After the unusual press conference between Trump and Zelensky at the White House, it is now clear that NATO is at serious risk of dissolution. Europe and the EU have therefore woken up to the risk of having based their strategic autonomy on good relations with the US for 80 years. But amid all the uncertainty, there is reason for a certain degree of optimism and restraint. This is part 2 of 2 of the blog post.
Europe has a Globalization Imperative
At a fundamental level, the EU must increase its global engagement to ensure its strategic autonomy. The EU is the world’s most open economy, relying on imports of services, raw materials, and semi-finished goods, as well as exports of services and finished products.
Thus, the EU must pursue multiple strategic directions simultaneously:
- A tolerable future relationship with the U.S.
- A peaceful relationship with China
Economic growth should thus be driven by new markets ...
Economic growth should be driven by new markets, including:
- South American nations, benefiting from a.o. the EU’s December 2024 agreement with Mercosur.
- India, hvor von der Leyen fik en usædvanligt varm modtagelse i slutningen af februar. Modi erklærede, at han forventer en “frihandelsaftale inden 2026”. Partnerskabet forventes at strække ud over handel og omfatte strategisk og muligvis sikkerhedspolitisk samarbejde.
- The Middle East, where Turkey, “magten i midten”, pludselig erklærede sin fulde støtte til den præ-2014-version af Ukraine i slutningen af februar. Dette inkluderer støtte til Ukraines fulde NATO-medlemskab og sikkerhedsgarantier.
- Turkey has NATO’s second-largest standing military after the U.S.
- Turkey chairs Organization of Turkic States (OTS), which serves as a counterbalance to Russian influence in Central Asia.
- Historisk har Tyrkiet dog “spillet på begge sider”.
- Erdoğan maintains some of Europe’s best diplomatic ties with Russia and relies on Russian loans and expertise to build Turkey’s large nuclear power plant in Mersin.
- Turkey previously also blocked Finland and Sweden’s NATO accession.
- Yet, it was Turkey that pressured Russia to abandon its naval blockade of Ukraine’s wheat exports through the Black Sea.
- It remains unclear whether Erdoğan’s security commitment to Ukraine and the EU comes with a price, perhaps EU membership.
- African nations, where the EU is currently negotiating multiple bilateral trade agreements.
- ASEAN countries, with whom the EU signed a broad cooperation agreement in 2023 but primarily focuses on bilateral deals, particularly with Indonesia, Thailand, Malaysia, and the Philippines.
- Canada and Mexico, where the EU signed free trade agreements in 2018 (Mexico) and 2014 (Canada, CETA).
... including the US's hitherto closest allied
Canada faces its own dilemma with the U.S.
- 75% of Canadian exports go to the U.S., but Canadians have deep-rooted skepticism about U.S. dominance.
- The led The Economist and Toronto Star to openly speculate in early 2025 about whether Canada could apply for EU membership.
- Teknisk set er svaret ja, og en optagelse kunne ske hurtigt (de “35 kapitler”), da Canadas juridiske system og infrastruktur i høj grad er kompatible med EU’s.
- The EU is interested, as it would gain access to vital resources and energy, while strengthening ties with Greenland.
- However, in practice, it is highly unlikely that the U.S. would allow it. Trump’s revived Monroe Doctrine placerer Canada centralt i USA’s “indflydelsessfære”.
- While Canada joining the EU is improbable, the looming prospect of a new trade war with the U.S. could push Canadian businesses to orient more toward Europe, and EU businesses to reciprocate.
Internally Europe however needs to align and agree ...
Internally, the EU is more dependent than ever on uniting to achieve a degree of external influence.
Influence is the prerequisite for opportunities. The range of political decision-making options remains broad.
Historically, the EU has demonstrated remarkable political cohesion for shorter periods, such as during Brexit in 2016 and the COVID crisis in 2020. Now, it must apply this unity in a long-term, forward-looking manner.
However, strategic autonomy now requires security policy strength. This, in turn, demands sustained political decisiveness, which would necessitate significantly increasing the Commission’s power and simplifying the decision-making structure.
- For example, this could involve dissolving the European Council and reducing the role of the Council of Ministers.
- However, structural changes of this magnitude have historically been extremely lengthy processes among member states.
- Time is a privilege the EU does not have.
Therefore, there are limits to how much decision-making power the EU can realistically establish. As a result, a security policy future is most quickly, though perhaps not most efficiently, ensured through multilateral agreements outside the EU framework.
... and find new or supplementary military alliances
An example could be an alliance of countries reliant on maritime navigation through the Danish Straits and the Baltic Sea, including Finland, Sweden, Denmark, Norway, Estonia, Latvia, Lithuania, Poland, and Germany.
- These are also the EU countries that generally already have the largest military budgets.
