Europe’s Bill of Independence
Why Brussels must stop paying for Washington’s wars – and start saying so
Grüezi!
On 8 October, Germany’s Federal Statistical Office delivered what analysts called “another severe blow”: industrial production collapsed 4.3% in a single month – the steepest plunge since Russia invaded Ukraine.
Car manufacturing fell 18.5%.
Not a single economist in Bloomberg’s survey of 22 forecasters came close to predicting the carnage.
This crisis is systemic, not cyclical. Faced with closing factories for the first time in its 87-year history, Volkswagen has instead agreed to shed 35,000 German jobs.
European steel mills are operating at 60% capacity. Chemical plants that survived two world wars are permanently shutting down. Germany’s factories are running at capacity levels last seen during the 2009 financial crisis.
When EU leaders gather in Brussels on 23 October, competitiveness will be one item on an agenda dominated by Ukraine, defence spending, and migration. Yet European Council President António Costa’s call for “a strategic debate” to “strengthen Europe’s competitiveness” lands against a backdrop of industrial meltdown.
The question haunting the summit: how does Europe maintain its industrial base, fund a green transition, increase defence spending and compete with China and America – all at once?
To understand why German factories are running at financial-crisis capacity levels, why the automotive sector is in freefall, why energy-intensive industries are relocating to Asia – you need to understand the hidden subsidies that propped up European competitiveness in the first quarter of the twenty-first century.
And you need to recall the American wars that made those subsidies necessary, locked Europe into fatal dependencies, then handed Brussels the bill whilst Washington walked away.
1 Weapons to welfare
European industrial competitiveness in the early twenty-first century rested on a foundation few wanted to examine too closely: a collapse in defence spending that freed up enormous resources for everything else.
In 1989 NATO European members spent roughly 3% of GDP on defence. By 2005 that was 1.5%. Germany halved its expenditure from 2.8% to 1.4%. Billions annually were redirected from military budgets into welfare and balancing the books.
Between 1990 and 2004, a substantial portion of that peace dividend went east. Western Europe – particularly Germany – poured hundreds of billions into integrating the former Soviet bloc. EU structural and cohesion funds funded infrastructure that connected Warsaw to Western markets. Industrial investment transformed Czech and Polish factories. German reunification alone absorbed over €2trn.
German manufacturers, sitting on what had once been the West’s front line, gained access to skilled, low-cost labour just across the old border. BMW could build engines in Bavaria and assemble cars in Leipzig. Volkswagen could integrate Czech suppliers into production chains. BASF could maintain its Ludwigshafen complex whilst sourcing components from Poland.
There was an implicit transatlantic bargain. America would provide the security umbrella and drive NATO expansion eastward. Western Europe – particularly Germany – would fund eastern integration. The rump of the Warsaw Pact gets rebuilt, joins NATO, enters the democratic capitalist club.
For Washington, the benefits were considerable. NATO expanded from 16 to 26 members between 1999 and 2004 without America footing the bill. New NATO members needed American weapons systems to replace their old Soviet equipment. The alliance extended America’s security perimeter 1,000 miles east.
But there was a hidden vulnerability. European industry became dependent on a security architecture that it was no longer paying for and an Eastern expansion that it was financing with savings from that unpaid bill.
Then came 11 September 2001.
2 Baghdad’s bust
On 20 March 2003, American forces invaded Iraq. The official justification – weapons of mass destruction – was pure fiction. The economic consequences, particularly for European industry, were only too real.
In early 2003, oil traded at around $30 per barrel. By 2008 it hit $147. Chinese demand, supply constraints and speculation all contributed, but the acute shock came from Iraq. The invasion removed a major producer whilst stoking fears of wider regional conflict. Estimates put the “security premium” – the war anxiety surcharge – at $20–40 per barrel at peak.
For European industry, particularly energy-intensive sectors, this was existential. Chemicals, steel, aluminium – industries where energy accounts for 10–15% of costs – suddenly faced collapse. The peace dividend couldn’t offset energy costs that had quintupled.
Europe needed a new subsidy. Fast.
That subsidy came from Russia. In September 2005, two years into the Iraq War with oil prices climbing relentlessly, Berlin and Moscow signed the Nord Stream pipeline agreement. Germany’s chancellor, Gerhard Schröder, lost an election but immediately joined the Nord Stream board – essentially becoming Gazprom’s most prominent European lobbyist.
The pipeline was completed in 2012, creating a direct connection that bypassed Ukraine, Poland and the Baltic states, and eventually supplying two-thirds of Germany’s gas imports.
For German industry, this was salvation. By the early 2010s, Germany was paying 15% less than the average European price. For energy-intensive sectors, that discount translated to up to 1.5 percentage points of profitability advantage over competitors.
