In recent months, a wave of cautious optimism has swept across European circles. Some claim that Europe is "back on track" — buoyed by a perceived slowdown in the United States. But this sentiment is not rooted in real progress. It is a comparative illusion, not a genuine recovery.

  • Europe doesn’t look better because it’s doing well — it looks better only because the U.S. is reconfiguring its trade relations and global geopolitical model.
  • True leadership isn’t about outperforming a weakened competitor. It’s about driving global growth forward. And on that front, Europe is falling short.

A Continent Losing Industrial Ground

A recent report from Deloitte paints a sobering picture. Johan Deburchgrave, CEO of Vandersanden — Europe’s largest family-owned brick manufacturer — warns of skyrocketing costs and strangling regulations. Since 2020, labor costs have jumped nearly 20%, raw material prices have risen by 25%, and energy costs have more than tripled. On top of that, the EU Emissions Trading System (EU-ETS), meant to accelerate decarbonization, is threatening the viability of many businesses due to soaring carbon costs and the phase-out of free allowances.

“[...] the costs linked to the EU-ETS system will rise much faster than the speed at which we can execute our net-zero strategy” he warns.

Europe’s environmental policies may be rooted in good intentions, yet their execution has lacked economic realism, placing key industrial sectors under immense pressure. The consequences are already visible. EU industrial production has fallen by more than 10% over the past two years. Europe, once a net exporter of steel, is now a net importer — a symbolic shift that underscores the continent’s waning industrial competitiveness.

European manufacturers today are squeezed from all sides:

  • Sluggish domestic demand makes it harder to scale production,
  • A growing shortage of skilled labor undermines innovation and output,
  • The abrupt end to cheap Russian gas exposed Europe’s dependence on external energy sources, driving prices sky-high and further eroding industrial margins.
"The EU faces average energy prices that are almost twice as high as in the USA and China. This is a major structural handicap in terms of competitiveness and industrial productivity," said Raphaël Trotignon in Le Monde.

Without a recalibration of its environmental and industrial strategy, Europe risks sacrificing long-term economic viability for short-term symbolic victories.

Compromising The Future

Industrial sectors are not isolated entities — they rely on ecosystems made up of skilled labor, specialized equipment, tightly integrated supply chains, and decades of accumulated technical expertise. When factories shut down or downsize, the impact goes far beyond lost output.

  • This is the risk Europe is courting. Environmental goals are increasingly pushing businesses to relocate manufacturing abroad, often to regions with lower energy costs and less aggressive regulatory regimes.
  • In doing so, Europe not only exports its emissions — it explodes the delicate ecosystems that make industrial rebirth possible.
  • Once these ecosystems are broken, a rebound becomes exponentially harder. This is not just about machines — it’s about the people who operate them and the tacit know-how embedded in decades of industrial practice.
  • Today, a lack of skilled labor has emerged as one of the top barriers to European reindustrialization. According to the European Investment Bank, 85% of firms cite the shortage of qualified staff as the single most critical obstacle to investment — surpassing even high energy costs (82%).

Reducing industrial activity today in the name of the green transition may seem like a noble sacrifice. But in practice, it risks becoming irreversible. Once industrial ecosystems collapse — once factories shut down, supply chains disband, and skilled workers retrain or retire — the conditions for a comeback are no longer there. Europe isn’t just idling capacity; it’s dismantling the foundation on which any future industrial revival would have to be built.

The Regulation Trap

Europe’s industrial challenges are not just economic — they are deeply institutional. One glaring example of this is the EU’s latest crackdown on American tech giants. In April 2025, the European Commission issued its first-ever fines under the Digital Markets Act (DMA):

  • €500 million against Apple for allegedly stifling competition on its App Store,
  • €200 million against Meta for failing to comply with obligations around data sharing and user consent.

These fines represent a further step in the EU’s attempt to rein in Big Tech, asserting European sovereignty in the digital domain. But boldness does not equal strategic foresight — and timing, in geopolitics, is everything.

While global alliances are delicate and tech dominance increasingly determines geopolitical influence, Brussels is charging forward with punitive measures that may look principled on paper, but risk being ineffectual or even counterproductive in practice. The fines, substantial as they may seem, are easily absorbed by trillion-dollar companies like Apple and Meta. They pay. They adapt. They move on. But Europe?

The act of imposing these fines — especially at a moment when transatlantic cohesion is crucial — risks alienating the United States. And critically, by treating Big Tech regulation as a legal absolute, Brussels has inadvertently placed it at the center of EU-U.S. negotiations, despite repeatedly claiming it is “non-negotiable.”

The U.S. response is still pending, but it’s already clear that the damage may be done. At a time when Europe needs strong allies to counterbalance the rise of China and the unpredictability of Russia, it has instead chosen symbolism over substance — legal pride over geopolitical leverage.

Temporary Boosts

On the war front, Europe has been relying heavily on increased defense spending to stimulate industrial growth, with military procurement temporarily boosting demand for steel, energy, and advanced manufacturing. But this momentum is fragile. When a peace deal will pass, European governments will likely scale back defense targets and redirect spending toward their ever-growing social programs.

This shift would leave Europe exposed. While it demobilizes, Russia is unlikely to follow suit, continuing to arm and invest in defense infrastructure. The continent risks slipping back into complacency just as global power dynamics remain volatile.

Meanwhile, Europe’s trade dependence on China looms large as another structural vulnerability. The EU imports vast amounts of intermediate goods from China and exports heavily to it. In fact, China has been a lifeline for German (and European) industry over the past two decades, offering a massive market for its industrial equipment and cars. But this reliance is becoming a liability.

As the United States decouples from China, Europe is not — and that will prove costly. Should trade relations deteriorate, Europe will be hit significantly harder, both as an importer and exporter. Without a clear strategy to diversify or buffer this dependency, the continent is walking into a storm.

Mistaking Motion for Progress

All of this points to a deeper issue — Europe’s obsession with control over competitiveness. From green policies to tech regulation, the continent has mastered the art of creating frameworks… but forgotten how to create growth.

Until then, Europe will continue to drift — admiring its legal structures while its economic base erodes. The U.S., despite its flaws, will rebound. And when it does, Europe’s temporary moment of "relative strength" will vanish — revealing not a comeback, but a mirage.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Christian Lue / Unsplash.