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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

Hungary’s new PM Magyar vows absolute ban on illegal migration, challenging Brussels over fines

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Hungary’s newly elected Prime Minister Péter Magyar has pledged to block all illegal migration, reject European Union quotas, and challenge Brussels’ punitive fines, signaling a highly restrictive border policy even as he vows to restore ties with European partners.

In his first interview with the German newspaper Frankfurter Allgemeine Zeitung since taking office, Magyar outlined his administration’s strategic roadmap. He addressed the smear campaigns directed against him by the former government of Viktor Orbán, relations with the EU, migration policy, and the economic necessity of maintaining energy ties with Russia.

Reflecting on his transition to power, Magyar noted that the Orbán administration targeted him, his family, and his colleagues during a highly polarized campaign.

“I have known Viktor Orbán for a long time. What happened during the election campaign was no surprise to me, even if it might be difficult to imagine in other countries,” Magyar said. “The mudslinging campaign was not just directed at me personally, but also against my family, my colleagues, and my friends. However, those who faced each other were not Hungarians against Hungarians; it was Viktor Orbán and his vassals standing against the Hungarian nation. One of our most important campaign promises is that we will do everything we can to reunite the Hungarian nation.”

Despite running a pro-European campaign to secure victory, Magyar acknowledged fundamental disagreements with Brussels, particularly on migration. He argued that former Prime Minister Orbán’s hardline stance during the 2015 European migrant crisis was correct.

“My government will pursue an extremely strict and decisive policy regarding illegal migration,” Magyar said. “You can be as angry with Viktor Orbán as you want—and no one has criticized him more than I have—but when the migration crisis began in 2015, he was right. Many member states have now admitted they made wrong decisions at the time. In any case, we will protect our homeland, our country’s borders, and the external borders of Europe.”

“Hungary will not accept any illegal migrants”

Responding to whether Hungary would comply with newly implemented EU asylum rules, which mandate member states to conduct processing procedures at external borders, Magyar delivered a firm refusal regarding quotas and penalties.

“I can only say this: Hungary will not accept any illegal migrants. We will not pay any penalties for this either,” Magyar said. “However, we will help protect Europe’s external borders, whether in Greece, Malta, or Italy. The 2015 migration crisis must be a lesson for Europe. The most important duty of European politicians is to protect the safety of the people. I believe there are many ways to stop illegal migration without violating European Union rules. It is simply a matter of being able to negotiate.”

Magyar also dismissed the current relevance of a European Court of Justice ruling imposing a daily fine of 1 million euros on Hungary for failing to implement EU asylum procedures, arguing the decision is outdated.

“The court’s decision was made at a very different time and under a different legal framework,” Magyar said. “Today, we are in a completely different situation. This decision no longer reflects today’s reality. Today, there are many countries acting just like Hungary, yet this European Court of Justice decision does not apply to them. I find this incredibly unfair. In order to protect our borders and avoid having to pay the daily fine of 1 million euros, we will hold talks with our European partners and find a common solution.”

While acknowledging that the judicial ruling is final and cannot be appealed, Magyar described the financial burden on Hungarian citizens as unjust.

“The decision cannot be appealed. We are looking for new rules and opportunities to avoid paying the fine,” he said. “It is unfair and disproportionate that the people of Hungary must pay a fine of 1 million euros every day. Similarly, it is a great injustice that while other member states receive these funds, Hungary has been provided with no financial resources for the wire fence it constructed to protect the external border of the European Union.”

“Exclusion only makes the far-right stronger”

Magyar strongly opposed pushback from member states—particularly pressure from Germany—to transition EU foreign policy decision-making from unanimity to qualified majority voting, defending the preservation of national sovereignty.

While rejecting the confrontational rhetoric favored by Orbán toward Brussels, Magyar emphasized the importance of compromise among sovereign states.

“I served as a diplomat within the European Union for a long time, and I know very well how difficult it is to reach a consensus among 27 countries. Yet, most of the time, this is achieved,” Magyar said. “Orbán always said, ‘We must defeat Brussels.’ I do not think that is the point. The point is to understand each other, to persuade, and not to try to defeat one another. People do not want a United States of Europe; they want a European Union based on strong member states. For this reason, I do not support transitioning to a majority voting system in many areas instead of the unanimity rule at this stage. We will negotiate and find a middle ground.”

Addressing the political rise of far-right parties across Europe, particularly in France and Germany, Magyar criticized traditional political elites for being disconnected from public anxieties and relying on political moralizing.

He warned that isolating these populist movements is counterproductive.

“I do not like labels like far-right or far-left. I do not like ideological wars,” Magyar said. “People deserve more than politically correct speeches where ideological labels are slapped on one another. I have no intention of interfering in the internal affairs of other member states, and I will not do so; on this point, I differ from Orbán. However, I observe that some countries make mistakes in combating extremist parties. In many countries, politicians do not act honestly. They do not understand people’s fears and expectations, and they do not dare to talk openly about problems and face them. They use the language of political correctness and, at the end of the day, fail to grasp reality itself. These are precisely the mistakes that certain groups exploit. Excluding these people and these parties, building a wall of isolation around them, is not a solution on its own. Exclusion only makes these forces stronger. In many countries, these mistakes have been recognized, but not yet everywhere.”

