Losses from Heat to Widen Inequalities in Europe

Climate change has a negative impact primarily on countries of southern Europe that already suffer more than others from low economic growth and an increasing debt. Europe’s climate problem is turning into an economic security issue.

This is diagnosed by Sana Khan, a political analyst at Modern Diplomacy, as she sums up the consequences of this summer’s heatwaves in Europe.

Record-high temperatures have led to disruptions across several major economic sectors. Low water levels have severely restricted traffic on the Rhine and Danube, two of Europe’s most important commercial waterways. More than half a dozen nuclear reactors have reduced or halted production because rivers have become too warm or water levels have fallen too low for effective cooling.

The ING Banking Group estimates that disruptions to Rhine shipping could reduce Germany’s GDP by 0.3 percentage points this year. Hungary’s MBH Bank estimates that every week its largest nuclear power plant remains offline could reduce GDP by another 0.1 percentage point.

Allianz estimates that the two-week heatwave in June alone could reduce Europe’s GDP by 0.3 percentage points. With the euro zone expected to grow by only around 1 percent this year, even a relatively small reduction represents a significant economic blow.

The Allianz company also predicts that climate change could reduce growth by 5 to 7 percent by 2030 in particularly exposed economies such as Spain, France and Italy. Hazem Krichene, an economist at Allianz, notes that the estimate does not include the full impact of wildfires, droughts, floods or a potential El Niño that could strengthen heatwaves in the next two years.

The economic consequences of the extreme weather will be felt for several years. Damaged infrastructure, weaker investment, reduced productivity and lower agricultural output may continue affecting economies long after temperatures return to normal.

Southern European economies could be among the hardest hit. Spain, Italy and Greece depend heavily on summer tourism, but increasingly extreme temperatures could force tourists to reconsider when and where they travel. ‘Can you see tourists marching through southern Italy or Spain in 45 degrees? I can’t. So, I think the nature of tourism will change,’ said ING economist Carsten Brzeski.

Extreme heat and drought reduce agricultural production, pushing food prices higher. Research by Maximilian Kotz of the Barcelona Supercomputing Center found that the 2022 heatwave increased euro zone inflation by around 0.34 percentage points through higher food prices, with southern Europe experiencing a particularly strong impact.

This is also a problem for the European Central Bank as extreme weather creates inflationary pressure that monetary policy cannot directly solve.

Allianz estimates that lost economic output could reduce annual tax revenues by around 1.8 percent in France and 1.3 percent in Italy and Spain. At the same time, governments must spend more on emergency responses and climate adaptation, including strengthening electricity systems, transport networks and other infrastructure.

France and Italy face significant fiscal constraints while governments across Europe are simultaneously being pressured to increase defense spending and accelerate the transition to clean energy.

The burden of economic losses from summer heat is unevenly spread. Southern Europe faces far greater risks. This could widen economic inequalities within the European Union. The countries more active in pushing the rest of Europe into economic and military ventures will suffer less from the natural processes they cannot afford to adapt to.

Original publication: https://moderndiplomacy.eu/2026/08/10/climate-change-hits-europes-economy/