Malthus at the ECB: The Risk Model That Eats Its Own Economy
What Happens When Central Banks Start Pricing Ecosystems
A heated debate in the UK House of Commons in April 1968 erupted over a project so hyped, MPs compared it to “a sort of sexual frenzy,” bordering on “religious mania.” Its supporters, on the other hand, argued it was vital for Britain’s “industrial leadership in the world” and that “scientific development means […] an inevitable advance in prices.” The political momentum was unstoppable and so, despite the warnings, the project went ahead anyway. From a financial perspective, it would go down as one of the most spectacular wastes of money in post-war Europe.
The arguments made by its supporters echo those of today’s net zero gang: if we just spend enough, we’ll be at the vanguard of technology. If we don’t act, however, other countries—China in today’s case—will overtake us in vital industries. Ironically, the project debated in 1968 was the opposite of what they would ever support. It was about Concorde. (Yes, just Concorde, not the Concorde. When you’re iconic you drop the article.)
Speed, Status, Waste
Concorde was meant to be a triumph of European engineering, an elegant supersonic airliner set to usher in a new era of high-speed, high-status travel. When the UK and France joined forces to build it, forecasts were bold: the market would demand 350 aircrafts. In the end, only 14 ever entered commercial service.
The planes were brutally expensive to operate, guzzling fuel right as oil prices surged amid the 1970s energy crisis. The sonic boom was so loud it could only fly supersonic over the Atlantic, making it useless for eastward routes from Europe. And passengers, it turned out, weren’t keen to pay eye-watering prices just to save a few hours.
The project ran nearly ten times over budget. Originally projected at £70 million (about £1.7 billion today) in 1962, delays and overruns pushed the final cost to £2.1 billion by 1976, roughly £16 billion in today’s money. Needless to say, French and British taxpayers footed the entire bill.
When No One Bets Their Own Money
Concorde is a case study in why private operators deploy capital more efficiently. With skin in the game, they weigh risk against reward before pouring money into something unworkable. Banks are central to this system by pricing risk, adjusting capital costs, and ultimately steering investment decisions. The riskier the venture, the higher the cost of capital and the lower the odds it gets built.
It’s why no private company ever tried to compete with Concorde. Boeing’s 2707 was scrapped in 1971 before a prototype was built. The only other supersonic passenger plane that made it off the ground—the Tu-144—was, tellingly, a product of Soviet central planning. In other words, the logic of risk-adjusted returns is an elegant mechanism that keeps capital disciplined and resources productive.
But today, voices within the European Central Bank (ECB) are gearing up to override that logic. All in the name of climate action, of course. The perverse twist? The plan is self-defeating and risks doing the exact opposite of what it claims to achieve. Let’s break it down.
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Monetary Policy Meets Malthus
The ECB formally began weaving climate change into monetary policy on July 8, 2021, with the launch of its first climate action plan. It marked a shift from focusing purely on price stability to actively steering financial flows toward environmental goals.
Until now, the ECB has only been introducing policy changes at the margins, such as tilting corporate bond purchases toward “green” issuers, adding climate risk to collateral frameworks, and stress-testing banks for climate exposure. But unlike these modest tweaks, a more ambitious plan is underway. A scheme capable of delivering economic suicide by a thousand cuts.
The ECB is currently working with Oxford University’s Resilient Planet Finance Lab to map how ecosystem degradation threatens Europe’s economy and financial system. As the ECB puts it:
The euro area economy depends heavily on natural ecosystems and the services they provide. These include clean water, flood protection, carbon sequestration and healthy soils. However, nature is increasingly under threat.
The threats listed are land take, pollution, climate change, invasive species, overfishing, leading to both chronic degradation and sudden shocks amplified by extreme weather. This project may sound like an academic exercise. It isn’t. The goal isn’t just to publish papers or hand out research grants, it’s to directly influence the eurozone’s monetary conditions.
At first glance, the link between ecosystem degradation and central banking may seem tenuous. But the ECB creates the nexus by pointing out that water-intensive sectors—like agriculture and manufacturing—could face loan defaults in the event of droughts, potentially triggering broader financial instability. As usual with such topics, the language is alarmist. The ECB warns:
Surface water scarcity alone puts almost 15% of the euro area’s economic output at risk.
