Europe Sinks Into Recession and Abyss of Irrelevance

War sucks. And recession sucks too. Europe is unlucky enough to have both. Unlike typical recessions where prices fall, however, the damage is compounded by runaway inflation. Even by their official numbers, which always underestimate inflation, UK’s inflation rate is over 10%¹. With all the money printed during the covid lockdowns, inflation and recession were inevitable. But adding an energy crises and war make this recession truly unique.

One the biggest mistakes was Europe’s miscalculations on sanctioning Russia. Their sanctions have done absolutely nothing to stop or even slow down the war. Instead, they have inflicted massive price increases for energy and endangered the long term viability of energy-intensive industries. This is especially true in Germany, where factories are shutting down². Most of these factories will never reopen.

New World Order

The longer this war rages, the more damage it does to Ukraine and Europe. Back in April, I wrote about whether this war is a tipping point or not. At the time, I incorrectly assumed that some sort of peace agreement would ultimately end the conflict. However, the West turned a regionally border conflict into a clash of civilizations. In July, I described why a peace deal has become impossible. Now, the stakes have been raised where total defeat is the only viable outcome.

Putin clearly understands what is on the line. Recently he said, “Ahead is probably the most dangerous, unpredictable and at the same time important decade since the end of World War Two.”³. Meanwhile, the US is run by a senile old fool and Europe is in complete disarray. Just when Europe needs a strong Germany, it is de-industrializing due to decades of ideologically driven, green-energy policies. And the UK is completely devoid of any leadership at all.

Regime Change

Politics are messy, especially when recessions and wars are involved. The UK is a perfect example of this. To date, the current crises has claimed the Johnson and Truss regimes. In what can only be described as a coup d’état, Liz Truss became the shortest serving Prime Minister in UK’s history. In a brazen display of political power, the Bank of England threatened to crush the UK pension system by refusing to purchase more government bonds⁴.

In effect, the bank used its power to print money (or to not print, in case) to change fiscal policy. In a last ditch effort to save herself, Truss dismissed Kwasi Kwarteng, her Chancellor of the Exchequer⁵. But it wasn’t enough. The bank wanted completely different leadership, and used its power in the market to get it. Now, Rishi Sunak is the Prime Minister of the UK⁶.

Whatever your thoughts on an extremely wealthy globalist becoming UK’s latest Prime Minister, you should be horrified at how it happened. They manufactured a crisis to remove one PM and installed a new one without a real vote. Much like Biden’s 2020 primary race, the other front runners dropped out. For all intents and purposes, Sunak was installed by the Bank of England. I’m sure eventually there will be a general election⁷, but until then he is literally a puppet of the globalist, banking elites.

Currency and Sovereign Debt

As the European recession deepens, their currencies and sovereign debt struggle. The Euro has dropped by more than 20% versus the dollar over the past two years. The British Pound has experienced a similar drop. In fact, most world currencies are down versus the dollar. A notable exceptions is the Russian Rubble, which is slightly stronger since the start of the war. It is accepted wisdom that during times of crisis, investors seek safe havens, which drives the current surge in the dollar⁸. But there is more to this recession than meets the eye.

In another sign of decoupling across the globe, the ECB and the Federal Reserve are on separate paths. Both are struggling to contain inflation, but the Federal Reserve has promised to raise rates for as long as it takes⁹. The ECB, on the other hand, simply can’t do that. If they raise rates too high, the basket-case Mediterranean governments risk defaulting on their sovereign debt. Currently, the difference is only 1.25% between their interest rates, but I expect that to grow larger as the Federal Reserve continues raising rates¹⁰.

Recession That Never Happened

In an amazing display of mass manipulation, the US never officially entered into recession during the year of 2022. The government redefined the meaning of a recession and the media happily played along. Although the first and second quarters had negative growth, the Biden administration stuck its head in the sand and simply pretended that the recession didn’t exist. And with just a week to spare prior to the elections, Q3 showed a slight growth in GDP¹¹.

Before running victory laps, however, it should be stated clearly that the US is indeed in a recession. It is a deep recession that is only likely to get worse. How so? Inflation. Q3 growth is estimated at 2.6% annual growth. Meanwhile, inflation is over 8% for the year. This means the economy shrank in real terms¹².

With interest rates promised to keep rising, the economy will most likely enter an official recession next year. Sadly, a deep recession is badly needed by this economy. Home prices are still way too expensive. The auto credit market needs a reset too¹³. It’s been 14 years since the last recession, and it shows. Rates were irrationally low for over a decade, and all the bad debt accumulated over that time needs to be wiped away before the economy can start growing again.

Europe

As bad as things are in The States, Europe is worse. With the separation of the debt markets from LIBOR, the ECB will have an easier time setting rates independently from the Fed¹⁴. However, with fuel prices soaring and inflation running over 9%, the outlook is bleak¹⁵.

But recession is the least of Europe’s problems. Even the energy crisis pales in comparison to bigger issues that’s been brewing for decades. European faces another sovereign debt crisis¹⁶. Only this time, the scale of this pending crisis is gargantuan: Italy has almost 3 trillion Euros of public debt. That’s ten times larger than Greece, which failed during the original crisis. It’s so large that the currency union risks complete collapse.

Ironically, the looming recession may be the spark that triggers the next European sovereign debt debacle. I don’t know how or when it happens, but it eventually will. And when it does, I would be shocked if the Euro survives. Until then, the EU lives on borrowed time, and its collapse will send Europe into an era of irrelevance.

Conclusion

The war in Ukraine continues to send ripples of damage throughout the world. The European economy is collapsing into another great recession. Combined with an energy crunch, political instability will certainly follow. I’m sure the recent French protests are just the tip of the iceberg¹⁷. Unlike previous recessions, fiscal and monetary stimulus can’t solve the energy shortage.

Along with the looming sovereign debt timebomb, it is impossible for me to see how this ends well. It is fair to say that dark times await the continent. Will the union break apart or will it continue to limp along? Will nationalists groups emerge promising to end the globalist experiment in Europe? Can Russia lure Eastern European nations out of the union via cheap energy?

It is hard to predict. But the one thing I know for sure is that prolonging the war in Ukraine only makes all of Europe’s problems worse. More and more EU citizens are coming to this realization, yet their political elites are unwilling to compromise. Something has to give, let’s just hope it is peacefully resolved.