The news broke recently that after 15 months of growth, Europe's economy has "unexpectedly contracted," despite being forecast to remain the same, or even grow.

According to Politico, "S&P Global's composite purchasing managers index (PMI) fell to 48.6 in April from 50.7 in March. Analysts had expected it to stay above the key 50-point mark, below which activity is considered to be contracting."

And this is only the beginning. Chris Williamson, Chief Economist at S&P Global, says, "Increasingly widespread supply shortages meanwhile threaten to dampen growth further while adding upward pressure to prices in the coming weeks."

It was thought by some analysts that the economic lessons of the invasion of Ukraine had been learned, and that Europe had taken steps to ensure that it would not be held hostage again to an energy shock caused by events beyond its control. The main lesson, however, of structural vulnerability appears to have been ignored.

Europe's current situation cannot be attributed entirely to events in the Middle East, either: while these have acted as a catalyst, they have exposed underlying problems with the European Union's energy policies, and the disjointed nature of the member nations' own energy sectors. The green transition, spearheaded by the European Green Deal and pursued with regulatory intensity and considerable haste, systematically dismantled the continent's baseload capacity for energy provision and production long before replacement infrastructure was ready.

Coal plants have been shuttered on political schedules rather than economic ones. Nuclear programs, despite being reliable and domestically-controlled, were wound down in Germany and elsewhere on the presumption that alternatives would be available—a presumption that now looks like fantastical hope rather than prudential policymaking, especially as Bagger 288 quite literally rips the country apart. What remained in the absence of Germany's renewable energy industry was a grid increasingly dependent on weather and global interconnection.

Atop the national problem, the regulatory layer has become a compounding factor: European energy markets are among the most regulated in the world, with carbon pricing mechanisms, emission trading schemes, and capacity market rules, all of which might be reasonable in the abstract, but collectively and in reality produce a cost structure that inevitably gets passed downstream. Germany's BASF, one of the largest chemical manufacturers in the world, has raised prices as high as 30%.

Germany has become a case study in the dangerous effects of both leaving your energy economy exposed to global shocks and failing to invest in reliable energy creation industries that actually work. The decision to leave nuclear behind removed roughly 12% of its generating capacity, while becoming dangerously dependent on imported gas. Berlin has halved its economic growth forecast for 2026 from 1% to 0.5%, and for 2027 from 1.3% to 0.9% (though even these look optimistic). Some forecasts are putting the chances of Germany entering a recession in Q2 2026 at 33%.