For a sign of things to come for Europe, the place to watch was not Blenheim Palace or the European Parliament, but the Republican National Convention in Milwaukee. There, former US president Donald Trump, who accepted the Republican nomination for November’s election at the event, and running mate, US Senator J.D. Vance laid out their cards: Freeze or end the war in Ukraine, step up competition with China, embrace protectionism and crack down on immigration.
It is time that Europeans prepared for the combined effect of a transatlantic shock to the system — a Trump 2.0 with extra hostility.
Carving up Ukraine as part of a deal with Russian President Vladimir Putin would usher in a new world for the EU, which is nowhere near ready to integrate Kyiv or deliver on security commitments without US support. Pressure to align with the US on China, while already tough under the administration of US President Joe Biden, would ripple through top EU companies such as Dutch chip titan ASML Holding NV and Germany’s Volkswagen AG.
The Trumponomics playbook of prioritizing domestic demand at allies’ expense could be as dramatic as the 1971 shock under then-US president Richard Nixon that ditched the gold standard and hiked tariffs, economist Bruno Colmant said.
Nixon was unbothered by complaints abroad: “I don’t give a s*** about the lira,” he said.
In an ideal world, given Trump’s rise in the polls and Vance’s views, Europe would have a response ready to go — beyond hoping that the economic impact of trade tariffs proves manageable.”
After all, this is a bloc that has gone through a succession of crises in the past decade and hankers to be taken seriously as a superpower rather than a US “vassal,” as French President Emmanuel Macron once put it.
Yet it is still possible to hear something between denial and dismissal in the corridors of Brussels, from faith in Western solidarity to optimism that a mix of appeasement and countermeasures will be enough to tame Trump.
Or: We handled Trump once, we can handle him again.
This is not good enough. Europe, having bound itself closer since Trump first appeared on the world stage, is ramping up spending on hard power.
However, it is weaker in other ways. Politically, it is scattered: France has no prime minister after messy elections; Germany’s fractious coalition is failing to lead and Hungarian Prime Minister Viktor Orban is on a solo diplomacy tour that includes meeting Putin (and Trump).
Economically, the euro area’s growth is feeble and its trade dependencies greater. And while the bloc has become a pioneer in red tape and regulation to protect its own consumers, it has nothing to rival the biggest US tech companies.
“Europe is less naive than in 2016, but more vulnerable,” Eric Maurice of the European Policy Centre said.
Deep divides between Berlin and Paris are not helping. Germany’s creaking export-led model has already suffered huge hits in the wake of COVID-19 and the Ukraine war; Trump tariffs would cost its economy more than 1 percent of GDP by 2028, according to a March paper by the Cologne-based German Economic Institute. Yet, instead of embracing French-led ideas like more integration and investment to strengthen the bloc, Germany seems more interested in defending its trade turf and throwing rocks at France’s spiraling budget deficit.
Economist Lars Feld, adviser to Germany’s finance minister, is preaching fiscal discipline instead of fiscal revolution.
With Macron’s push for a more autonomous EU likely to fade as his presidency enters its terminal phase, the likelihood of a “muddle-through” strategy is rising. Such an approach might combine ever-higher targets for defense spending in NATO with tit-for-tat trade measures.
However given the risk of a serious Trumpian security pivot away from Europe, a structural shift in mindset would be far better. Europe needs to augment its domestic defense industry to keep up with Sino-US rivalry, more joint spending to boost pan-European investment and an overhaul of its single market to encourage innovation.
Good luck getting any of this done by next year.
The last rampart left is the euro. With still-untested British Prime Minister Keir Starmer taking over in Westminster and Brussels in flux as a new commission prepares to assemble, it might be time to look to Frankfurt and the European Central Bank’s toolkit.
Trump has summarized his economic plan with devastating clarity: low interest rates, low taxes and higher tariffs. The bank should be prepared to countenance further reductions in borrowing costs to support its economy and exports, even at the risk of pricier imports like energy. If Europe cannot be strong, at least let the euro be weak. It is a painkiller rather than a remedy — but every little bit helps ahead of Trump 2.0.
Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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