Halloween came and went this week – and, with it, the annual opportunity for otherwise self-respecting adults to dress up as ghosts, ghouls, and other ghastly entities. Arguably, however, nothing is as spine-chillingly terrifying – and terrified – as the European economy itself.
The EU’s growth is horrifyingly slow; demand is dreadfully weak; and foreign investment is at a frightening nine-year low. Businesses, meanwhile, are cursed with high energy prices, US tariffs, and fierce Chinese competition; ordinary citizens, plagued by stagnant wages and tormented by geopolitical uncertainty, are afraid to part with their hard-earned wealth.
Indeed, Europe’s terror is so palpable that it has even stirred its usually workshy politicians into action. Fear of foreigners has compelled EU leaders to pull up the bloc’s migrant drawbridges; fear of Russia and US military abandonment has sparked a splurge in military spending; and fear of firms decamping to China or the US has triggered a wave of regulatory ‘simplification’.
“Europe is suffering from a fear of decline,” said Philipp Lausberg, a senior analyst at the European Policy Centre. “There is a sense that things are going downhill, that we’re losing our prosperity, and that the political and geoeconomic order is changing in a way that isn’t to our advantage.”
Alas, fear begets fear. The increase in defence expenditure has unnerved fiscally conservative policymakers who are still haunted by the nightmare of last decade’s eurozone crisis. Similarly, the rush to slash red tape has alarmed labour groups that are already anxious about stagnant wages and EU governments’ attacks on workers’ rights.
The fear is also viciously cyclical. Consumers’ reluctance to spend is largely responsible for companies’ unwillingness to invest. And companies’ unwillingness to invest, in turn, shapes an economic environment in which consumers are reluctant to spend.
Fear, in other words, is not merely a cause of current EU policymaking. It is also a symptom of the bloc’s current economic malaise, which, in turn, exacerbates the disease.
Legitimate fears?
In fairness, Europeans are right to be afraid. The ‘Doomsday Clock’, set each year by the Bulletin of the Atomic Scientists, is currently fixed at 89 seconds to midnight: the closest humanity has ever been to annihilation.
Interestingly, however, the main threats to humanity cited by the Bulletin – nuclear war, climate change, and the risks posed by disruptive technologies, such as AI – do not always rank among the principal worries cited by most Europeans.
Indeed, some of their concerns might even be counterproductive. For instance, fear of migrants – which surveys show is widespread throughout Europe – makes little sense when, as Mario Draghi points out in his influential report on European competitiveness, the EU is increasingly in need of skilled labour. (Europe will shed roughly 2 million jobs annually by 2040, he notes.)
However, it would be overly simplistic to claim that citizens’ concerns – which also include a lack of access to housing, inflation, and general economic anxiety – are entirely misguided. And it would be an even greater oversimplification to claim that fear – which is amplified by social media and, it must be admitted, many conventional news outlets – is the sole problem afflicting the EU.
The slump in Chinese demand, for instance, was not caused by fear, but rather by Beijing’s strategic foresight and European automakers’ hubris regarding the continued consumer demand for combustion-engine vehicles.
Similarly, US tariffs on EU exports, although ultimately accepted by Brussels over fears of America’s abandonment of Ukraine, were not caused by fear but by Donald Trump’s insanity.
A (sub-)optimal outcome
Nevertheless, it remains true that overcoming fear would be hugely beneficial to the European economy. But can this be done?
Many believe that it can. Sander Tordoir, chief economist at the Centre for European Reform, has suggested that Europeans’ high savings rate – which, at 15.4%, is more than three times that of the US – can be brought down, and channelled into productive investments by specific government policies, such as consumer subsidies for electric vehicles.
Tordoir also noted that, while individual citizens’ decisions to squirrel away their money may be economically rational (e.g. as Europeans age, they need to save more for retirement), this can also “add up to a sub-optimal outcome for aggregate demand and output”.
“With the right policies, governments can pull those savings into productive investment and generate demand for Europe’s producers,” Tordoir said.
Many also note that the more sweeping reforms proposed by Draghi – such as capital markets integration or bolstering the size of the EU’s long-term budget – would be even more helpful.
Ironically, however, some suggest that in order to do this, fear itself must ultimately be overcome.
“The EU is still too afraid to press the big buttons… that Draghi has put on the table,” said Nils Redeker, acting co-director of the Jacques Delors Centre. “There’s a lingering fear of backlash against meaningful reforms in a polarised political climate.”
Fears of political reprisal might, in other words, be the very emotion that prevents politicians from enacting reforms that would alleviate their electorate’s fears – and ease Europe’s political polarisation.
A complex thought, to be sure. But also a scary one.
Economy News Roundup
Brussels remains wary despite US-China trade truce. The European Commission declined to comment directly on an apparent easing of trade tensions between the US and China on Thursday, despite Beijing’s announcement that it would suspend the imposition of rare earth restrictions that have alarmed EU industry leaders. “We don’t comment on trade negotiations between third countries, but, of course, in principle, we welcome any development that removes barriers to global trade flows,” a Commission spokesperson said. Read more.
Brussels remains wary despite US-China trade truce
The European Commission declined to comment directly on an apparent easing of trade tensions between…
4 minutes
Eurozone economy expands despite German stagnation. The eurozone economy grew by 0.2% in the third quarter of 2025, beating analysts’ expectations, Eurostat, the EU’s statistics agency, reported on Thursday. The uptick came in spite of stagnant output in Germany, the bloc’s largest economy. An increase in corporate investment and aeronautical exports helped France to unexpectedly grow by 0.5%. Read more.
Brussels urges Romania to ‘stay the course’ on deficit-slashing measures. EU economy chief Valdis Dombrovskis said after a two-day visit to Bucharest on Tuesday that it is “important” for the Black Sea nation to maintain its efforts to reduce its sky-high budget deficit, which stood at 9.3% of annual GDP in 2024: the highest in the EU and more than three times the bloc’s 3% fiscal limit. Read more.
Brussels urges Romania to ‘stay the course’ on deficit-slashing measures
The European Commission called on Romania on Tuesday to maintain its efforts to reduce its…
2 minutes
EU doubles down on Ukraine reparation loan after Belgian pushback. Speaking in Stockholm on Tuesday following a meeting of Nordic European leaders, Ursula von der Leyen said that the €140 billion scheme, which would draw on Russian sovereign assets held by Brussels-based clearinghouse Euroclear, remains “legally sound”. Tellingly, the European Commission chief also refused to mention an alternative option of using common EU debt to plug Ukraine’s colossal budget needs, despite being directly asked about this. Read more.
Berlin urges ‘dialogue’ with China after EU trade bazooka threats. Germany’s foreign minister called for calm amid a mounting trade spat between the EU and China over critical mineral export curbs on Monday – just days after the bloc’s top brass threatened to fire their most powerful trade weapon at Beijing. “We want a close dialogue with China,” Johann Wadephul told reporters during a visit to Brussels, where he met with von der Leyen and Trade Commissioner Maroš Šefčovič. Read more.
Berlin urges ‘dialogue’ with China after EU trade bazooka threats
Germany’s foreign minister called for calm amid a mounting trade spat between the EU and…
2 minutes
EU to propose ‘concrete’ critical mineral plan before end of 2025. Brussels is seeking to flesh out a plan to reduce its dependence on China for critical minerals before the end of the year, a European Commission spokesperson said on Monday. The comments come after Commission President Ursula von der Leyen’s weekend unveiling of ‘RESourceEU’, a proposal to strengthen Europe’s supply chain resilience for strategically crucial metals by boosting trade links with third countries, increasing domestic mining and refining, and joint stockpiling. Read more.
