European Union: How the EU could go from being a pawn to being a player

It's strange, but somehow there are two Europes. One is currently rising to global power and is supposedly in the process of establishing the next world currency. This is the opportunity for a "global euro," ECB President Christine Lagarde (69) recently wrote in the Financial Times . The new, strong Europe is also on its way militarily. The European NATO member states intend to spend around 5 percent of their economic output on defense in the future, as they plan to decide at the summit in The Hague (beginning Tuesday ).

The rest of the world envies us for this Europe. From this perspective, we are the last remaining superpower that is not only strong and prosperous, but also democratic and governed by the rule of law. A beacon. A bastion of hope and stability in a world threatened by the sinister triumvirate of Vladimir Putin (72), Xi Jinping (72), andDonald Trump (79).

Unfortunately, this Europe isn't real, at least not yet. At best, it's a vision, perhaps even just a self-deluding fiction.

Shortly after Ms. Lagarde had raved about Europe's opportunities, the International Monetary Fund ( IMF ) presented its annual Eurozone report . Key findings: The economy has been stagnating for years and will likely continue to do so. The only thing growing is debt. What needs to be done is known, and has been for a long time: namely, completing the EU's internal market, including a unified capital market. But that hasn't seemed to happen because... Well, why not?

A study by the Kiel Institute for the World Economy and the Brussels-based think tank Bruegel was published around the same time. The tenor of the study was that Europe is spending significantly more on defense than in 2022, the watershed year of the Ukraine invasion, but this is far from enough. The arms buildup could fail because Russia is faster. Tanks, troop vehicles, missiles, drones, military research and development – ​​we are lagging far behind in every respect, according to the report.

The real Europe differs drastically from its fictional twin—and it's a pretty pathetic affair. Despite an EU economic output of €18 trillion, ten times that of Russia, and a population three times as large, we can't defend ourselves without America's help. Add in the UK and Turkey , and the disparity is even more stark. Military planners estimate it will take a decade to get there—and that's only if the plans to be adopted at the NATO summit in Brussels are actually implemented by the member states.

Europe – a land of untapped opportunities. This applies to the EU as a whole, but also to its most important member states.

Germany , the economic and geographical center of the EU, has been treading water since 2019 and has yet to find a way out of its structural crisis. For years, the doctrine of the "black zero" while simultaneously expanding social welfare has left the Bundeswehr and its infrastructure in ruins.

Italy , heavily indebted and demographically advanced, has not achieved any increase in economic output per capita for a quarter of a century.

France, the EU's only nuclear power and internationally experienced, is crippling its otherwise highly productive economy with an excessive welfare state that the country cannot actually afford given its rapidly rising debt burden.

Poland has been Europe's most successful economy in recent decades – yet remains deeply divided. The recent presidential elections have once again exposed the rifts.

Spain , which is currently experiencing rapid growth, lacks a stable government majority and, like Italy, has far too little military spending. Before the summit, Madrid was even the only NATO partner willing to abandon the 5 percent target. While the Baltic states and Poland are taking concrete precautions in the event of a Russian invasion, one can only wonder whether other countries will actually make a serious attempt to achieve the target, even if they commit to it without question. Or whether they will ultimately just ignore it, as was the case with the 2 percent pledge following the Russian annexation of Crimea in 2014.

Starting Thursday , the heads of government of the EU member states, along with the presidents of the EU Commission, Ursula von der Leyen (66), and the EU Council, António Costa (63), will meet in Brussels. The agenda for the meeting includes: "Russia's war of aggression against Ukraine and the EU's support for Ukraine and its people; the situation in the Middle East; European defense and security; the EU's role in the world; the EU's economy and competitiveness..."

There's much to discuss and decide. Europe's weakness is once again becoming apparent in the Middle East. The major EU states, plus Great Britain, are trying to contribute to a negotiated solution and an end to the war of blows between Israel and Iran. But they lack any significant leverage. The US can intervene at any time with aircraft carriers, stealth bombers, and tens of thousands of troops, and did so on Sunday night. And Europe? If in doubt, send three foreign ministers at once who can't do much more than make appeals.

