Is Europe Bound for a Trumpian Economic Reset?

"Having posited last week that the incoming Trump administration eventually would force Europe to shape up its own economy, I still must profess surprise at how quickly this process is unfolding. Witness the new growth strategies unveiled in Brussels and London on Wednesday.

U.K. Chancellor of the Exchequer Rachel Reeves on that day delivered a major speech on economic growth. The backdrop is a stagnating British economy plagued by persistent inflation, surging tax bills and plummeting business confidence. In their desperation to fix things, Ms. Reeves and her boss, Prime Minister Keir Starmer, are making a habit of these set-piece policy "resets" -- you'd think Britain's economy was a faulty Wi-Fi router -- but each time they manage to stumble a little further in the right direction.

In this outing, Ms. Reeves promised to slash through the bureaucratic and permitting red tape that makes it difficult to build anything in Britain.

The marquee project will be a third runway for London's Heathrow airport. That hypothetical stretch of tarmac has been discussed and debated for years by politicians of all stripes and has always faced intractable environmentalist opposition whenever an opportunity arrived to issue a final go-ahead.

Who knows if this time will be any different for Heathrow, but for now what matters is the implicit signal Ms. Reeves sent with this announcement: Economic growth, as embodied by an airport-building project, is more important to Mr. Starmer's Labour Party administration than the climate-change neuroses that so often have thwarted the new runway in the past. This is why the climate left is angry about Ms. Reeves's policy turn despite bones she threw to them in her speech, such as more spending on electric-vehicle charging points and less red tape for offshore wind generation.

Meanwhile across the English Channel, the European Union is trying to get its own economic act together. European Commission President Ursula von der Leyen on Wednesday laid out a new policy agenda called the "Competitiveness Compass."

Most of it, including the voter-friendly summary, reads like characteristic Brussels argle-bargle, but to the extent the project has a bottom line, it's this: Europe's climate policies are ruining the economy and something must be done.

Ms. von der Leyen, only months into her second term, appears to be promising a rethink of the "European Green Deal" that constituted her main accomplishment in her first term. Her new "compass" points toward less regulation, with a heartening if implausible numerical target for reducing the red-tape burden on business. Most important, the strategy hints at an imminent softening of the EU's electric-vehicle mandate, which already is starting to bankrupt Europe's auto industry a decade before it takes full effect.

Now, let's not get ahead of ourselves. Europe's policy turns this week are small in scale compared with the wholesale realignment under way in America. In part the difference is structural. As the holder of a powerful executive office within a relatively unified nation, Mr. Trump enjoys greater latitude to redirect government energies than a European prime minister, and certainly more authority than a European functionary in chief such as Ms. von der Leyen.

European leaders also face a political problem largely of their own making. European voters have been conditioned by decades of preachy politicking from left and right to believe more fervently in the climate agenda than the U.S. electorate ever did. As a result, European capitals are teeming with elected politicians mostly but not exclusively of the left who are eager to thwart any turn from climate obsessiveness and toward economic growth.

Recent elections have started to reverse this trend, but there's still political life in Europe's green left. Mr. Trump, in contrast, has the electoral wind at his back when he cans his predecessor's EV mandates or drills, baby, drills.

Expect that Europe's return to economic and climate sanity, if that's what we're witnessing, will be an iterative process rather than a big bang. Sure enough, "iterative" is what Ms. Reeves and Ms. von der Leyen delivered this week, despite all their hype.

Left unanswered are crucial climate questions, such as what role fossil fuels and nuclear power will play in energy production (the only economically sound answer is "a big one"), and unavoidable economic questions such as from where private investment capital will come given Europe's suffocating taxes and financial regulations.

But do give the Europeans credit for getting the first and most important decision right, so far. This is to follow along in Mr. Trump's pro-economic-growth slipstream rather than trying to swim against the current.

A continent that basked in its liberal-green virtue-signaly opposition to anything Mr. Trump did in his first term now finds it doesn't have the luxury to do it again amid accelerating deindustrialization and the deteriorating living standards of European voters. They didn't beat him the first time. That leaves them to try to join him the second time around." [1]

Switching back to Russian cheap natural gas perfectly matches this turn of events. The world needs functioning German industry to make an affordable transition to a green economy. Nobody wants to buy overly expensive heat pumps. This is why Germany's Scholz and France's Macron are dead in the water right now.

1. Political Economics: Is Europe Bound for a Trumpian Economic Reset? Sternberg, Joseph C.  Wall Street Journal, Eastern edition; New York, N.Y.. 31 Jan 2025: A15.