Asked if this critique applied to Germany, Magyar maintained his criticism of governing establishments.

“In many countries, the political, media, and economic elites protect their own positions and do not always address the real fears and problems of the people. But the public does not forget this. That is why what we need is honesty, honesty, and once again, honesty,” he said.

On the debate over whether conservative factions in the European Parliament should cooperate with the Alternative for Germany (AfD) party, Magyar shared his perspective on the future strategy of the European People’s Party (EPP), which includes his own party, Tisza.

“In the European Parliament, political forces must always seek a majority, and grand coalitions between the center-left and center-right can function. Germany and Austria are good examples of this,” Magyar said. “However, this does not always work, and that is why the CDU/CSU and the European People’s Party, which includes my party Tisza, may have to make a decision one day. In my view, the European Conservatives and Reformists (ECR) are the natural allies of the European People’s Party. Whether they want to cooperate with the AfD is not my decision to make. However, I believe that talking to one another and listening to the other’s arguments never causes harm. What we accept from each other’s proposals is an entirely separate matter.”

“Europe will partially return to Russian energy after the war”

Defending Hungary’s decision to continue importing crude oil and natural gas from Russia despite the war in Ukraine, Magyar emphasized the country’s landlocked geography and economic constraints.

“The Hungarian people elected me as the Prime Minister of Hungary. My government’s duties include ensuring energy security, security of supply, and the lowest possible energy prices,” Magyar said. “In recent years, Hungary has become one of the poorest and most corrupt countries in the European Union. Three million people live below the poverty line. Our neighbors in the European Union must understand that Hungary is a landlocked country. We are still dependent on Russian oil, and we cannot change this overnight. We have not seen economic growth for years, and we need cheap energy to grow. Of course, we are doing everything we can to diversify our energy resources, but we cannot afford to see our companies’ competitiveness decrease further and Hungarian families’ energy poverty increase. I think Europe will partially turn back to Russian energy resources and lift sanctions when the war ends, because the competitiveness of all of Europe is at stake here. In a future state of peace, no one has an interest in maintaining a new economic and political Cold War. For this, of course, the war must first end.”

While Orbán maintained close ties with American conservative movements and received explicit support from Donald Trump, Magyar indicated that the change in leadership in Budapest would not damage relations with Washington.

“The US is Hungary’s natural ally in NATO and a highly important economic partner. What happened during the election campaign will not change this. We will maintain good relations with every American administration,” Magyar said.

Magyar criticized Orbán’s personal relationship with Russian President Vladimir Putin, arguing instead for a pragmatic, non-ideological approach to Moscow in the post-war era.

“I know the role of Russia in Hungarian history very well. I have not forgotten the years 1849 and 1956. In both periods, Russian troops bloodily suppressed the Hungarian freedom movement,” Magyar said. “But on the other hand, the reality is that geography does not change. We must accept this as it is. Therefore, we must develop pragmatic relations with Russia once the war against Ukraine ends. Nonetheless, it is extremely clear that Russia currently poses a security risk to all of Europe. It is unacceptable that people in Europe must live in fear of Russian sabotage or a Russian attack. That is why this war must end, and we must provide international security guarantees to Ukraine. However, Europe can only develop when normalcy returns, and Russia cannot have an interest in a new Cold War becoming permanent on the continent.”

“We can turn a new page with Ukraine”

Magyar pledged to end the hostile state-sponsored propaganda directed at Ukraine by the previous administration, emphasizing his respect for Ukraine’s territorial integrity and his personal involvement in humanitarian efforts.

“We want to build good relations with all our neighbors, not least because a Hungarian minority lives in each of them. This also applies to Ukraine,” Magyar said. “We have always stated that Ukraine is the victim in the Russia-Ukraine war and that Ukraine has the right to its territorial integrity. When the Russians bombed the largest children’s hospital in Kyiv in the summer of 2024, I immediately went to Kyiv with our volunteers and personally delivered the humanitarian aid of the Hungarian people. Right after the attack, we set off in a 30-year-old Ford Transit and reached Kyiv within 20 hours under air raids and missile bombardments. I did not see any other European politician at that bombed hospital. We are currently holding talks with Ukraine at a technical level, and we are working to reach an agreement within a few days to restore and guarantee the language, education, and cultural rights of the 100,000 Hungarians living in Ukraine. Today, we need to clarify certain matters with Ukraine regarding our minority in that country, and I hope we will achieve this in the coming days. Ethnic Hungarians there currently do not have the opportunity to use their mother tongue in their relations with official authorities. However, if we resolve these issues on the basis of mutual interest, we can turn a new page.”

