Introduction: A Continent Under Pressure
We are living in dangerous times, as Ursula von der Leyen stated at a press conference announcing the establishment of the “Rearm Europe” program. In total, the project may result in the allocation of an additional €800 billion to the European defense industry.
The European Union’s initiative comes as no surprise. The collective now faces the collapse of the reality that surrounded Europe just moments ago:
- In the East, Europe’s largest territorial state defends the old continent against an invasion by descendants of the Grand Duchy of Moscow and the Golden Horde in a campaign reminiscent of the imperial conquests of the Middle Ages.
- In the Far East, the resurgent Middle Kingdom, through effective industrial policy, social mobilization, and government support, has made a gigantic industrial leap. As a result, it now seeks to undermine all of Europe’s competitive advantages, including taking over its crown jewel—the automotive industry.
- On the southeastern frontier of the old continent, age-old unrest and tribal conflicts simmer again. Widespread distraction and hatred seem to never end. For those seeking a better life, there is only one immediate destination: Europe.
- Finally, in the Far West, across the vast ocean, the world’s greatest empire is drastically recalibrating its policy. It abandons recent commitments, directly strikes at former allies, and disavows obligations it has honored until now.
Europe, having taken America at its word and blindly followed in its footsteps, suddenly awakens in the middle of a storm without any outerwear. Europe stands amid this chaos—divided, disoriented.
For the last one, two, three decades, problems also existed, but they were somewhere in the distance. Over time, they began to knock more and more frequently, louder and louder. Now one can hear pounding at the door—doors that will soon give way.
The person standing on the other side of the door today has only two options: lie down and wait for the worst, or mobilize all resources and advantages to finally face the worst and emerge stronger from this situation.
This is Europe’s Day of Reckoning. Welcome to the 2020s.
Current Developments: The Trump Administration’s New Approach
As I write these words, it is already known that Donald Trump has decided to suspend (temporarily, for now) weapons deliveries to Ukraine following the now-famous exchange with Volodymyr Zelensky in the Oval Office, which will go down in the history of international relations. Zelensky yielded, expressed contrition, and declared a willingness to return to the resource agreement.
It is also known that the United States has imposed tariffs on Mexico, Canada, and China. Tariffs on European products are officially expected to follow shortly. We are hearing direct calls to leave the structures of NATO and the UN from one of the most important figures in this administration, Elon Musk—if not the most important. These pronouncements are being echoed by other Republican Party politicians, including Anna Paulina Luna.
Moreover, Musk continues his pro-Russian campaign, now demanding the removal from power of Volodymyr Zelensky, who in his view should receive asylum in a “new neutral country.” JD Vance ridicules British and French proposals to send troops to Ukraine, saying that a potential deal will not be secured by sending soldiers from “some random country that hasn’t fought in 30 or 40 years.”
Volodymyr Zelensky’s argument in the White House was a diplomatic mistake. However, it is not the cause of the suspension of American aid to Ukraine but rather its effect. The world’s greatest power, like any other international player, has only interests. Now let’s ask: what kind of grand strategy vis-à-vis Russia did Americans have if it completely collapses immediately after an even turbulent meeting with a supposed ally? And if it was dependent on a few minutes of heated exchange?
The answer is brutal for Kyiv: it appears that America’s goal is no longer to help Ukraine. America’s goal is to use Ukraine as a bargaining chip in business with the Russians, and portraying Zelensky as a quarrelsome ingrate has only made it easier for Trump and Musk to build a narrative in which Zelensky becomes an aggressive madman without social legitimacy who sends his nation to certain slaughter.
The American power is embarking on a very cynical path, convergent with the principles guiding centers such as Moscow or Beijing. Time will tell whether this path will be short-lived or a permanent shift, but the consequences are unfolding here and now. Whether Washington’s current policy will benefit Americans in the medium and long term is, to put it mildly, doubtful, as it directly undermines all the foundations of American prosperity, which rested on the global order they maintained. We discussed this more extensively in the material dedicated to the “Pillars of the American Empire.”
Market Reactions
As I write these words, symptoms are already visible:
- The S&P 500 has halted its upward march and recorded its worst day in 2025
- European defense companies are hitting historic records
- The German DAX stock exchange has outperformed its American counterpart by a factor of four over the past 6 months
Europe’s Response to Ukraine Crisis
Returning to the Ukrainian issue, Europeans collectively supported Zelensky after his discussion with Trump and subsequently convened a summit in London to which, paradoxically, representatives of the Baltic states—perhaps the most threatened by the Russian invasion after Ukraine—were not invited.