BASF became the poster child for energy dependency. Its Ludwigshafen complex used as much gas as Switzerland. The company needs gas for two things: 60% is burned for power and heating (theoretically replaceable with renewables); but 40% is raw material – the gas molecules themselves become chemicals like ammonia and plastics. And there’s no substituting that.
BASF’s subsidiary Wintershall had partnered with Gazprom since 1990. By the 2000s, cheap Russian gas had become what analysts called “a massive cash machine.” The company even pitched in help to fund the two Nord Stream pipelines.
Germany remained one of the world’s largest exporters throughout the 2000s not despite high energy costs but because Russian gas partially offset the Iraq War’s oil price spike. Whilst competitors paid war premiums on oil, Berlin got an energy discount from Moscow.
This wasn’t nefarious German plotting. It was rational crisis management in response to an energy shock largely created by American military adventurism. Washington had invaded Iraq; Europe had paid the price in restructured energy relationships.
The substitution was complete. As the Iraq War made the peace dividend insufficient, Russian gas became the second subsidy. European – particularly German – industrial competitiveness became dependent on preferential pricing from an authoritarian state with unfinished territorial business.
3 Financing empire on other people’s credit
The Iraq War didn’t just spike energy prices. It established a template for how America would finance its post-9/11 wars: by asking everyone else to pay.
Borrowing to fight wars was hardly new, but typically countries made their own citizens foot some of the bill. When Britain fought Napoleon, it introduced income tax. When America fought Hitler, it rationed butter and sold war bonds to Main Street. Truman raised top tax rates to 92% to fund Korea, and Johnson raised them to 77% for Vietnam. Domestic financial pain was part of the cost of combat.
But when George W Bush decided to remake the Middle East, he cut taxes.
Washington discovered it could fund wars through Treasury bonds that the world would rush to buy. Since 2001, the United States has spent $2.2trn in direct war costs – entirely through borrowing, unlike every previous American war from the Revolution to Vietnam. Foreign creditors put in roughly 40% – approximately $880bn. China and Japan served as the war’s primary offshore bankers.
Beijing’s factories produced goods for American consumers. China accumulated vast dollar reserves. Then it lent those dollars back to Washington to finance wars intended – theoretically at least – to maintain US hegemony against future challengers. And everyone pretended this was normal international finance.
European NATO allies contributed troops to Afghanistan. Forty-seven nations had combat forces on the ground – but the fiscal burden fell disproportionately on America’s creditors, many of whom were supposed strategic competitors.
America pushed the costs of empire offshore through debt and pushed the consequences onto allies through energy market disruption that forced them into dangerous dependencies on its strategic rivals.
The Europeans, already stretched by maintaining even limited defence spending, couldn’t afford the Iraq War’s oil shock. So they made a devil’s bargain with Moscow. America created the problem; Europe solved it by empowering Putin. Then, years later, Washington would lecture Brussels about being naïve about Russia.
Displaced people, disrupted politics
America’s wars didn’t just transform energy markets. They displaced millions who would reshape European politics.
By 2008, Iraq’s violence had created the world’s third-largest refugee population after Afghanistan and Palestine: 4.7m displaced. The Afghanistan War added 6.4m more. Europe responded by building walls.
From 2003 to 2007, only 60,000 Iraqis applied for EU asylum. Brussels refused to accept S-series passports – the most common type – requiring instead G-series documents obtainable only in Baghdad. To escape the war zone, refugees first had to navigate to its epicentre.
ISIS emerged from the vacuum created by Saddam’s fall. When Syria descended into civil war in 2011, jihadists who’d fought Americans in Iraq moved across the border. Syria’s catastrophe had multiple causes – drought, dictatorship, the Arab Spring – but the 1.5m Iraqi refugees already straining Syrian cities when fighting began weren’t there by accident.
Since 2011, more than 14m Syrians have fled their homes. In 2015, three human streams – Iraq, Afghanistan, Syria – converged on Europe in the continent’s largest movement of people since 1945.
An estimated 1.3m asylum seekers arrived that year. Over 75% were fleeing conflicts bearing American fingerprints.
4 The populist harvest
The 2015 crisis shifted politics rightward across Europe as the far right found in migration a weapon to shatter liberal consensus.
In Britain, immigration jumped ten percentage points to become voters’ top concern in the month before the Brexit referendum. Post-vote analysis found 33% of Leave supporters cited “regaining control over immigration and borders” as their primary motivation.
Ironically, Britain had processed far fewer asylum applications than Germany, France or Sweden. The fear wasn’t about the numbers – it was about loss of “control.”
Nigel Farage’s infamous “Breaking Point” poster showed Syrian refugees crossing into Europe. It worked because Britain was in the EU, and Merkel’s decision to open Germany’s borders could directly affect Britain through freedom of movement. Brexit became the way to close the door. Trump – always a smart monitor of the populist pulse – called Merkel’s decision “the final straw that broke the camel’s back” for Brexit.
