Europe seeks to recover after a long slide
The total shutdown of Europe’s busiest airport on Friday, prompted by a fire in a suburban electricity substation, serves as a pertinent metaphor. If one perceives that the European continent is descending into a state of economic decline, the chaotic situation at Heathrow serves as a potent emblem of this dysfunction. It can be interpreted, with some creativity, as a metaphor for Europe’s broader existential decline: years of environmental radicalism that have undermined its competitiveness, multicultural relativism that has eroded its social unity, and official misconceptions regarding a borderless, harmonious world that have left it vulnerable to both external and internal threats. Similar to Heathrow on a Friday, Europe appears to be a civilization in decline, its populace immobilized, while the rest of the globe adjusts course midflight, seeking prospects in alternative regions.
As a resident of New York attempting to return home, one among the estimated 200,000 individuals left in a state of frustration, I can appreciate the illustrative nature of the situation. However, metaphors can often prove to be excessively alluring. The unforeseen opportunity presented by the snafu allowed for an additional day in the cloisters of the University of Oxford, which could lead to various interpretative conclusions. This experience serves as a metaphor for a resilient civilization that has provided enlightenment to the world for a millennium.
Undoubtedly, Europe is currently facing a genuine existential crisis. In the nine weeks following Donald Trump’s second inauguration, I have engaged in various activities: attending my father’s funeral in England, analyzing the typically imperfect forecasts from the Davos elite, observing the insights of business leaders at events in Italy, and accepting an invitation to present my perspectives to a committee of the House of Lords in London. Europeans exhibit a collective sense of alarm coupled with a notable surge of energy. President Trump’s unconventional approach to Europe—his seeming preference for Russia in the context of Ukraine and his administration’s disparaging remarks regarding the European Union and NATO—may not have been designed to rejuvenate Europe’s resolve, yet it has undeniably produced that outcome.
What implications could this hold—for the Europeans in particular, and ultimately for us as well? Business and political leaders in that region suggest that, irrespective of the impact of Mr. Trump’s presidency on the United States, he has created the necessary incentives for them to revitalize Europe. Believing that the United States has diminished in reliability as an ally and that Russia increasingly poses a consistent threat, they are, at long last—albeit years behind schedule—committing to the development of strategies for their own security. An Italian business leader informed me about the country’s modest yet flourishing defense sector, which is eagerly anticipating substantial contracts for aircraft, tanks, and helicopters. The authorities in London were eager to assess the potential enhancements to the U.K. nuclear deterrent and explore the feasibility of its extension to additional European countries. Friedrich Merz, poised to assume the role of German chancellor, has successfully convinced the fiscally conservative and peace-oriented Bundestag to approve a significant elevation in the national debt ceiling, alongside a substantial boost in infrastructure and defense expenditures.
This surge in activity is exerting a positive influence on the previously stagnant European economy and its financial markets. Analysts are adjusting their forecasts for economic growth positively, driven by the increase in spending and accumulation of debt. European equities have overtaken their U.S. counterparts. By the conclusion of the previous week, the Stoxx 50 index, representing European equities, had risen over 10% since the start of the year, while the S&P 500 experienced a decline of nearly 3.5%. There are potential risks for the United States. European nations often exhibit a propensity for protectionism, and with rising apprehensions regarding the conditionality of U.S. defense equipment, it is likely that such tendencies will be further amplified. An examination of European defense equities reveals the narrative: Leonardo, the prominent Italian aerospace firm, has experienced an increase of over 85% this year, while British BAE Systems has seen a rise of nearly 50%.
The United States faces a less quantifiable cost: the deterioration or complete severance of relationships with the world’s sole other developed liberal capitalist region, which constitutes its second largest economic zone, will complicate our broader national security and diplomatic objectives in both significant and minor ways. Nevertheless, such costs may be justified if the United States can successfully diminish its substantial obligation to European defense and redirect its focus towards more significant strategic priorities. Another scenario exists, and it appears equally credible: Europe’s highly praised transformation may ultimately fail to materialize. Disregard the entrenched demographic and structural economic challenges that afflict Europe, along with the persistent adherence to detrimental environmental and domestic social policies. The commitment of Europeans to genuinely consolidate their resources and enhance their defense in response to the perceived eastern threat remains ambiguous at this juncture.
Last week, Italy and Spain expressed their opposition to the European Union’s proposal for increased assistance to Ukraine. European nations distanced from the front lines of Russia perceive the threat differently than Germany or Poland. France has successfully influenced other EU member states to bar British firms from vying for contracts within a new defense fund, contingent upon the U.K. conceding to Paris’s demands regarding fishing rights. Despite its assertive rhetoric, Europe risks remaining economically constrained, politically fragmented, and militarily vulnerable, particularly in the face of escalating tensions with the United States. The more things change.
