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The chaos in the US is an opportunity that Europe should seize

2025-04-23 15:40:00, Ekonomi CNA

Continental recovery hinges on Germany's ability to overcome another year of no growth

For now, there is a buoyancy in the steps of European Union officials — at least compared to the dark atmosphere that prevailed a few months ago — as Donald Trump's trade war and attacks on the rule of law are pushing Europeans closer together and investors are seeking refuge in the euro.

The question that arises is: how far can this new impulse go in realizing the necessary changes, given that Germany is facing its third consecutive year of stagnation and Mario Draghi's warnings of a "slow agony" continue to ring in the ears of technocrats.

Trump's direct attack on the $1.5 trillion transatlantic relationship has done a better job of proving the EU's value than 1,000 research papers.

The attacks on NATO and Ukraine are increasing solidarity among member states, with Denmark, a traditionally pro-US country, abandoning its Euroscepticism after pressure over Greenland.

Also, the chances of Norway and Iceland joining are changing, and even the UK is moving closer to Brussels, while the special relationship with the US is fading.

While the EU's single market, with 440 million inhabitants, holds its own in the face of Trump, member states are also more willing to break national taboos for the common good.

Germany’s new coalition is pulling the country out of austerity[1] with a package of more than 500 billion euros ($574 billion) for infrastructure and defense. It has also made a significant move recently by calling for an easing of EU fiscal rules that it once strongly supported.

Meanwhile, France is willing to consider the possibility of shaping continental defenses with an expanded nuclear deterrent, an idea that appeals to Poland as the US tightens ties with Russia.

And at a time when the tide of investment and research is turning in Europe's favor, it has become easier to highlight its stability, predictability, and equality compared to America.

“We have no close friends and no oligarchs,” European Commission President Ursula von der Leyen said recently, as the executive body struggles to secure funding and other incentives to attract scientists who have been neglected by the Trump administration.

The U.S. dollar has lost about 9% of its value this year against a basket of world currencies, while the euro has strengthened by about 5%. Defense stocks, such as Rheinmetall AG, have seen a big rise. However, the EU still seems unprepared for the storm that awaits it.

Its economy is twice as dependent on foreign trade as the US, with Germany being particularly vulnerable due to its dependence on America for more than 10% of its exports of goods such as vehicles and medicines, according to Bloomberg Economics.

The International Monetary Fund's latest projection predicts that Germany's output will remain flat this year — and, given the high uncertainty, there is a chance that Germany's economy will contract for a third consecutive year, warns ING economist Charlotte de Montpellier.

In addition to the job losses and popular discontent that a tariff war with Trump could bring, there is also the risk that the EU could end up fighting a trade war on two fronts, while China is ramping up its export engine and driving a flood of goods into Europe.

The test of the coming summer, which will bring trade pain, is not whether the EU can broker a deal with Trump within 90 days, as LVMH billionaire Bernard Arnault seems to think.

The test is whether the EU will start implementing Mario Draghi's recipe for success, which has been out for a year, by strengthening fragmented domestic industries, creating a true single market for banks and integrating its fragmented capital markets.

New markets and alliances abroad will help; however, as IMF Managing Director Kristalina Georgieva points out, only a combination of greater spending and more integration will boost growth and improve Europe's resilience.

Since it will take time to put the new spending plans into practice, it is perhaps not so comforting that the new German government's policies still lack substance in areas such as pensions or reducing bureaucracy.

No matter how strong Europe appears amid the US-led chaos, attracting talent and investment, while simultaneously mitigating the pull of populists at home, will require a new level of cooperation.

“We cannot stop halfway,” European Central Bank President Christine Lagarde warned this month.

Her own institution is facing the challenge of easing monetary policy to boost demand; it is time for governments to start removing their own obstacles to economic growth, which Draghi, Lagarde's predecessor, equates to a 45% tariff on goods and a 110% tax on services.

If that means addressing other taboos — like the need for qualified majority voting among EU member states — then so be it. It would be another welcome, if painful, companion to Trump’s behavior./ Monitor Magazine