Germany registered 2.6m first-time asylum applications between 2015 and 2024, mostly from Syria, Afghanistan and Iraq. Alternative für Deutschland pivoted from Eurosceptic economics to anti-immigration politics and surged from zero Bundestag seats to becoming Germany’s most popular party. Merkel later confessed: “The fact that I did this has polarised people, has led them to join the AfD.”
Preying on fear worked in Austria, Sweden, the Netherlands, Italy, and France, where the National Front’s Marine Le Pen secured 10.6m votes in 2017 – a historic high.
The standard explanation is to blame the eurozone crisis. Greek unemployment hit 27%, austerity shrank economies, North-South rifts emerged. But the energy shock driving Russian gas dependency was itself a eurozone vulnerability.
Countries cutting their budgets – Ireland, Greece, Spain, Portugal – could hardly invest in alternative energy whilst shuttering factories. Despite Russia’s 2009 gas disruption through Ukraine and the 2014 Crimea annexation, Europe couldn’t cut Russian imports. Energy-intensive industries battered by the financial crisis needed cheap gas to survive.
By 2015 these vulnerabilities were compounding. Austerity delayed recovery, energy costs eroded manufacturing competitiveness (only partially masked by Russian gas), bailouts hollowed government budgets, trust in elites shattered.
Into this landscape came 1.3m refugees.
Europe should have coped. Turkey, with a per capita GDP of $12,000 GDP, absorbed 3.6m Syrian refugees. Lebanon – 4.5m people, $8,000 per capita – hosted 1.5m. Jordan took in 1.3m.
With 450m people and $40,000 per capita GDP, Europe nearly collapsed politically over the same number.
This wasn’t about capacity. The Europe of 2000 – before Iraq, before the financial crisis, before austerity – could have managed. But 2015’s Europe had spent a decade managing cascading crises, each sapping resources and political capital required for the next.
Populations anxious about factory closures saw jobs disappearing. Households facing austerity saw services cut whilst politicians claimed “there’s no cash” – then scrambled to house refugees. Workers facing wage stagnation saw their politicians offering no solutions.
Policy makers found it easy to separate these issues. The public didn’t. Social media made it simple to mobilise around slogans and scapegoats and angry voters wanted angry answers.
And here’s the critical link for American responsibility: the Iraq and Afghan Wars’ fingerprints are all over the multiple crises that weakened Europe before the refugees arrived.
The energy shock forcing Russian gas dependency stemmed partly from oil price spikes after the 2003 invasion. The fiscal burden of supporting American wars whilst maintaining NATO commitments drained resources. Many refugees themselves fled conflicts rooted in a regional collapse that began in Baghdad.
These compounding vulnerabilities meant that when refugees arrived, they provided visible, human evidence of lost control that unified anxieties into a powerful political revolt.
That’s why 1.3m arrivals delivered Brexit, mainstreamed the AfD and resurrected France’s National Front. Not because the numbers were unmanageable, but because they arrived when economic reserves were depleted, industrial competitiveness was weakened, and political capital was exhausted by years of crisis management. People were primed to believe their leaders had lost control of everything.
The human cost of Bush’s wars didn’t stay in Baghdad. It reached the ballot boxes of Sunderland and Saxony. And it was entirely foreseeable – intelligence agencies warned invading Iraq would destabilise the region; refugee experts predicted displacement. Washington invaded anyway.
Then Americans elected a president promising Muslim bans whilst mocking Europe’s “weakness” in handling the crisis the United States had generated.
5 The end of the bargain
For two decades, European industrial competitiveness rested on two props: the peace dividend (defence underinvestment) and the Putin discount (cheap Russian gas). The Iraq War weakened the first, forcing further reliance on the second.
On 24 February 2022, Russia invaded Ukraine, and the second subsidy vanished overnight.
BASF’s crisis became Europe’s crisis. The company announced €3.4bn in additional energy costs – 84% in Europe. It permanently closed ammonia plants at Ludwigshafen. Seven hundred jobs disappeared there, 2,600 overall.
The chief executive announced future investment would focus on Asia:
“We need a more balanced regional structure. For Europe, in particular, this is a painful reality.”
The pain spread rapidly. German industrial gas demand plummeted 26%. Steel production collapsed 12% in the first half of 2025. The industry warned it’s at “2009 financial crisis levels”. Energy-intensive sectors across Europe faced impossible arithmetic: compete with Chinese manufacturers whilst paying two to three times their energy costs.
And now the final twist: alongside losing Russian gas, Europe faced pressure to restore defence spending to 2% of GDP – meaning the first subsidy would disappear too.
European industry suddenly faced Chinese competition without either protective cushion. BASF now operates more plants in China than in Germany.
The peace dividend and the Putin discount are gone. Last week’s industrial production figures show the result.
