Useless Europe is sliding into an unprecedented crisis

Brussels’ big bet on monetary union has brought little benefit and nearly ended in disaster

13 October 2025 Daily Telegraph 

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Back in January, many commentators believed that this would be the year the EU outshone the United States in economic performance.

After all, America was apparently going to be governed by a madman who was going to implement all sorts of destructive policies with dire effects, not only on the world, but especially on the US economy.

Meanwhile, in Europe, Germany was finally going to abandon its ultra-tough fiscal policy, enabling it to expand its borrowing to finance much increased spending, including on defence. To many, it seemed as though the EU was finally coming of age.

But events have not exactly followed this script. For a start, the American economy has done remarkably well.

Inflation has not shot up in response to Donald Trump’s tariffs. Admittedly, stiff increases in goods prices may be yet to come through. But a slowdown in services inflation may allow the overall inflation rate to remain roughly steady at about 3pc.

Most impressively, despite the increased costs and uncertainty inflicted on business, the US economy has continued to grow strongly.

In Q3 of this year, it looks as though it expanded by about 0.9pc, which equates to 4pc at an annualised rate. This compares with a quarterly increase in the eurozone of 0.1-0.2pc.

The US president’s clampdown on immigration and enforced deportation of many workers has led to a slowdown in job creation.

It was widely believed that this would cause American businesses major problems.

In the event, the combination of buoyant output and restricted labour supply has meant that US productivity growth has surged. On the latest numbers, it was running at about 3.5pc over the year.

In this productivity picture, many observers see at work the benefits of investment in artificial intelligence (AI). Certainly, the spending on AI investment by many American businesses has been impressive.

Across the Atlantic, in the EU, nothing of this sort can be seen. There are, of course, no really big AI producers, either of the relevant physical kit or the software and algorithms.

Yet, as I argue in my book The AI Economy, that needn’t matter much. It is using AI to the full extent which brings the greatest gains. And herein lies the worry about the EU – its inherent opposition to destabilising, new technologies and its urge to over-regulate.

Admittedly, the abrupt change in German fiscal policy is indeed impressive. But, on its own, this is not going to do that much to boost demand across the EU.

In any case, a shortage of demand is not the main problem facing Germany or the rest of the EU.

The major problems are surely on the supply side of the economy. Moreover, although Germany has the scope to relax fiscal policy, hardly any other EU member country has. Indeed, in most of them, there is a serious need for fiscal consolidation.

This applies most clearly to France, where it looks as though the country is heading for an almighty political and financial crisis.

At its root is the refusal of the French electorate, and therefore the major political parties, to accept that the country’s extravagant “entitlement spending” on pensions and welfare payments has to be slashed. (Does this ring a bell?)

To put the country’s situation in context, French bond yields are now roughly the same as Italy’s.

Yet along with Germany, France has been one of the two main drivers of the European project. With France in such a crisis, it is difficult to see the EU being able to take tough economic decisions, or fashioning a new political framework, let alone exercising a leadership role in the world.

None of this will come as a surprise to readers of a new book, just published, entitled Can Europe Survive? by David Marsh, the doyen of European political and economic analysis. For more than a quarter of a century, Marsh has been at the heart of the major political and economic events in the EU and has known all of the key players, in many cases closely. So what he has to say deserves close attention.

Marsh sees the EU’s faults with a crystal-clear eye, yet he retains more than a modicum of optimism. He thinks Brexit was a major blow to both the UK and the EU, but he sees scope for the relationship between them to develop in the interests of both.

Marsh’s analysis brings out the damage that the single-minded pursuit of “ever closer union” for all members has done to European unity and Europe’s survival prospects. As I too have long argued, he believes that a Europe of “concentric circles” and “variable geometry” offers a better way.

Relatedly, the EU made a big mistake in betting the ranch on monetary union. This not only very nearly ended in disaster, but it has brought very little real benefit.

All along, the cause of European unity would have been better served by developing close cooperation over defence and security.

Instead, as we all know, the last three quarters of a century have seen the infantilisation of Europe, as it relied more or less completely on US protection. It has taken a combination of Vladimir Putin’s invasion of Ukraine and Trump’s assertion that America will not bankroll Europe’s defence to bring home to Brussels elites that they must both spend more money on defence and present a united front.

Paradoxically, as Marsh suggests, focusing on this area, rather than on monetary union, offers a much better prospect of securing European unity.

In this regard, Putin may well have done the cause of European unity a massive favour.

At the same time, this route offers probably the best way of securing good relations between the EU and the UK. The simple fact is that with regard to defence, security and intelligence, if in no other sphere, the EU needs the UK at least as much as the UK needs the EU.