Quakes in the Order: Europe’s Race for Self‑Reliance
Article produced in collaboration with Starting Finance Club Bocconi.
“Too quick, too fast to stick to last” that’s what many of us might have thought of Trump’s policies since the inauguration of his presidency. Indeed, it’s not possible yet to evaluate whether the ongoing changes in the global equilibrium (due to the US pulling out of international agreements and screaming “MAGA” are going to be the “new normal” or will pave the way to a completely different global order.
The current uncertainty resembles quite well an earthquake, the kind of which most people witness only once in a lifetime: tectonic plates deep down are moving decisively, but nobody knows where the epicentre is going to be, nor its intensity and neither how many shakes will happen. In general, every analyst agrees it’s too early to tell what the effects of the current disruption in trade and international organisations will be. Nevertheless, some impacts are already visible.
It is now crystal clear that decades-long global strategic dependencies and fundamentally weak economic partnerships can no longer be overlooked. Almost every country, in such a chaotic global scenario, faces the urgency of rethinking its growth model and the sustainability of its welfare system. But some face greater urgency than others; this is the case of the European Union.
EU member states have benefited – although not for free – from 80 years of US coverage regarding international trade, diplomatic action, military defence, financial services, technology and many other areas. Therefore, even if it is hard to predict where the next equilibrium will find its balance due to the unforeseeable path of the American President’s actions, it’s prominent for the EU to strengthen itself by developing a more independent growth plan. Relying on ideological reasoning, as it happened too many times among the bureaucrats in Brussels over the past 5 years, is not the answer. The magnitude and number of challenges now faced leave little space for imagination as they require execution and practical solutions. It is true that some solutions to fill the different gaps left by the US are all intertwined, but they should not be placed in the same level, or else they may run the risk of inefficiency. Instead, they should rise as collective strategies that recognize the different priorities of the issues brought to light, including the urgency related to military defence, energy security and trade.
While earthquakes in the current global order do not seem to stop any time soon, EU member states are working hard to respond to these crises and coordinate plans by finding new united fronts in the European Council that were once far apart. Despite the possible large shocks in the horizon, the EU might achieve stability if it acts with urgency and strategically – if it becomes its own shelter.
Re-arming: act together or fragment in the field
Among the dilemmas unveiled by the era of Trump 2.0 stands the United States’ foreign policy and its implications to Europe's global stance - specifically towards the threat of Russia in the context of the Russo-Ukrainian War. Although there is ongoing debate regarding Trump's foreign policy, in which he reinforces isolationism while contrastingly pushing for the US's overseas goals, there has been an undeniable shift in the world's global order. Being solely driven by the “Trump doctrine” or not, the agents who are not fast to act risk staying behind.
Fortunately, the EU seems to have awakened. On March 19, for example, the European Commission and the High Representative presented the “White Paper for European Defence – Readiness 2030”, which sets the plans to strengthen Europe’s defence sector proposed by ReArm Europe. The ReArm Europe Plan aims to increase Europe’s military readiness by including spending of over €800 billion around three general pillars: €150 billion in EU loans through a new dedicated instrument (SAFE – Security Action for Europe) backed by the EU budget, up to €650 billion in incremental fiscal space for boosting national defence spending, and mobilising private capital by accelerating the Savings and Investment Union (SIU).
Nonetheless, hesitance and disagreements emerge regarding the grounds for financing such initiatives in the face of what this might bring to the economic future of the EU - and the concerns are plenty. Firstly, it is unlikely that such an increase in spending would be politically feasible, considering that many European governments are highly in debt. Italy, for example, would have to increase spending by $34.7 billion each year, while its current debt is at 136% of GDP. Moreover, this implies an imbalance in defence spending, in which those member states with more fiscal space can consequently spend more than their counterparts. The challenges also overflow to the private sector, which might not meet its expected contributions on defence investment due to tight reputational constraints set by the EU sustainable finance framework.
Hence, countries have been exploring divergent paths, such as Germany, which launched an independent defence spending plan that foresees spending €500 billion over 10 years. The risk, then, does not only lie in Europe failing to enhance its defence capabilities. Instead, it is aggravated by the threat of disintegration posed by such disagreements during a moment where unification appears just as crucial as military capability. Europe might have awakened, but it should now internalise that it will only stay strong abroad if it remains strong within. Being fast to act is indispensable, but it is not the time to go solo.
Choosing the lesser storm on energy security
Alongside re-arming, energy security and climate policy are at the top of the list of priorities of the EU. With the reduction in Russian gas imports following the war in Ukraine, the EU had to rely more heavily on the US's liquefied natural gas (LNG) to meet its energy demand. Consequently, by the end of 2023, the US had become the EU’s largest LNG supplier. This evidenced growing European dependency and vulnerability towards the US and its domestic policy. Hence, with no surprise, the Trump administration represented new setbacks for Europe regarding its energy and climate policy.
Before Trump took office, the international scenario already pointed to the fact that America's advantage as an LNG supplier could be transformed into a pressure tool on Europe. And there have been no big surprises. In the face of the recent trade war commanded by the American president, with 20% tariffs coming into effect on almost all EU exports, the EU attempted to negotiate by offering the US a “zero-for-zero” tariff scheme. However, Trump did not seem satisfied with the proposal.
He declared that negotiations would only be possible if the EU committed to assisting the US in closing its trade deficit with Europe. Fortunately - or not -, the Republican leader emphasised that if this were to take place, it would not take long due to Europe's reliance on American energy supply. For him, a ceasefire on the trade war with the EU means buying more American energy. More specifically, this would imply a commitment made by the EU to buy $350 billions of American energy. The question, then, is what is best for the EU: to fight the consequences of Trump's astronomical tariffs or increase its reliance on the US (represented by American energy).