The Beijing factor
China’s WTO entry in 2001 fundamentally restructured global manufacturing. Scale advantages, state support, infrastructure investment – all created competitive pressures that would have challenged European industry regardless of the wars.
But it was the subsidies that determined how Europe adjusted to Chinese competition.
Imagine a counterfactual Europe in the 2020s: no Russian energy dependence, adequate defence spending maintained, 20 years of green energy investment paying off. Still facing Chinese competition, certainly. But from a position of strength, with resources to invest in automation, R&D and high-value manufacturing.
Instead, Europe faces a Chinese export surge whilst simultaneously losing both hidden subsidies. Wars didn’t prevent European adjustment to China. They forced European industry into dependencies that made adjustment disastrous when they collapsed.
European firms that might have spent the 2000s investing in productivity improvements instead spent those years solving energy procurement problems. German industry’s “competitive advantage” from cheap Russian gas was a competitiveness trap – all it provided was temporary pain relief.
When that disappeared, European industry discovered it had spent two decades building dependencies instead of capabilities.
6 The Tiger who came for tea
Here’s the part that needs saying clearly: America didn’t just create problems for Europe. It abandoned its own stated principles whilst forcing Europe to bear the consequences.
Its wars didn’t merely violate international law – they rendered international law obsolete for any state powerful enough to ignore it. When America invaded Iraq without UN approval, hunting for weapons that didn’t exist, it didn’t just break the rules. It announced that those rules no longer mattered.
Every autocrat learnt the lesson: the liberal order was for the weak. If Washington could invade Baghdad on spurious grounds, why couldn’t Moscow invade Crimea or march on Kyiv? The erosion of sovereignty as a principle began not with Putin’s “little green men” but with Powell’s little anthrax vial at the United Nations.
European taxpayers bought the US Treasury bonds that financed the war. European industry bore the energy shock. European politics absorbed the refugee crisis. European strategic dependencies funded Putin’s revanchism.
And when those dependencies proved disastrous in 2022, Washington’s response was to lecture Europe about naïveté regarding Russia – as if European industry had not been thrown into Russian gas dependency as crisis management after American wars spiked energy costs.
America pressured Europe to maintain sanctions on Russia even as this devastated European industry. Washington pushed Europeans to increase defence spending even as European economies struggled under energy costs partly created by American military adventurism. American leaders mocked European “weakness” whilst forgetting who created the crises Europe was managing.
The questions Brussels won’t ask
When EU leaders gather in Brussels, they’ll discuss simplification, innovation funds, regulatory reform. The Competitiveness Compass, the Clean Industrial Deal, defence readiness initiatives – all worthy responses to real problems.
But unless European leaders confront uncomfortable truths, they’ll treat symptoms whilst ignoring the disease.
The question that matters? If America expects European defence spending increases and support for containing China, what’s Washington’s responsibility for the energy insecurity, refugee crisis and fiscal burdens that have devastated European industrial competitiveness?
The transatlantic relationship needs fundamental renegotiation. European leaders will politely discuss “competitiveness challenges” without naming how they arose, commit to “energy independence” without explaining why dependence occurred, pledge “migration management” without acknowledging whose wars created the migrants.
Washington will continue pretending that European industrial decline is purely European failure.
None of the truths will be spoken.
7 The price of imperial hubris
The Iraq and Afghan wars didn’t make China join the WTO or invent electric vehicles. But they fundamentally restructured the competitive environment European industry faced.
They pushed up energy costs, forcing dependency on Russia. They generated refugees who fractured European politics. They established a template where America offshores costs through debt and disruption whilst allies pay in treasure, competitiveness and social cohesion.
German chemical plants are moving to China not primarily because Chinese energy is cheaper – though it is. Two decades of energy insecurity, political instability and resource diversion towards crisis management made European production increasingly unviable.
The tragedy isn’t just that America chose to ride roughshod over the global system it had created. It’s that America chose war, handed its allies the bill, and then lectured them about fiscal responsibility.
Washington created dependencies and then condemned them. American policies weakened European competitiveness, then Washington blamed Europe for the results.
When EU leaders meet this week to discuss competitiveness, they’ll produce communiqués about innovation, simplification and strategic autonomy. They’ll commit to investments that Europe should have made in 2005 but couldn’t because it was managing crises largely created by American choices.
And across the Atlantic, American politicians will continue believing that European industrial decline proves European inadequacy, not American irresponsibility.
The bills from 2003 are still arriving. Europe is still paying for wars it didn’t start, with money it didn’t have, for outcomes it didn’t choose.
Until European leaders find the courage to say this clearly – and until American leaders find the integrity to acknowledge it – this week’s meeting will produce more aspirational documents whilst the productive foundations of European industry continue their long, painful collapse.
The lesson isn’t complicated: imperial hubris always has a price. America just found a way to make its allies pay it.
Thanks for reading!
Best
Adrian