The historian Barbara Tuchman viewed the map of history as a lattice work of marches of folly. Mark Carney recently warned we might be the historical bookend to Churchill’s 1946 speech of “an iron curtain” descending across the continent and “in the midst of a rupture” rather than a mere directional shift. President Donald Trump’s ‘America First’ priorities, his redux of the Monroe Doctrine, and the threats to abandon NATO, have caused panic over “present follies” and the loss of the United States as a reliable partner to its allies.
From Europe to East Asia and Oceania, the old paradigm of relations is being revisited, and new strategic alignments are taking form.
Credible deterrence, once the main pillar of the West’s defense alliance, is less convincing than at any time since the end of the Second World War. Reestablishing that fear of attack in the mind of NATO’s adversaries means re-engineering capabilities, reordering national priorities, and demonstrating firmer resolve. The obstacles and consequences are sweeping.
Europe lags behind the US (and China) in arms production and technological innovation.
Further, Europe’s capital markets lack the volume and liquidity of the US. This financial constraint is a burden for the continent’s ability to raise funds and compete. Over-regulation also hinders European efforts to pool debt and coordinate international investment. It is not just the weapons arsenal and force projection of the US that Europe must overcome, but also America’s dominance in financial markets. For European companies to finance projects, boost technological development, and retain talent, Europe must decouple from its strategic dependency on the United States. However, the separation will be difficult.
Europe’s response
Last year the EU initiated Security Action for Europe (SAFE). SAFE is a targeted €150 billion “loans for arms” program to help finance large-scale investments in the European defense technological and industrial base (EDTIB). These repayable loans preselect EU members in procurement process; thereby, limiting and even excluding US companies through preferential eligibility requirements.
A complementary program to SAFE is the European Defence Fund (EDF). Rather than loans, the EDF provides grants to support the entire life cycle of defense technologies and products. Operating over longer term cycles, the program receives direct funding from the EU budget. It’s allocation of approximately €8 billion covers the period of 2021–2027 and has already been adjusted upward.
Both mechanisms fall under the broad umbrella of the European Commission’s strategic initiative ReArm Europe Plan/Readiness 2030. To finance their future, the European Commission can take advantage of its strong credit rating and borrow from the financial markets.
If the EU re-invests in itself, it could cause a rise in the cost of US government borrowing and the eventual erosion of the dollar as the world’s most dominant currency. European investors hold vast amounts of U.S. financial assets, including $2 trillion of Treasury debt. A shift away from the dollar in the debt markets would raise the cost of capital for the US government.
Europe’s effort to rearm and restructure is not simply confined to sales of US military hardware, it could result in a loss of other major markets. An EU population of 450 million trade more than $1.5 trillion dollars annually with the US. This massive flow of goods, services and investments is a potential source of leverage over the United States should a ‘Europe First’ movement take hold and puts bans or limits on anything ‘made in America’.
Filling the void left by American withdrawal
Some warnings signs are beginning to flicker. The value of European defense firms has risen and are estimated to increase their revenue by an average 10% to 11.5%, which will materially outgrow the projections in the United States.
NATO is collaborating with its Indo-Pacific partners. The values of defense contractor stocks in South Korea, Turkey, Japan, Australia and New Zealand are also rising as demand for military equipment increases and client countries look to reduce their dependence on American manufacturers and US government restrictions. Because the United States imposes terms on the way weapons are deployed, these non-American providers offer attractive alternatives at less cost.
Ursula von der Leyen put it simply at Davos; “we must buy more “. when commenting on the expansion of Europe’s arms industry. Emmanuel Macron went further by calling for Europe to strengthen its defence-industrial base even if it meant deepening its ties with China. He declared, “what we need is more Chinese foreign direct investment in Europe”, and added that China’s capital should be directed in “key sectors to contribute to our growth, to transfer some technologies and not just to export towards Europe”.
There is still no substitute for cooperation with the US and its defense ecosystem. Yet, despite America’s indispensable role it must acknowledge that the European Union is the world’s second-largest economy. Its economic capacity, human capital, ongoing investments and reforms, support its position as a strong player in global economic and political affairs. Its defense industry is surging and benefiting as a partner of Ukraine, which perhaps has become the center of the most advanced military technology ecosystems in the world.
Short some fated intervention, the swing toward European independence will occur over the next decade. The trajectory is stable, and the financial and military infrastructures are in development.
In the meantime, the US dollar’s recent decline is a reflection of its current unsustainable debt curve. Its future direction in the intermediate term is uncertain. In the long term, the dollar’s importance and role as the world’s dominant currency will likely erode.
US national interests have always depended upon its partnership with its allies. Most Americans would agree on the importance of this shared trust. The exception comes from some corners where a perverse persistence and the lure of the power to command overrules the strength WILL to think.
Dr Jack Jarmon served as USAID Technical Advisor for the Russian government during the mid 1990s. He has taught international relations at the University of Pennsylvania and Rutgers University where he was Associate Director and Research Professor at the Command Control and Interoperability Center for Advanced Data Analysis. He is currently editorial board member and contributor at PostPravda.info, a Ukrainian and Polish news organization.
This article is published under a Creative Commons License and may be republished with attribution.
