Page 61 - bne IntelliNews monthly magazine December 2024

bne December 2024
Opinion 61
partner for some European countries, the prospect of possible tariffs of 10% on all imports to the USA alone will have a dampening effect on growth prospects in the eurozone.
This gives European companies an incentive to relocate production capacities to the USA in the medium-term,”
Erste said in a note.
Security headaches
Since the end of the Cold War, Europe has sheltered under the US-led Nato security umbrella, and under invested in defence. That may have to change now as Trump has threatened to
not support countries that spend less than the 2% of GDP on defence mandated by Nato.
Indeed, the recent report from former Italian Prime Minister and ex-European Central Bank boss Mario Draghi also highlighted underinvestment in defence as one of the reasons why Europe has lost its competitive edge.
Trump’s focus on increasing defence spending among Nato members will require some nations to reassess budget priorities. However, the most immediate threat to Europe
lies in Trump’s approach to the conflict in Ukraine. Trump’s apparent eagerness to end the war – possibly requiring Ukraine to make territorial concessions – would mark a sharp departure from the current Western stance. His position on reducing or even ending US support could lead to substantial geopolitical and security shifts within Europe.
According to a report in the Wall Street Journal, citing senior US officials, Trump has no concrete plan to end the war in Ukraine, but amongst the ideas being floated is to freeze the front line, a 20-year ban on Ukraine joining Nato and a DMZ cutting off eastern Ukraine that will be policed by non-US forces – more or less the same 12-point Chinese peace plan suggested by Beijing on the first anniversary of the start
of the war.
In this scenario, the fate of continued military and financial aid remains unknown. Kyiv is about to receive the long
NATO: Defence and defence equipment spending (2024)
discussed G7 $50bn loan to Ukraine, approved on June 13 at a G7 summit in Italy, that will keep it in the game for now. On November 7, Ukraine’s Ministry of Finance (MinFin) said that it would keep part of this money in reserve for use after 2025, suggesting that Bankova (Ukraine’s equivalent of the Kremlin) is anticipating a dramatic fall in Western funding under Trump.
Trump's former national security aide says he will decide personally on a peace plan and at the last moment, so no one can predict what the president will decide.
German government collapses
To add to the problems, within hours of the release of the US election results, the German “traffic light” coalition collapsed.
“Political instability in Germany comes at a particularly tricky time for Europe. In the short term, the downside risks to growth are probably a little higher now because Germany might be without a budget for part of next year, unless the ruling SPD and Scholz's remaining coalition partner, the Green party, manage to get support from elsewhere,” says Talaverad.
The EU has always been fissiparous but the problems have become a lot worse as the boomerang effect of sanctions drags down European growth in the last two years. Hungarian Prime Minister Viktor Orban, who is currently the president of the Council of the EU, has been actively building a pro-Russia illiberal axis in the European parliament, which swung to the right in the recent EU elections.
French President Emmanuel Macron has also been significantly weakened by his own electoral debacle earlier this year. Now with the collapse of the government of German Chancellor Olaf Scholz, the EU is in even more political disarray than ever. That is good news for Russian President Vladimir Putin, but extremely bad news for Ukrainian President Volodymyr Zelenskiy.
Germany’s governing coalition collapsed Scholz dismissed Finance Minister Christian Lindner, who belongs to the Free Democratic Party. The two had clashed repeatedly over how to fix the German economy, but The Kyiv Independent reports the straw that broke the camel’s back was Lindner’s suggestion to supply Ukraine with the powerful Taurus missiles instead of economic aid – something that Scholtz has long resisted.
This fracture will likely lead to early elections in March 2025, adding another layer of political uncertainty to an already delicate situation.
The ongoing structural challenges within the German economy and its deindustrialisation after being cut off from cheap Russian gas further complicate matters. Volkswagen
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