What emerged from the summit? Some will say Zelensky was compelled by Europeans to appease Trump and return to talks. Indeed, this is the general message after the meeting. Nevertheless, it was also agreed that:
- Aid to Ukraine should continue
- Further pressure on Russia should increase
- Any peace agreement must be negotiated with Kyiv’s participation and must guarantee Ukraine’s sovereignty
- Europe also demands guarantees from the United States
Generally, the commitment to aid Ukraine has been maintained and perhaps even increased. Europeans, in light of their own long-standing neglect, are forced to play the game dictated by Donald Trump.
It appears that Europe does not want to drastically change course and take leadership in the war in the short term. As we discussed a few episodes ago, the main question is whether there are ongoing discussions and arrangements regarding what Europe will do in the medium and long term. Is it politically ready to actively and decisively shape its own space, or will it continue to look around helplessly?
French Deputy Minister of European Affairs Benjamin Haddad states: “If we want peace, does the US decision to stop arms deliveries to Ukraine strengthen peace or push it away? It pushes it away because it will only strengthen the hand of the aggressor on the ground, which is Russia.”
Future German Chancellor Friedrich Merz calls the White House conversation “a staged escalation against Volodymyr Zelensky.”
Meanwhile, Emmanuel Macron said that “Europeans can no longer rely on NATO as they once did because Trump’s position has weakened it. We will need 10 years to free ourselves from American influence through massive local and European investments.”
Europe’s Weaknesses and Strengths
Every crisis presents great threats but also opportunities. Europe today is simply weak in many aspects of that word:
Weaknesses:
- Weak militarily, which is the result of outsourcing its security to the Americans after 1991
- Weak technologically: Europe missed the digital revolution of the early 21st century and is somewhat missing the AI revolution now as well. Europeans focused on delegating big tech development to America, which they now widely use
- Weak politically: Poor decisions as in Germany’s case (the Nord Stream pipelines or the phase-out of nuclear energy), the associated long-term policy of appeasing Russia, using the EU platform to pursue particular national interests which weakened the collective, excessive regulations, morality politics (see climate) without safeguarding the foundations of development
However, on this list of weaknesses which must be spoken about loudly, we must remember that Europe still possesses powerful potential:
Strengths:
- Production potential: European industry remains among the world’s leaders. Europe produces the most sophisticated industrial machines in the world. Everyone has heard of Dutch ASML, but Europe has hundreds of smaller companies producing highly sophisticated solutions
- Military potential: Rheinmetall, SAAB, Thales, BAE, Airbus, Leonardo, PGZ, and many others. European defense companies often match their American counterparts, but due to smaller pool of orders, they operate in much more modest conditions
- Social potential: European society, of the three major world blocks, is the society with the least social inequalities (i.e., the most egalitarian). Europe enjoys a lower crime rate than the USA and a longer average life expectancy, which is related to a healthier lifestyle and better healthcare
- Demographic potential: Although the demographic growth prospects of European societies (excluding migration) are mediocre, the EU countries plus the United Kingdom still amount to nearly 530 million people—almost 200 million more than the population of the United States
- Capital potential: The capitalization of European stock exchanges looks poor compared to American ones, but it should be remembered that Europeans are net investors in the American market. This means that Europe invests more money in the United States than the United States invests in Europe. This imbalance, according to the US Treasury, is about $12 trillion to $6.5 trillion
However, the problem is different. While in the case of the United States or China, the equation of 1+1+1+1 equals 4, in Europe’s case the same equation equals 2. Why is that? Because Europe is not a state. It does not have such characteristics: concentration of interest and agency, and internal trust.
This is Europe’s biggest problem and most difficult—it cannot be solved overnight. The union has largely become a field of internal power struggles where everyone tried to outmaneuver others under the cloak of European solidarity. It is precisely this internal discord that led to the situation we have now, and today’s impulses toward greater centralization in an era of mistrust may bring even more chaos and division.
The Path Forward
We simply need to start rebuilding this trust from the ground up—interest by interest, topic by topic. Europe must realize (and here I mainly mean its strongest centers) that it will only be strong when all parts of its body are strong. And Europe will not be strong when throughout its entire eastern frontier hangs the shadow of losing everything most important: independence at the state level and life at the individual level.
