EUROPE ISN’T WASTING TIME

As we wait today for some kind of stitch up between Trump and Putin, where they think they’ve forced Ukraine into a ceasefire on their terms, Europe – along with Canada, is no longer wasting time in pushing its usually reluctant governments into action.

If there’s one thing that comes out of Trumps domestically disastrous presidency and his crashing through the norms of decades of carefully assembled foreign policy that can never be recovered, it’s the European Awakening.

This afternoon as a write this Germany has taken a step it has shied from for decades, finally breaking the bonds of fiscal recalcitrance it enshrined in its constitution, that ensured a level of national indebtedness so low there’s not a country in Europe doesn’t envy. It amounts to USD $2.4 trillion, but it’s just 62.4% of GDP. France by comparison, the second largest economy in the EU , its national debt reached $3.6 trillion by the third quarter of 2024, equivalent to 113.7% of GDP, a level considered dangerously excessive. The UK operates just inside the acceptable limits at around 97% overall (it did reach 101%) and about $2.8 trillion.

I think as another example its wise to show Poland, whose defence budget has virtually quadrupled in the past years, which has an amazing growth rate of 3.6% a year, a debt of just under $500 billion which represents around 53.4% of GDP. Poland is expected to outgrow the UK by 2033-35.

So what Germany and Poland are about to and have been doing, is place a huge amount of money into rapidly accelerating defence needs. Poland has gone for buying it wherever it can because European manufacturing couldn’t cope with its needs. Germany is about to embark on a pan-European armaments expansion that will drive European defence industries generally into overdrive.

European defence has a double problem to meet demand, because this week the EU is on the cusp of approving an EU financed military aid package of €40 billion for Ukraine – that’s the size of the first US aid package back in 2022/3. Bearing in mind that the US cutting off weapons supplies now is inevitable because the authorization bill money has been spent and just the dregs are left, this will ensure continuity.

But it’s got to ensure continuity in conjunction with the European demand for weapons and serial production. That’s even more of a reason for European defense companies to get their act together and governments to mobilize their industrial base. That offers up huge employment and skills training opportunities in areas long devoid of such chances. These won’t be the old style heavy industry jobs either, they’ll be semi automated or fully automated vehicle production lines that will need a lot of sub assembly and skill to produce say, an IFV at a rate not of one a week but several a day.

There is more good news for Ukraine too, Norway has hugely increased to some $8 billion by digging in to its huge national wealth fund, to aid Ukraine. Britain is looking at around $4 billion plus this year, Germany has increased its own aid to $7 billion, well over an above last years. Across Europe, especially in the Baltics, large percentages of GDP are being committed to defending Ukraine and themselves. These are also grants, not loans. Even when there are loans they’re paid for by Russian asset interest payments.

There’s increasing acceptance of the EU moving to simply seizing the Russian money and essentially, giving it to Ukraine, regardless of Russian protests. It’s a lot of money, some €210 billion, of which €183 billion is frozen in Euroclear, a Belgian based financial clearing house – Russia was trying to move it when it was seized in 2022.

Christine Lagarde, head of the European Central Bank is opposed to it but as she points out, the ECB can only advise, if Governments choose otherwise, they will act accordingly. Her concern is it will undermine the reliability of the Euro banks as a deposit place – national regimes who might fall foul of European moralising for some reason or another can never be sure they’ll get their money back. That seems to be an issue of lessening concern.

Everywhere you turn European countries are raising their defence budgets, even the reluctant ones like Spain, who have lagged behind for years. And we have to include Canada now because that country has a free trade deal with Europe, which may suddenly becoming far more valuable than anyone imagined. It took nine years to negotiate but could prove a lifeline for both sides given America’s hysterical posturing over Canadian sovereignty, which has rightly incensed Canadians generally. Europe welcomes Canada, the UK has always been close to it – King Charles-III is after all, their king too, and Canada is a valued member of the British Commonwealth. Prime Minister Mark carney was warmly welcomed in London and then on to Paris where the imagery is clearly one of Canda and Europe standing together – against Trumpian excess and Putinist Imperialism.

Europe+ is becoming a ‘thing’. It has revolutionised and repaired years of bad relations between the UK and Europe over Brexit. All that is now seen as dead and buried. It has stimulated and extended the trade and political relationship with Canada. It has reinforced Ukraine and its inevitable entry to the EU – and one day NATO too, even if its unlikely with the current US administration being so chicken.

Europe is awake. Russia and the US will find it a lot harder to push around anymore. this is just the beginning of a long change of how Europe operates. Countries like Hungary and Slovakia who want to upset the apple cart had better start realising their activities are no longer welcome. The exit door is always there for them if they don’t like it but both are too frightened to leave. Besides which the protests in Hungary are starting to make it clear that even rigged elections may not be enough to save Orban next time – and next time is next March.

I believe we’re going in the right direction. It will all take time, that’s inevitable, but it’s like a snowball being set in motion. Russia will come to regret it, that much I’m certain of.

The Analyst

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