Europe is making heavy weather of navigating a sea of troubles. When I started writing a book on Europe’s challenges in 2023, it appeared that a fragmented Old Continent was already fighting a losing economic and political battle against an America that had gained heavily in relative power after the all-out Russian invasion of Ukraine in February 2022.
By the time the book was finalised in July 2025, following the re-election of Donald Trump in November 2024 and a tide of anti-European actions by the US president, Europe was facing the prospect of the end of 80 years of Euro-Atlanticism, posing existential risks for the European Union and the wider continent. French president Emmanuel Macron’s elliptical warning in 2024 – ‘Europe, today, is mortal. It can die, and that depends entirely on our choices’ – appeared vindicated, at least metaphorically.
And so too did the prediction of Mario Draghi, the former Italian prime minister and European central bank president, writing in his 2024 report on European competitiveness: ‘We have reached the point where, without action, we will have to either compromise our welfare, our environment or our freedom.’
Yet I was still hopeful enough to write in the final lines of the book: ‘Working with rather than against America must be the order of the day. The Europeans have survived worse depredations than Trump’s return.’ My thought was that the actions of Trump and Russian President Vladmir Putin together could drive the Europeans towards a new ‘age of resilience’ – rather than an ‘age of acrimony’ – and there would remain ‘a strong bedrock of joint European–American interests’.
Now, four months after the book was published, that relatively optimistic assessment remains my view – but the path towards any kind of Atlantic partnership has undoubtedly become more gruelling. In 2025-26 Europe has reacted to the 47th president’s unappealing mix of irascibility, unreliability and aggression by a ramping up of European solidarity coupled with more muscular action to achieve greater independence from the US in key sectors of state power – especially in finance and defence.
Spurs to action
As a means of both increasing self-reliance and deflating Trump’s ire, Europe’s Nato members have committed themselves to spending 3.5% of gross domestic product on defence, with the longer-term goal of 5% for widely defined outlays (including ancillary areas like civilian infrastructure, transport connections, cybersecurity and medical preparedness).
These objectives were accepted by German Chancellor Friedrich Merz shortly after he took office last May and subsequently have become a European norm. The last few months have seen significant acceleration of industrial orders from the German defence establishment. It is however unclear whether – and over what time – these measures will help decisively achieve European ‘strategic autonomy’ – frequently hailed as an ambition over the past decade, with little discernible progress thus far.
Spurs to action in the past few months have been abundant. Europe has grown increasingly accustomed to further doses of Trumpism – mitigated only marginally (up to now) by the celebrated American system of checks and balances.
In the first month of the new year alone, Trump unleashed extreme (and frequently contradictory) foreign policy and trade actions and announcements over Iran, Venezuela, Greenland, Canada and the EU. He has taken judicial action against Jerome Powell, Federal Reserve chair, and seemingly exonerated the murderous use of force by federal immigration agents in Minnesota.
And he has earned a strong rebuke from a man who up to now has been a useful intermediary between the US and the EU, Keir Starmer, the UK prime minister, over Trump’s disparaging and incorrect remarks over Nato allies’ former deployment in Afghanistan.
Uniting against ‘economic intimidation’
After two decades of progressive stuttering of the Franco-German ‘motor of Europe’, Paris and Berlin are starting to speak the same robust language in standing up to Washington. Indeed, with talk of German ‘independence’, Merz – originally with strong Atlanticist credentials – is starting to take on a Gaullist hue.
Across the Atlantic, Mark Carney, prime minister of Canada and former governor of the Bank of Canada and the Bank of England, has bound his country and Europe behind a new striving for European unity. In a notable Davos speech on 21 January, he called on the world’s ‘middle powers’ to unite against what he called (without naming Trump or the US) ‘economic intimidation’. Carney, who (as my book relates) played a leading role helping protect the UK from immediate monetary damage after the 2016 EU referendum, stated: ‘We are in the midst of a rupture, not a transition.’
Upon winning Canada’s April 2025 election, Carney emphasised: ‘One of the responsibilities of government is to prepare for the worst, not hope for the best.’ That adage could serve as a leitmotif for Europe’s tortuous forthcoming passage. The tasks facing the region can be summarised in ‘10 Ps’.
1. Powerplay is a game Europe is learning with difficulty
In 2019, Ursula von der Leyen, European Commission president, spoke of establishing a ‘geopolitical Commission’. Officials wanted Europe to deploy ‘the language of power’. In fact, Europe’s vulnerability in four vital spheres – energy, defence, industry and money – rose dramatically following the Russian invasion. In his New Year message, Merz spoke for the continent when he said Germany could become a ‘plaything’ for the superpowers.