Russia has cast this shadow continuously for hundreds of years, once again now engaging in a game in Europe aimed at overturning all existing structures. Therefore, speaking of opportunity in the entire European crisis, Ukraine is obviously that opportunity. Ukraine is a chance to unite the interests of all of Europe in one core issue and build real agency and trust on its basis:
- Military agency in the form of building real capabilities
- Decision-making agency by not fearing to take difficult geopolitical moves, even in opposition to the Americans
- Moral agency if democracy or individual rights are indeed so important on the European mental map, let Europe show that it is physically capable of fighting for them
In other words, this could be a moment of redefinition for Europe. Everything depends on how the issue of Ukraine is played out. The current restrained approach and encouraging Ukraine to sign a resource deal with America is not surprising—the old continent in its military weakness has no room for maneuver. However, this must be backed by medium and long-term thinking that includes the possibility of independently sustaining Ukraine in the war and keeping Russia outside the European security system.
A move in the right direction is the “Rearm Europe” program announced at the beginning. This means greater fiscal flexibility in defense matters as well as EU funds, new credit instruments for building defense capabilities, as well as the involvement of private capital. Of course, the effectiveness of such Brussels programs varies; therefore, the fundamental questions remain political questions.
A more important question is how Europe will prepare for possible breaches of this peace, because it is clear that this will happen, and:
- Rearming Ukraine
- Potentially sustaining Ukraine in war if peace does not come
- The moment when war resumes or hybrid destabilization attempts occur on NATO borders
Economic Indicators of European Rebound
I wrote earlier about symptoms of a potential European rebound. Let’s develop this thread:
European defense companies are recording excellent gains following Donald Trump’s announcements regarding Europe. Sales of Elon Musk’s Tesla in Europe have collapsed (nearly -50% year-over-year). The German DAX over the last 6 months (more or less since Trump’s victory) decisively outperforms the American S&P 500. Generally, this applies to the entire European stock market.
”The German DAX index has risen nearly 17% so far this year. France’s CAC40 has gained 11.5%, and Britain’s FTSE 100 has advanced nearly 9%. Meanwhile, the S&P 500 is up less than 1% since the start of the year. European equities haven’t outperformed US stocks by this much since 2000,” according to a recent Morgan Stanley report.
Where does this come from? From the fact that American power rested on distributing the burden across the entire world and structuring this system so that the largest capital gains landed in America. When American credibility falls and the previous rules are broken, the trust and willingness of European investors to place their surpluses across the ocean decreases—and as we have mentioned, these surpluses are enormous.
According to a US Treasury Department study, European investors hold about $12 trillion in American securities, including $6.6 trillion in American stocks. US portfolio investment in European stocks, bonds, and other assets are estimated to be 50% less, or $6.2 trillion, including $5 trillion in EU stocks.
When European investors begin to wonder whether their investments serve their higher-order interests (such as their physical security) and whether they trust the current agenda of the American administration (rapprochement with Russia), the natural reaction is an outflow of these funds from America and the return to Europe.
The truth is that the European capital market is heavily undervalued compared to its potential. Trump may help in returning these funds to Europe, which will simultaneously translate into increased potential for European companies and inversely affect the condition of the stock market and American big tech. This is already visible.
Jim Clement, in an article for Reuters, notes that the outflow of money from European investors from the American market was already visible in 2024: “In November 2024, European investors’ net sales of US stocks neared $54 billion, an acceleration of the net sales that occurred throughout March of 2024. Three of the five largest monthly outflows of the last 3 years occurred in the second half of 2024.”
But are these funds returning to Europe? There are timid indications that they are. Another quote: “Examining a broad set of 479 actively managed funds and 100 index funds that invest in Eurozone equities shows that three years of net outflows came to an end in late 2024. In fact, both December and January saw small net inflows into Euro Zone equity funds,” writes Clement, adding that “European stocks have arguably become very cheap relative to the US in recent years. Adjusted for differences in sector composition, the European stock market currently trades at a 33% discount—larger than at any point in the last 35 years.”
Conclusion: What’s Next?
Zelensky and Trump will most likely sign a resource agreement, which may ultimately be less favorable for Ukraine than before the confrontation in Washington. Will the pressure on Kyiv end after this, and will the American whip now be directed at Moscow? Doubtful.
The Americans will push for a ceasefire and peace talks. Trump asserts that linking the interest of the American taxpayer with Ukrainian resources will guarantee Ukraine peace without lasting security guarantees. Again, this is doubtful.
Therefore, when Trump forces Ukrainians to make peace, one should expect that the Russian shadow in the East will only grow stronger, especially if peace includes lifting sanctions on Russia. And with America outside Europe, full responsibility for their own security will rest solely on the shoulders of Europeans.
Time to prepare for this began long ago, but today we are entering a critical period: Will Europe reconnect with its times of greatness, or will it permanently sink into divisions, chaos, and helplessness?
