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For Europe, the Next US President Is a Shock—and a Catalyst for Change

(Pew Research Center survey condu)

(Bloomberg Businessweek) -- If the European Union had a mascot, it would be the ostrich. Putting your head in the sand and hoping your problems will disappear is the EU’s chosen style—so much so that the trade bloc responded to Brexit and the loss of its second-biggest economy in 2016 by … muddling through with business as usual.

The continent that gave the world some of its most evocative political slogans (“Liberty, equality, fraternity,” “We will never surrender”) now follows the supposed mantra of the most recent person with any reasonable claim to the title of Europe’s ruler, Angela Merkel: “Wait and see.”

Europe has occasionally been capable of action—sometimes out of optimism (as with the creation of the single market under Jacques Delors in the 1990s), though more often out of fear. The union’s very creation in the 1950s was a (delayed) response to populism and war: The establishment wanted a way to more closely bind Germany and France. The EU’s most recent microdose of radicalism—a smidgen more defense spending—came about only because Russian President Vladimir Putin invaded one of its neighbors.

The reelection of Donald Trump in the US, though, spells an existential threat to life as normal in Brussels. Putin, after all, is just a pugilistic thug from a washed-up superpower; Trump has seized control of the world’s biggest economy and Europe’s effective protector.

Trump once described the EU as “one of America’s biggest foes,” and the threats he periodically issued on the campaign trail are worrying: withdrawing support from Ukraine, leaving NATO, imposing 20% tariffs on European imports (and even more on some cars), and exiting pretty much every multilateral talking shop, particularly if it has the words “global” or “green” attached.

Many of these would really hurt. Goldman Sachs reckons that even a 10% tariff would knock 1% off the EU’s gross domestic product, with Germany taking a particularly heavy hit. Handing much of Ukraine to Putin would endanger EU members Estonia, Latvia and Lithuania; forcing the EU to pony up for defending Kyiv would present the bloc’s taxpayers with an unwelcome bill.

Of course, as the ostriches are already muttering to themselves through grains of Belgian sand, Trump likes to run off his mouth. He didn’t, after all, quit the North Atlantic Treaty Organization during his first presidency. Much will depend on which of his courtiers the new president listens to: His vice president, JD Vance, might spurn Kyiv in a second, but more prudent Republicans would never want to be seen giving Putin what he wants. Indeed, Trump himself has told Putin not to escalate the war in Ukraine, reminding him of “Washington’s sizeable military presence in Europe.”

Still, it would be unwise for Europe’s leadership to assume Trump 47 will be as malleable as 45 was. This time he’ll be backed by both houses of Congress, and his administration will be packed with MAGA absolutists. Trump’s commitment to tariffs (“the most beautiful word in the English language,” as he told one of us) seems genuine. The handful of Europeans Trump likes—Hungary’s Viktor Orbán, Italy’s Giorgia Meloni and Brexit fanboy Nigel Farage—are unlikely to tell him to hold back. Even if Trump wants a deal, his scattershot, transactional style stands at sharp odds with the consensus-driven, procedurally obsessed Eurocrats.

Above all, this punchier, stronger Trump will face a far weaker Europe. In 2016 the unflappable Merkel ruled the German roost, and Emmanuel Macron was reimagining centrism in France. Now Macron is the lamest of canards, and Merkel spends her days reading Shakespeare, while the government of her successor, Olaf Scholz, fell apart on the day Trump’s victory was confirmed. The political buzz in Europe seems to be coming from the Trumpiest part of the crew: Orbán, Meloni and Marine Le Pen, who could become Europe’s Trump if she wins the French presidency in 2027.

For all of Trump’s claims that the devious Europeans have been boosting their economies while free-riding on Washington’s beneficence, the truth is that the US has left the EU in the dust. Europe’s output per capita is 30% lower than America’s. Almost all the industries of the future are being forged in the US. Not a single EU company with a market value of more than $100 billion has been founded in the past 50 years. Only four of the world’s top 50 tech companies are European. In 2023, Europe spent just 4.5% of its total defense budget on research and development, versus 16% in the US.

Most of those numbers come from a September report on European competitiveness by Mario Draghi, who has served as both president of the European Central Bank and Italy’s prime minister. Along with some horrific statistics, the veteran technocrat offered a blueprint for reform: investing €800 billion ($852 billion) in innovation; consolidating overfragmented industries such as telecoms, energy and finance; creating a single market in services (which is, after all, bigger than manufacturing); deepening debt markets; and upgrading the local defense industry.

For our taste, Draghi is too starry-eyed about “industrial policy” and too sympathetic to protectionism. But the real problem with the Draghi report, like similar ideas Macron is belatedly pushing, is that most of these things should’ve been done decades ago. A single market in services is hardly a new idea.

If the ostriches bothered to poke their heads out of the sand, they would realize two things. First, Trump only adds to a much deeper problem. Europe was already sinking before he came along in 2016. The Democrats might make polite noises about European culture, but President Joe Biden retained most of the tariffs Trump imposed. The US is increasingly focused on Asia rather than Europe. “Wait and see” is now more akin to “waiting for Godot.”

The second point is that Trump might be the catalyst that Europe needs to get its act together. A banking union is long overdue; now it can be sold as a way of competing with Wall Street. Unleashing green industries is vital to competing with China and Trumpist America—and offers the added benefit of saving the planet. Integrating defense industries (and bringing the UK into the fold) is the only way to buy independence from the new occupant of the White House.

Divided, the ostriches will be plucked one by one—first by Trump, then China and eventually Le Pen. But united behind a common reform plan, they will only increase their strength, as they still represent the world’s second-biggest economy and the beating cultural heart of what we like to call “the West.” For all his bluster, the new president needs their help to deal with problems such as China and the Middle East, where Britain, France and other ex-colonial powers still maintain connections and expertise.

There is little doubt that, at least in his most mercurial moods, the new US president would take pleasure in blowing up the EU. Europe’s best revenge on Trump would be to treat his election as a spur to solving its problems and reinforcing its position on the world stage. But to do that, it will first have to take its head out of the sand.

©2024 Bloomberg L.P.