2. Performance lags with the US will take years to overcome
According to the Bundesbank, the vaunted relaxation of the German ‘debt brake’ – loosening constraints on defence and infrastructure spending – will add a combined 1.3 percentage points to Germany’s GDP between 2026-28. The boost to European growth over that period will be around 0.5pp. Europe’s dynamism, measured by GDP growth, has declined precipitously and has been only around one-third of America’s in recent years. Although the growth gap may narrow, it will remain a decisive factor in geopolitics.
3. Prioritisation on European spending is the watchword
Europe has to radically recalibrate its social and economic balance. Angela Merkel, then German chancellor, famously said in 2012 that Europe represented 8% to 9% of the world’s population, produced 25% of global GDP and accounted for 50% of social spending. Little has changed to alter that picture. As I write in my book, Europe has to reorder priorities among the ‘six D’ challenges: deglobalisation, demographics, decarbonisation, digitalisation, defence and, ominously, debt. This process will bring another P-word – pain.
4. Polarisation between US and China is bad news for Europe
China has not only leapt ahead technologically but has also – resulting from slower domestic growth and an undervalued currency – redoubled its assault on global export markets. Through accurate gaming of Trump’s tactics, it has won most of the trade skirmishes with the US over the past year. The prediction in my book by Richard Clarida, a former Fed vice chairman, that ‘Europe will end up being squeezed by China on trade and by the US on technology’ appears naggingly accurate.
5. Pride has gone before a fall
Haughtiness as well as complacency undoubtedly has played a role in Europe’s inability to come to terms with changing world conditions – seen especially in short-sightedness over the rise of China as well as Germany’s past dependence on Russian gas. One of the most excoriating critics of Europe’s myopia is former diplomat Kishore Mahbubani, a former top Singaporean diplomat, now at the National University of Singapore. ‘There is too much arrogance among the Europeans. They have to find ways of being geopolitically astute.’
6. Partnerships with non-EU countries are key to a European recovery
The principle of ‘variable geometry’ laid down by Jacques Delors, Commission president in 1985-94, states that smaller groups of countries could forge deeper integration and their own forms of co-operation. The UK and Norway, outside the EU, as well as Denmark and Sweden, outside monetary union, are in the group of eight countries standing up to the US over Greenland – although Paris officials regard Britain as the weak link because of its ‘special relationship’ with Washington.
7. Putin kaleidoscope poses fresh tests
The psychological parallels between the Russian and US presidents expertly assessed by Fiona Hill, the British academic who worked under Trump in his first term, underline the complexities of dealing with Moscow. At an Institute for Government seminar in London on 20 January, Hill said ‘Greenland is to Trump what Ukraine is to Putin’. For all the criminal brutality of the war, a peace deal – n o doubt involving de facto loss of Ukrainian territory – would trigger calls for fresh Russo-European economic and energy engagement – of particular interest to Germay.
8. Pragmatism mixed with principle to the fore
Whether in rapprochement with the UK (outside the EU and unlikely to rejoin over the next 10-15 years) or bringing in fresh pan-European borrowing for defence (through a de facto extension of the Next Generation EU fund) Europe will place emphasis on practicalities. Talk of upholding European ‘values’ may have to take a back seat in areas such as forging new trade relationships with China as an evident counterweight to the US. Trump’s latest threat of 100% tariffs on Canada if Carney perseveres with a China trade deal serves notice of pitfalls ahead.
9. Presidency conundrums require deft resolution
Three big jobs will attract political sparring – presidencies of the ECB, the Commission and France. If Christine Lagarde left the ECB early (her term ends in October 2027), and von der Leyen followed suit in Brussels (her latest five-year term ends in December 2029), then Macron – who after the April 2027 French election must quit after 10 years– would participate in choosing the heads of both bodies. An early departure for von der Leyen holds the key to a German taking over at the ECB – a ‘first’ that would seal in public fashion the inextricable bond between Germany and the euro area.
10. Pessimism may peak in two years
In the four big areas that count – energy, defence, industry and money – Europe can take action to improve its straitened circumstances. These range from establishing a genuine savings and investment union to reforming defence procurement and finance and switching to a more resilient energy mix, aided by modular nuclear reactors. There is even sympathy in European capitals for the UK becoming a natural leader in European savings and investment, even though the City right now has no desire for closer legislative alignment. The NGEU can be combined intelligently with pan-European funding for defence, infrastructure and technology.
Draghi’s report sets the diagnostic framework. The challenges, as ever, lie in implementing necessary measures that up to now have remained aspirations rather than reality.
David Marsh is Chairman of OMFIF.
This article is the cover story of the February 2026 edition of the OMFIF Bulletin. Download ‘Europe’s place in a divided world’.
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