French President Emmanuel Macron (47), significantly weakened domestically, is launching one foreign policy initiative after another. Annalena Baerbock (44) has rarely been as active in the Middle East during her term, according to a relevant Wikipedia list . The results? Poor, at best. Irrelevant, at worst. Nevertheless, the major EU member states continue to indulge in the illusion that they can make a decisive impact on the world stage.

In truth, Europe is only taken seriously in those areas that are fully integrated and managed by European institutions: trade, competition, and currency. Only where the EU has consistently pooled its strengths does it compete on equal terms with the megapowers. Otherwise, we are more of a pawn than a player.

At least military cooperation within NATO is being significantly intensified. The EU Commission is striving to make the procurement of military equipment more efficient. However, we are still a long way from joint European armed forces and a unified foreign policy.

Defense capability and a sound economy are inextricably linked. Both are interdependent. Without a powerful military, we are not secure. Why should anyone invest in Europe if we cannot protect ourselves? Without a powerful economy, we will not be able to afford the necessary military strengthening. Both require an advanced Europeanization of the government framework.

This includes further development of the internal market, including a unified capital market, as well as a truly common fiscal policy at the EU level, including Germany's own tax revenues and debt. The latter has been a no-go for Germany so far. If the German government under Chancellor Friedrich Merz (69; CDU) and Finance Minister Lars Klingbeil (47) are willing to take decisive steps in this direction quickly, real breakthroughs would be possible. After the surprising about-turn on the debt brake, this is not an entirely far-fetched scenario.

Real Europe may still be a flimsy patchwork, but the fictional Europe has come a long way. International capital is actually flowing to Europe. Alarmed by Trump's political chaos, investors are looking for alternatives. They are currently placing their trust in a more closely integrated eurozone. For example, the spreads on Italian and French government bonds compared to German bonds have declined significantly since Trump took office. This indicates that investors expect closer fiscal cooperation, which is why they value bonds from different countries similarly, despite differing debt levels and political conditions. The euro has gained 10 percent against the dollar since Trump took office – even though interest rates in the US are significantly higher.

The big question is what we make of this opportunity. Will Europe succeed in opening up new spaces for entrepreneurs, IPOs, innovation, and research? Then the real Europe could become more like the fictional Europe. Unfortunately, we are still a long way from that.

Monday

Berlin – Weak heart – The Federation of German Industries (BDI) invites you to the annual "Day of German Industry" (until Tuesday). With Merz, Klingbeil, Reiche, Bär, and Wildberger in attendance. Production has been shrinking for years.

AGM Season I – Annual General Meetings of New Work , Zooplus, Kingfisher.

Tuesday

Berlin – Struggle for positions – Before departing for the NATO and EU summits, Chancellor Merz makes a government statement.

The Hague – Unity or scandal? – The 32 heads of state and government of NATO countries are meeting for the summit (until Wednesday). Also present are the foreign and defense ministers, who will each meet for a working lunch. The member states are expected to commit to spending at least 3.5 percent of their respective gross domestic product (GDP) on defense in the future. A further 1.5 percent of GDP is to be allocated to other defense-related expenditures, such as infrastructure. Wildcard: US President Trump, who is always good for a scandal.

Munich – The mood in June – The Ifo Institute presents new figures from its monthly business climate index.

AGM Season II – Annual General Meetings of Cancom, Mastercard.

Wednesday

AGM Season III – Annual General Meetings of MLP, Nvidia , Ebay.

Thursday

Brussels – Europe alone in its own house – Following the NATO summit, the heads of government of the EU member states will meet for the European Council in Brussels (until Friday). The external security situation is also at the top of the agenda.

AGM Season IV – Annual General Meetings of Qiagen, Dermapharm, Dell.

Friday

Berlin – Setting the course – The SPD invites its delegates to the federal party conference (until Sunday). Among other things, a new executive committee and a new party board are to be elected.

AGM Season V – Annual General Meetings of Deutsche Euroshop, Adtran Networks.