Magyar cautioned that future security guarantees for Ukraine must be concrete and enforceable, unlike previous international agreements.

“In 1994, the famous Budapest Memorandum was signed, in which the US and other major powers guaranteed Ukraine’s independence and integrity. However, these promises were not kept, because empty slogans are of little use,” Magyar said. “Right now, everything is at stake in Ukraine. A large number of people are dying, and it is possible that this country will lose part of its territory. Therefore, Ukraine needs real, enforceable international guarantees.”

However, the Prime Minister reiterated that Hungary would remain militarily uninvolved in the conflict, stating that arms shipments do not constitute a genuine security guarantee.

“I do not believe that weapons are a security guarantee. Security guarantees can only be provided by the international community,” the Hungarian leader concluded. “Hungary cannot play a decisive role here; this is the work of the major powers. We can provide diplomatic and humanitarian aid, and Hungary can also provide a suitable ground for negotiations.”

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EU agrees new deportation rules allowing migrant return centers outside the bloc

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European Union lawmakers and member states have reached agreement on new legislation overhauling rules governing the deportation of asylum seekers.

According to Politico, the agreed text allows asylum applicants whose claims have been rejected to be sent to dedicated return centers established outside the EU.

As a key condition of the deal, measures to establish the return centers are set to be implemented immediately.

The move is said to be of particular importance to the Netherlands and Germany. Other provisions of the legislation are expected to take effect one year later.

The agreement must still receive final approval from both the EU Council and the European Parliament before it can formally enter into force.

European Commissioner for Migration Magnus Brunner said the agreement would help the EU regain control over both those arriving in the bloc and those required to leave it.

According to data from Eurostat, the proportion of migrants denied asylum in the European Union who ultimately leave the bloc remains at around 27%.

“We must give people the feeling again that we have everything under control,” Brunner said.

The new framework grants member states the authority to transfer individuals ordered to leave EU territory to return centers located outside the bloc.

Several member states are already examining the option, while human rights organizations have warned of risks of rights violations and abuse during the process.

The legislation also introduces stricter measures, including home searches, extended detention periods, entry bans, and penalties for individuals deemed security threats or those who refuse to cooperate.

French Member of the European Parliament François-Xavier Bellamy told the publication: “For years, Europe sent the worst possible message: even if you had no right to stay, there was a high likelihood that nothing would happen. That era is ending. If you do not have the right to remain in Europe, you must leave.”

The initiative, however, has faced opposition from lawmakers affiliated with liberal and left-wing groups.

Melissa Camara, a representative of the Greens group, described the agreement as “a legal arsenal serving a xenophobic ideology” and criticized both offshore centers and the detention of minors.

Marta Welander, head of the International Refugee Committee, said the new measures signaled “a troubling new era.”

Welander argued that the rules would normalize migrant raids and increase the risk of people being deported to countries where they could face persecution or torture.

According to available data, the number of migrants living within the European Union reached 64.2 million in 2025. During the same period, the foreign-born population arriving from outside the bloc increased by 2.1 million people annually.

In 2010, the European Union was home to approximately 40 million migrants.

As a result, the migrant population has increased by more than 60% over the past 15 years, while migrants’ share of the EU population has risen to 14.2%.

In December last year, US President Donald Trump said Europe faced the risk of destruction because of the migration policies pursued by European countries.

Trump had previously argued that the continent was facing a wave of migration and that, as a result, Europe was “no longer the Europe it once was.”

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Anthropic invites EU cybersecurity agency to access Mythos AI hacking model

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Anthropic has invited the European Union to access Mythos, its powerful AI-powered hacking tool, by sending an invitation to the bloc’s cybersecurity agency.

A European Commission official said the AI company issued the formal invitation following a meeting with the Commission in San Francisco last Thursday, adding that the EU must now establish a mechanism that would allow access to the model under appropriate security safeguards.

Bloomberg reported on Monday that ENISA, the EU’s cybersecurity agency based in Athens, would be granted access to Mythos.

European Commission spokesperson Thomas Regnier said the Commission had held “several productive meetings with Anthropic” and “welcomes the latest developments regarding potential future access.”

Anthropic unveiled Mythos in early April and warned that the model outperformed most humans in identifying and exploiting cybersecurity vulnerabilities.

The disclosure raised concerns that the model could be used to carry out large-scale attacks against critical and sensitive systems if it fell into the hands of cyber adversaries.

European officials were unable to access the cutting-edge cybersecurity AI technology for weeks, prompting urgent calls from European lawmakers and government officials to secure access.

Cybersecurity officials also urged Europe to develop its own version of the technology.

“This latest development is extremely important in helping us gain a clear understanding of the potential risks. We should not forget that Mythos is not an isolated case and that a new wave of powerful models is entering the market,” Regnier said.

An ENISA official said the agency does not currently have active access to the model but is working to make it operational.

The Commission is developing a formal action plan to respond to powerful AI hacking tools.

According to an industry official, the Commission has indicated that it wants to publish the plan before the summer break.

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