Europe Becomes a Union

Europe Becomes a Union

The president is pulling back the security blanket that’s protected Europe since 1945 and imposing 25% tariffs on steel and aluminum imports, claiming the European Union was formed to “screw” the United States. As the U.S. upends transatlantic ties, the EU is awakening to the reality that its rich uncle has lost his shit and can no longer be trusted, much less depended on. As dangerous as this is, we should ask “What could go right?” This rift presents an opportunity for the EU to harness its economic strength and finally become a union. 

Europe at a Crossroads

Skepticism is warranted. The bloc of 27 member states has a host of problems: waning competitiveness against the U.S. and China, lagging investment, costly regulation, lack of coordination, sclerotic decision-making, and political division. Only 4 of the world’s top 50 tech companies are European, according to a report last year led by Mario Draghi, the former president of the European Central Bank. Without radical change, Draghi said, Europe’s “reason for being” is at risk.

But with American brand equity eroding at a breathtaking pace, Europe could fill the void. Under Trump, the U.S. is caving to Russia, a murderous autocracy. The pre-orchestrated ambush of a democratically elected leader in Ukraine was a low point in American history. Typical head-up-your-ass thinking from a leader who’s decided to alienate allies, raise costs for American consumers, and reduce demand for our products overseas. The definition of stupid is harming yourself while harming others. These policies are … stupid.

Wake-Up Call

So, how should Europe respond? First, it’s critical the EU significantly boost its spending. EU defense investment last year accounted for just 1.9% of its GDP, well short of the level of 3.5% that’s needed to respond to today’s existential crisis.

Europe is finally getting serious about security. Ursula von der Leyen, president of the European Commission, set out a plan to mobilize €800 billion for defense, including a €150 billion loan program to pay for weapons and technology, while Germany’s chancellor-in-waiting, Friedrich Merz, stressed the need for “independence” from the U.S. Merz’s center-right Christian Democrats and the leaders of his likely coalition partner, the center-left Social Democrats, have agreed to relax limitations on German borrowing and inject hundreds of billions into the country’s military and infrastructure — a seismic shift in policy.

Despite its numerous challenges, Europe has economic heft it can leverage. Europe has a GDP 10 times the size of Russia’s, but Putin is spending 40% more on the war than Ukraine and all its allies, including the U.S., combined. 

Seize the Moment — and the Money

The next step is seizing more than €200 billion of frozen Russian assets held in Brussels. While the interest generated from those funds is being used to back a $50 billion loan to Ukraine, European countries stopped short of confiscating the funds amid fears that it could breach international law and undermine trust in Europe as a place to invest. The risk to investment in the EU is dwarfed by the importance of setting a clear incentive to think twice before invading a neighbor.

It’s worth noting that about £2.5 billion from the sale of Chelsea Football Club by Russian billionaire Roman Abramovich is just sitting in a bank account amid protracted talks about how the money will be unlocked. It’s time to pull the trigger on the frozen funds. This would move the EU upstream of the policies of the U.S. president, and remove his leverage to force a surrender. 

Winston Starmer

Another positive emerging from the chaos is stronger collaboration between the EU and the U.K. Almost nine years after Britain voted to leave the bloc — one of the biggest self-inflicted injuries in history — the U.K. is moving closer to Europe again. Prime Minister Keir Starmer has proposed forming a “coalition of the willing” to police any ceasefire in Ukraine, with his country ready to “put boots on the ground and planes in the air.” Britain has also shown support for a multilateral fund and joint military financing to fortify Europe’s defenses. 

At a time when European countries are already under financial pressure, pouring more money into defense will be painful. In the U.K., Starmer has drawn fire over his plan to cut the foreign aid budget to fund the military. But the prime minister has “found a new purpose abroad” after getting off to a shaky start, as the Economist notes in a cover story this week under the headline “Winston Starmer.”

