

However, no official invitation has been confirmed.

As October drew to a close and it became clear that Farage would not pay a return visit to the National Rally’s conference in Orleans, a senior Reform UK official maintained that the meeting was on the calendar for this year.

The leadership in Paris does not confirm that schedule.

The four officials familiar with Le Pen’s plans said they were unaware of any scheduled visit for Farage before Christmas. One of Le Pen’s advisers suggested that a meeting could instead be offered with Bardella, whose standing inside the party has weakened in recent months.

Questioning the merits of the party leader appearing alongside Farage, another adviser to Le Pen said: “We need a bit more time to think through the costs and benefits.”

Thibaut Francois, an official with the National Rally’s European Parliament delegation, said that “regular contacts” with Reform UK continued and that the two parties would meet “very soon”, though he did not clarify whether that would take place this year.

A senior Reform UK official said: “Reform’s primary objective is to become battle-ready for British elections; parading on the international stage right now would add nothing to the UK message.”

Charles-Henri Gallois, an economic adviser to Bardella, argued that there was no need for further contact between the two parties, asserting that the migration agreement was “ready and waiting to be implemented” should both parties come to power.

“There is no need to discuss this further,” Gallois told Politico. “Critics of the agreement do not understand migration flows. This agreement is entirely in France’s interest.”

With French voters wary of a UK-style exit, Le Pen has long distanced herself from efforts to pull France out of the European Union.

Jean-Yves Camus, a far-right specialist at the Jean-Jaures Foundation think-tank, said: “Farage still supports Brexit, whereas Le Pen abandoned the idea [of Frexit] because it was too frightening for French voters. Donald Trump’s defeat in the midterms will also reinforce Le Pen’s distrust of Trumpism and its European counterparts.”

The level of internal support within the National Rally for the migration deal signed by Bardella and Farage was a subject of debate even as it was being concluded.

Since the party conference in September, Bardella’s position has continued to weaken following antisemitism allegations, which he has firmly denied.

Before reaching the agreement with Bardella, Farage had proposed launching “the largest military operation in the Channel since the Second World War” to push small boats back to the French coast.

A figure close to Le Pen told Politico at the time: “Why would we take [them] back to France if they are not French?”

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