The tool the ECB and Oxford University suggest to save the economy from financial doom caused by water shortages comes with a technocratic acronym: NVaR—short for Nature Value at Risk.
Trust Us, We’re Experts
The idea builds on the standard financial concept of Value at Risk (VaR), which answers the question: “What is the maximum loss a portfolio could face over a given period, with a certain probability?” Commercial banks are required to hold capital against market risk based on VaR, which directly affects their capital adequacy and their ability and willingness to issue loans.
Again, banks price loans according to risk. The higher the risk, the more expensive the loan, and the less likely that project is to go ahead. That’s how capital stays disciplined.
So what happens when you extend this concept to nature? While the ECB doesn’t say it outright, the inevitable outcome of NVaR is this: borrowers in nature-intensive sectors—those exposed to droughts, water scarcity, or biodiversity loss—will face higher capital costs. That means agriculture, manufacturing, construction, and other “nature-intensive” sectors could face tighter credit conditions, regardless of profitability or past performance.
In effect, the ECB is pretending it can see into the future and steer economic activity toward what researchers and policymakers believe is “right,” not what the market rewards. It’s a curious way to view risk, to say the least.
Self-Strangulation
In a functioning economy, commercial banks already assess the risk of agriculture or manufacturing projects. They don’t blindly issue loans for ventures likely to collapse due to water shortages. Tens of thousands of market participants with skin in the game aren’t ignoring risk, they’re weighing it against reward. But the people pushing for NVaR insist the market is wrong, and that a handful of experts will get it right.
NVaR’s proponents haven’t said it outright but the likely sales pitch will be: “this tool will help steer capital into eco-friendly technologies.” And that’s where this entire idea backfires completely.
Because the production of solar panels, batteries, and hydrogen—all centerpieces of Europe’s climate agenda—requires enormous amounts of fresh water. And under NVaR, that very water intensity becomes a liability.
The irony is hard to miss: solar and battery supply chains are already dominated by China. If NVaR is applied as intended, these industries will be far from thriving. They’ll be further priced out of Europe. A tool sold as a catalyst for green growth may end up accelerating Europe’s technological dependence.
On a Suicide Mission
The idea is so unmoored from industrial reality, it almost invites conspiracy theories. One is tempted to ask which China-backed NGO managed to slip this scheme into serious European policy circles. Because if the goal were to undermine Europe’s ability to produce anything at all, NVaR would be a masterstroke.
Of course, it’s not radical to suggest this whole scheme also oversteps the ECB’s mandate. Preventing water shortages is the job of elected officials and local authorities—those closest to the problem—not an independent central bank applying a one-size-fits-all risk algorithm from above.
Given its likely effects, NVaR is best described as an autoimmune disease. In its zeal to protect the system from climate-related stress, it starts attacking the very tissue the system needs to survive: capital formation, industrial capacity, and productive investment.
Because whatever Europe’s climate future looks like, it will likely require mitigation. Choking off capital formation today makes future resilience harder. If you fan the flames of deindustrialization now, there may be nothing left to deploy when crisis hits.
Green Fetish
NVaR isn’t official ECB policy yet. It’s still in the exploratory phase, with a full paper due later this year. But the trajectory is plain to see. No matter how “vitally important” the authors claim their work to be, the scheme is an ideological fever dream.
If implemented, NVaR could reshape Europe’s industrial policy in dangerous ways. And because of its technical nature, it’s unclear whether there will be fiery public debates, like the one in the UK Parliament in 1968, where MPs openly ridiculed Concorde as a “religious mania.” The logic could be buried in risk weights, stress test assumptions, and prudential guidance.
Considering the fact that investors have been fleeing ESG in record numbers in Q1 2025, NVaR looks less like a genuine safeguard and more like a last-ditch mechanism to enforce a worldview the market is starting to reject. Maybe that MP back in ’68 was onto something. Maybe this too is a “sexual frenzy.” Just one that’s turned fully masochistic.
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The decline of living standards is taking place all throughout Western societies. It hasn’t truly shown itself yet due to large deficit spending, but these type of policies will be the demise. Incredible how much power climate craziness policies and ideals are destroying our future prosperity.
If ever there was a reason to short the euro, this is the piece de resistance