ECB Ends Easing Cycle, But The Eurozone Crisis Is Just Beginning

By Thomas Kolbe

The European Central Bank has reached the end of its rate cycle – and has become ensnared in the very problems to which it has significantly contributed. In Sintra, this was all but hidden behind a facade of central banker utopia.

The annual Sintra conference, just west of Lisbon, serves the ECB much as Jackson Hole does for the Federal Reserve. It’s a moment to review, to look ahead, and to tie the past year’s monetary policy into a broader political narrative. For ECB President Christine Lagarde, that narrative is easily summed up: after eight cuts, rates now rest at two percent; inflation hovers around the two-percent target; employment across the eurozone remains stable; and a fresh debt crisis is nowhere in sight.

That is the essence of Lagarde’s Sintra address—designed to convey one message: everything is under control. Even uncertainties such as Trump-era trade volatility, geopolitical upheavals, or the collapse of German industry are said not to derail the ECB’s set course. Following the market flood during the lockdowns, things are now deemed normal—markets “swing” around their equilibrium. In central bank parlance: they’ve found the “neutral rate.”

The Chimera of the Neutral Rate

The “neutral rate” is the holy grail of central banking mystique. When policy makers feel secure, and media campaigns successfully mask the erosion of fiat currency, it becomes the mantra. In this worldview, the ECB’s policy rate and some theoretical, consolidated market rate align—not by chance, but by design. Even before Lagarde’s closing remarks, ECB Executive Board members Joachim Nagel and Philip Lane had laid the groundwork all through June, repeatedly sending the “neutral-rate” message.

That message? That they have balanced inflationary and deflationary forces and steered the eurozone back onto a growth trajectory. Let’s skip debates over manipulated inflation stats and dramatically understated unemployment figures. These neutral-rate narratives are nothing more than central-bank fairy tales from One Thousand and One Nights—prepackaged press releases meant to evoke sovereignty. Economic processes don’t reduce to such simplistic frameworks. But that’s precisely not the point: the neutral-rate story is a sedative—for governments and markets alike.

The Fiscal Original Sin

The tale of the ECB as guardian of monetary stability is a relic of Bundesbank days. That era is long gone. Central banks worldwide, dragged into political-fiscal entanglements during the last debt crisis 15 years ago, have since become dependent. During the lockdowns alone, the ECB’s PEPP absorbed €1.85 trillion of eurozone sovereign debt—and today still holds roughly a third of that mountain of obligations.

Today, the ECB’s sole goal is to keep those sovereign debt-stacks liquid—buying up bonds shunned by the market to maintain the illusion that public debt, generous welfare, and Keynesian interventionism are all sustainably reconcilable.

Eurozone governments have long relied on external liquidity. With public debt averaging 100 percent of GDP, many member states would be insolvent without the ECB’s backstop. That would have consequences—not just for markets, but for social cohesion, internal stability, and the self-image of an EU-Europe built on oversized welfare motors that offer citizens a false sense of security and dangerously misjudge public capacity.

A withdrawal of the ECB from this nexus of fiscal irresponsibility, monetary support, and political overreach is thus unthinkable. The central bank is no longer just a guardian of the currency—it is the stabilizer of an eroding social model. Through indirect means and backdoor channels, it is underwriting pensions, welfare budgets, bureaucratic cogs—and obscuring how fragile the whole edifice has become.

The ECB is the last mortar holding that crumbling structure together. Remove it, and the house of cards collapses instantly. Which is why Lagarde and cohort must preserve the illusion of a steerable eurozone.

The Facts Tell a Different Story

Beyond the gloss of Sintra—in the real world of data—the eurozone is in serious crisis. Industry continues to shrink, and construction is in a deep recession. Over 50 percent of firms cite insufficient orders. Since 2021, German industry alone has cut 217,000 jobs—and by year’s end will lose another 100,000. Deindustrialization is advancing. Production is being moved abroad. Capital is fleeing, and productivity has stalled for eight years running.

The result: countries’ tax bases are eroding. Revenues fall and welfare costs rise, pushing debt burdens higher. Without genuine reforms, the eurozone risks a debt crisis that will once again force the ECB to serve as lender of last resort.

Years of zero interest have immersed the eurozone in the sweet poison of cheap credit. Now, subvention-dependent firms are collapsing under real positive rates. That’s “zombie economy.” And the latest casualty of green industrial planning—Northvolt—is just the latest to close its doors, a consequence of centrally managed economic policy.

Fed Holds Tough

Making matters worse: across the Atlantic, the Federal Reserve stands firm on its consolidation path, keeping rates at 4.5 percent—well above other major central banks. The U.S. is clearly prepared to accept a positive market rate, giving its economy room to purge unproductive elements. This lets productive capital reposition and fuel a fresh investment cycle. With tax cuts, energy deregulation, and rolling back green agendas, the U.S. is becoming a capital magnet—one that European economies can only envy.

In Washington, the view is clear: a period of pain brings greater rewards. While the U.S. equips itself administratively, technically, and innovatively for the digital age, EU-Europe stages a competition in ever-expanding welfare plans—rent caps, social handouts, green subsidies: consumption decreed and regulated to substitute for the productive machinery of revenue generation.

Europe has become addicted to welfare-state subventionitis—sticking to a hyper-statist model to defer social and economic pain. And always in the wings: the ECB and its fatal money press. How long this can last, only time will tell. But market tensions are mounting. The day when those tensions trigger a seismic shift, shaking the tectonic plates of the economy into new alignment, looms ever closer.

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Thomas Kolbe, born in 1978 in Neuss/ Germany, is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.