The dilemma is made even more complex by the possibility that at least some incentives behind the American strategy are related to weakening the European Green Deal. By imposing their traditional fossil fuel-based goods on global markets, the US seeks to prevent Europe from pursuing its energy security goals, including shifting to new suppliers. What seems to be driven by economic incentives might, in reality, be another mask covering Trump's opposition to climate policies.
Thus, to navigate the ever-changing adversities - if it was already not clear from previous trends -, reimagining European security should be of utmost priority. The difficulty, nonetheless, stems from a need for the EU to find a fast response while coordinating a new whole-of-system approach to energy supply. Italy, for example, has declared a €25 billion package (covered through different policies, including the National Recovery and Resilience Plan) to support businesses in response to the crisis and given US negotiations. The national government also suggested increasing European imports of LNG and pushing for the relaxation of Green Deal policies.
However, from the European position, it has been clear that leaving the Green Deal behind is not an option. Although this does not necessarily imply a lack of interest in purchasing American LNG, it still signals probable bumps in the path of negotiation among parties. Europe is then once again left to decide which storm to sail into.
Flat 20 % tariff, wildly uneven pain
Moreover, member states are also being forced to tackle the shaky grounds of global trade. They are in the process of bargaining a cohesive strategy to respond trade-wise to Trump’s 2.0 protectionist policies.
The flat 20% tariff on EU products announced by President Trump on April 2 has proven far from uniform in its real impact. As reported by the Financial Times, in fact, this apparent "one-size-fits-all" duty is tearing open existing fault lines among European economies, depending heavily on each nation’s industrial focus and political ties to the White House.
Ireland, for example, will succeed in protecting its industries from a blow that could have reached a full 20% due to its pharmaceutical exports that have been temporarily exempted from tariffs. As it stands, Irish goods will face an effective rate well below 5%, at least for the moment. In stark contrast, Slovakia’s manufacturing-heavy economy, particularly reliant on autos and car parts, now braces itself for a combined burden exceeding 20%, inching close to 25% in real terms.
Once again, unity is non-negotiable: the EU must respond as a single bloc, or else it might undermine its shared foundation that defines its position as a major trade power. In line with this, the Commission, after its initial countermeasures against Trump’s 25% duties on European steel and aluminium, has put forward a broad retaliatory tariff of 25%, slated to be rolled out in three phases on: April 15th, May 15th, and December 1st.
This plan has garnered vocal support from France’s Economic Minister, Eric Lombard, who underscored that a swift and united EU reaction should pave the way to “[…] get to the negotiating table on an equal footing, so that both sides of these duties can be lowered and all our economic sectors protected.” In contrast, Italy’s Prime Minister, Giorgia Meloni, has openly critiqued the EU’s tit-for-tat strategy, warning of inflationary risks within Europe and calling on the Commission to seek negotiations with the U.S. administration to avert a looming trade war.
Meanwhile, Germany’s Chancellor-designate, Friedrich Merz, maintains a neutral stance, pressing for a comprehensive elimination of all tariffs between the EU and the U.S.; a grand aim that, if achieved, could quell today’s tensions. However, it should not be forgotten that Germany itself, by breaching its own debt ceilings to fuel a renewed military investment, is boosting the economy, hoping for growth from its defence sector.
In this panorama, one reality stands out: the stakes for Europe’s economic equilibrium could scarcely be higher. Nevertheless, national governments seem to be taking markedly different paths: some betting on revitalised domestic growth, others favouring meticulous caution, and still others pushing for swift countermeasures to force negotiations.
Why the next shock could forge a stronger Union
We’re living in a time where history is being written at a pace never seen before. Think about the last five years: an unexpected world pandemic, the sounding of a world war come-back, the aggravation of the climate crisis, and the deterioration of the alliance between Europe and the US. These are facts, which despite being hard to swallow and digest, are still better recognised and tackled than swept under the rug.
However, in these last five years, we’ve all seen how Europe acted cohesively and united. Among countless successes, the EU fought the COVID outbreak, drove economic recovery, supported Ukraine, found new energy supplies, passed the Green Deal, and lowered its carbon impact. Hence, there is no reason to believe that the EU will not surpass the challenges posed by Trump's administration. Although these recent and emerging difficulties lay on a different scale, requiring a stronger sense of unity, they are like past hardships that can be steadily overcome and possibly bring a period of greater stability ahead.
In fact, all of the great leaps forward for European unity have been ignited by geopolitical shocks, such as the end of the Second World War and of the Cold War. These decisive moments seriously threatened the inner security and status-quo of Europe but brought several positive changes in the long-term. Now, with the "rebirth" of Trump, we are looking at the end of the transatlantic alliance, representing a potential external threat to Europe's internal peace and prosperity. Yet, there is nothing to fear. Europe responded with strength and inventiveness to the last two great challenges. It can certainly do so again.
Indeed, despite member states having different ideas and approaches to tackling current and upcoming turmoil, none is discussing whether action should be taken individually or not. It is more than clear that unity brings strength.
By screaming “Make America Great Again”, Trump might actually be on the right path to accomplish what Europeans have tried for decades: to “Make Europe Great Again”.
Sources
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All images featured in this article were generated using ChatGPT-4o, an AI model developed by OpenAI. The prompts used to generate these images were written exclusively by the authors. These images are not photographs or real-life depictions, but AI-generated illustrations created for illustrative and editorial purposes only.
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