Conflict Breeds Innovation

Putting the moral argument to support Ukraine aside, leaders can make an economic case for military investment, as it paves the way for innovation. Consider the U.S. Defense Advanced Research Projects Agency. The agency, better known as DARPA, played a critical role in breakthroughs including GPS navigation, stealth technology, and mRNA vaccines. In Israel, where technology and national security go hand in hand, the military serves as an incubator of startups. Or look at Ukraine, which has revolutionized drone warfare.

The Trump administration fails to see what may have been the best investment by the U.S. in recent history. The $67 billion the U.S. has provided in military aid to Ukraine is a significant sum, and Americans justifiably question funding a war thousands of miles away when they can’t find jobs or afford diabetes medication. However, much of that spending benefits U.S. military suppliers, creating jobs and stimulating the economy. (As it happens, mostly in red states, but that’s a different post.) What’s more, using the equivalent of about 7% of our defense budget, we’re crippling Russia’s army, hobbling Putin’s economy, and castrating proxies that pose a terrorist threat. All without putting a single American boot on the ground. We’ve taken out a third of an enemy’s kinetic power and sent a message to China regarding its long-contemplated invasion of Taiwan. They’ve no doubt taken notice of how formidable a motivated fighting force can be defending their homeland when armed with Western armaments and intelligence. 

Economic Pivot

The U.S. retreat presents an opportunity for Europe. In Germany, bold plans to step up investment in defense and infrastructure are sparking optimism that the manufacturing sector will get a much-needed boost. Weapons maker Rheinmetall aims to convert some car-part plants to produce military equipment, and Hensoldt, which makes sensors and radars, is considering hiring software engineers from automotive suppliers that have experienced huge job cuts.

Rheinmetall, French warplane maker Dassault Aviation, Italian defense and aerospace company Leonardo, Britain’s BAE Systems, and Sweden’s Saab, a maker of jets, submarines and anti-tank systems, have all seen dramatic rallies in their share prices as investors anticipate an increase in military spending.

The benefits could spill over into other sectors, too, giving a lift to a sluggish European economy. It’s estimated that a debt-financed increase in defense spending to 3.5% of GDP — with those funds directed to infrastructure, R&D, and manufacturing from European sources — could increase economic output by as much as 1.5% per year.

If Europe successfully adapts, it will expand in promising areas including AI, semiconductors, digital infrastructure, and quantum computing. Building on its manufacturing, technology, and intellectual property prowess, it could level up to its global competitors.

Can Europe Rise to the Occasion?

Europe has economic influence. But it also needs resolve, a resource in abundance in Russia. Think about what Ukraine and its allies are up against. Putin has shown a willingness to shed a staggering amount of blood, sending waves of young men forward into a “meat grinder,” as the strategy is known, in a bid to overwhelm the enemy. Ukraine estimates Russia lost 150,000 soldiers in 2024 alone — almost three times the number of Americans who died in the Vietnam War. How does Russia recruit? In some regions, through substantial upfront payments.

U.S. Defense Secretary Pete Hegseth plays down the importance of values relative to hard power. “You can’t shoot values. You can’t shoot flags,” he says. He’s wrong. Afghanistan, Vietnam, 1939 Britain, and the 13 American colonies all faced bigger fighting forces. And they prevailed. The EU lacks the funds, but this can be fixed. The real question is: Do they have the resolve?

Gas Masks

When my mom was a young girl growing up in London during World War II, she and her family had to endure the Blitz. They were forced to sleep in dark tube stations, where they’d pass out gas masks shaped like Disney characters so scared children would agree to put them on. Eight decades after Germany surrendered, how many Europeans are willing to sleep underground to live through the night?

What Could Go Right 

Achieving peace, security, and stability will require tough decisions and sacrifices. The kind of sacrifices that win wars. Is the EU willing to make them? As Trump advances with his America First agenda, it’s easy for proponents of liberty and democracy to despair. But there’s nothing like the threat of a brutal autocrat in Russia and an unpredictable president in the White House to bring unity to the continent. The bad news is the EU can no longer count on the U.S. The good news: They may not need us.