- Several of these nations have expressed strong opposition to a fully integrated EU army.
- For example, in Poland, Foreign Minister Radoslaw Sikorskihas threatened to veto such a move. Poland has the EU’s largest military budget relative to GDP (+4%).
- Additionally, the EU’s Foreign Commissioner, Kaja Kallas, the former Prime Minister of Estonia, has repeatedly stated that “EU har og bør fortsat have 27 hære, men de skal lære at samarbejde og koordinere sig bedre.”
- In other words, trust in the EU’s ability to act is low among the countries most at risk from Russia’s military buildup.
A military alliance like the one mentioned above would likely gain support from countries such as France and Italy, which have some of the EU’s largest defense companies (see above), as well as from Spain and the Netherlands.
The EU's external threats require exceptional decisiveness
Regardless of how the political model for this unfolds, defense expenditures exceeding 4% of GDP will necessitate increased borrowing in all member states. Since the EU’s economic growth is already close to zero, no country dares to cut spending in other areas, such as healthcare, to free up fiscal space.
As a result, fiscal stimulus will, with overwhelming probability, need to be monetized by the ECB through an expansion of the money supply.
- ECB er allerede i ekspansiv tilstand, da EU-inflationen er tæt på det “sikre interval”.
- This is a significant reason why European equity and debt markets have generally performed far better than those in the U.S. since the start of the year, despite Trump’s threats to annex Canada, Panama, and Greenland.
In this context, the debate on joint debt issuance will resurface, as it remains the only realistic financing option. This would likely occur without prior harmonization of EU expenditures and social benefits due to time constraints, thereby posing a long-term risk to public support for the EU.
- Most populations in member states strongly oppose paying for other countries’ early retirement schemes or other forms of social benefits, especially Germany.
- This represents one of the EU’s greatest long-term structural risks.
Today, almost none of the Eurozone countries comply with the Debt and Stability Pact’s limits on deficits and total debt (3% annually and 60% in total, respectively). Therefore, the pact must either be entirely suspended or financing must occur outside its scope.
... and requires a.o. that Germany suspends its debt brake ...
This is further reinforced by the fact that Germany, the Eurozone’s strongest proponent of “austerity,” plans to increase its total defense spending by over €200 billion in the coming years following the chancellor elections.
- This requires suspending the debt brake in the German constitution, which in turn requires approval from two-thirds of the Bundestag.
- However, such approval is impossible after the election, as Die Linke and AfD together hold more than one-third of the votes.
- Both parties have already declared their opposition to such large increases in defense spending and, in particular, support for Ukraine.
However, joint debt issuance also conflicts with
- Article 109 of the German constitution, as well as
- Articles 125 and 136 of the Treaty on the Functioning of the European Union (TFEU), which state that each member state is responsible for its own debt and cannot assume the liabilities of other states.
... and that the ECB will finance
I 2015 “løste” Mario Draghi dette problem med en smart semantisk konstruktion, som den tyske forfatningsdomstol aldrig godkendte, men heller aldrig eksplicit forbød.
Joint debt issuance would also conflict with Denmark’s opt-out under the Edinburgh Agreement, which prevents it from participating in Eurozone cooperation.
When the EU Recovery Fund (Next Generation EU) was adopted, Germany and Denmark circumvented this issue by insisting that the fund was temporary.
That argument cannot be directly applied to increased defense spending.
Notably, in mid-February, the EU began its budget process concerning Next Generation EU.
- This time, the process is particularly challenging because the EU must decide how to finance the €300 billion COVID recovery funds among its member states.
- The funds were financed through EU-issued bonds (Recovery & Resilience Facility), which are now beginning to mature.
- Strategically, this raises the question of whether the EU is preparing for a truly federal structure with the ability to levy federal taxes.
Today, the EU’s budget is relatively small, but
- so was the German federal government’s budget until 1914,
- and the U.S. federal government’s budget until the early 1800s.
However, many member states remain opposed to a federal EU, including the Nordic countries, as well as Poland and Hungary. The latter would likely veto such a move.
Overall, Europes vulnerability is mostly political
Overall, Europe remains highly vulnerable to further fragmentation from the U.S.
However, the greatest challenge lies in simultaneously shifting its political paradigm while rapidly building a new, coordinated defense.
Nevertheless, the EU has the economic and financial capacity for the task, and if executed with strategic autonomy in mind, it could serve as a catalyst for a European defense industry.
As long as Europe does not become the U.S.'s adversary, Europeans have strong prospects for finding their own golden middle ground, like e.g. India.
The EU’s “Competitiveness Compass” strategy from January is an important step in the right direction.
The key question, however, is whether Europeans will actually allocate the necessary resources to realize the strategy. This was their weak point in the NATO cooperation.